Getting both parties to agree on a reasonable annual rental escalation isn\u2019t always the easiest conversation to have, but according to Jacqui Savage, national rentals business development manager for the Rawson Property Group, a fair negotiation is in the best interests of everyone involved.<\/p>\n
“A lot of people are still under the impression that a 10% annual rental increase is standard,” she said. “In reality, there are no legislated minimums, maximums, or \u2018standard\u2019 figures \u2013 annual escalation is set on a case by case basis.”<\/p>\n
That doesn\u2019t mean landlords can simply pick a number and force tenants to sign on the dotted line, however.<\/p>\n
“The Rental Housing Tribunal is very clear about the fact that increases need to be reasonable, which means landlords need to be able to back up their escalation figures with properly researched industry trends,” said Savage.<\/p>\n
According to TPN Credit Bureau, the national average for rental inflation was 3.4% year-on-year as of Q3 2017. Regional averages varied dramatically, however, ranging from 8.4% in the Western Cape to -0.3% in KZN.<\/p>\n
It\u2019s these regional trends, as well as variances introduced by suburb, property type, and localised demand and supply statistics that Savage says landlords need to understand before negotiating.<\/p>\n
“It\u2019s not all about statistics either,” Savage said. “You need to take the specific tenant into account as well. A good tenant, who looks after your property, pays on time and communicates well with your managing agent can be worth their weight in gold. The national percentage of tenants in good standing is slowly improving, but it\u2019s still definitely worth considering a slightly lower escalation rate if it means keeping a reliable tenant in place and happy.”<\/p>\n
This, Savage said, is the key to a tenant\u2019s bargaining power during negotiations.<\/p>\n
“You want to be the kind of tenant your landlord doesn\u2019t want to lose,” she said. “Yes, that means paying your rent on time, but it also means being proactive when it comes to small, day-to-day maintenance chores and minor fixes. If you call the landlord every time a lightbulb needs changing, they\u2019re not going to be too sad to see you go.”<\/p>\n
According to Savage, losing a tenant because of unreasonable rental escalation is a real possibility, even in traditionally high-demand areas like the Western Cape.<\/p>\n
“Cape Town rentals had a huge spike recently, but those figures aren\u2019t always obtainable anymore,\u201d she said. \u201cAvailability is increasing, tenants are shopping around, and we\u2019re seeing more and more vacancies in properties where the landlords aren\u2019t adjusting to current market conditions.\u201d<\/p>\n
But how are landlords supposed to keep track of what is and isn\u2019t reasonable? And what\u2019s the best way to weigh up the benefits of retaining an existing tenant against the disadvantages of reduced escalation?<\/p>\n
“A lot boils down to experience and having an in-depth understanding of the current market,” said Savage. “That can be very difficult achieve as a private individual. It\u2019s one of the major benefits of using an experienced managing agent \u2013 their expertise can be invaluable during negotiations as well as over the course of the lease.<\/p>\n
“Whether acting on your own or through an agent, however, it\u2019s vital to have a conversation about escalation with your tenant, and make sure you\u2019re all on the same page when the lease is signed.”<\/p>\n