Deciding which rental agreement best suits the income you want to earn on your property can be difficult for homeowners. As with any successful business, your journey as a landlord must begin with a viable business plan of which the length of your rental contract is a critical part.
In these difficult financial times, monthly leases should be considered as they offer homeowners flexibility, increased profits and protection in an increasingly competitive market.
However, understanding the law surrounding your lease rights and obligations can be overwhelming at first glance.
I share my take on the pros and cons of month-to-month leases versus fixed-term leases, and how they can ensure that landlords get the most potential income from your property.
There is a lot of fear and misinformation surrounding the eviction, leaving many people confused by the complexity of the process. While it is true that tenants simply cannot be kicked out on the streets without due process, tenants and landlords have a right and an obligation to honor the contract they have entered into. In short, tenants are responsible for the rent and landlords have the right to claim their rent or terminate their lease with a tenant who does not pay.
Overall there may be some discrepancies, but the rule of thumb is that landlords have the right to claim their rent, charge unpaid amounts, and cancel the lease. In South Africa, the entire legal process is governed by the Rental Housing Act, and the rights and obligations arising from this Act are also contained in the rental agreement.
Eviction is an absolute last resort for both the tenant and the owner, and requires a large investment of energy beforehand to secure the elements necessary for a successful eviction. These include a legally binding rental agreement signed in its entirety by both parties, proof of invoices and payments to the current date, an official letter of request for monies due, proof of sending the letter. of application and receipt, and a letter of termination of the lease.
Historically, leases are signed for a period of 12 months, during which the rent is paid in advance monthly in 12 monthly installments. However, if Renters anticipate that they will not be able to pay the Rental Amount in accordance with the Rental Agreement, there is a provision allowing the Renter to cancel earlier. Likewise, a landlord also has the right to terminate the rental agreement early – in specific circumstances such as the need to occupy the property himself or if he intends to sell the property.
The general practice is that a landlord must give a tenant two months ‘notice, while a tenant can give the landlord 20 working days’ notice in the event of an early termination. These deadlines are the reference, but in some cases may vary from one contract to another as long as they are stipulated in the rental contract.
The standard twelve month rental contract
Historically, there has been a sense of comfort around securing a longer term lease. For tenants, that meant not having to move so often and for landlords, the fixed time and associated penalties mean relatively hassle-free income over the coming year.
The standard 12-month fixed-term lease has a 20-day letter of formal notice, which means that if the landlord wants to cancel when a tenant doesn’t pay, they must provide the tenant with 20 days to remedy the situation, before a lease cancellation. a notice can be issued on the 21st day.
The downsides to these leases are that for landlords it affects the timing of the letter of request and the lease termination process. Ultimately, this forces landlords to wait longer to terminate the lease if payment is not received. There are also implications for the estate agent’s fees, as the full 12 months of fees would be payable even if the lease is canceled prematurely.
Over time, the demand for choice and flexibility over fixed contracts means that more and more landlords and tenants are choosing to give monthly leases a chance because of their ability to meet non-payment of a tenant. However, even in a “fixed” lease, each party has the right to terminate at any time. They are only required to give the amount of the notice of termination provided for in the contract, namely 60 days for owners and 30 days for tenants.
Short-term leases (1, 3 and 6 month leases)
Basically, the benefits to a landlord of a month-to-month lease are that if a tenant cannot afford to pay their rent, the lease can be legally terminated earlier, allowing the landlord to place a new tenant in their property and to generate income. . A month-to-month lease only has a 7-day letter of formal notice which is effective for landlords when they bring an action for breach of the tenancy agreement by the tenant.
This form of lease gives landlords a greater ability to take action more quickly in the event of non-payment. The landlord would certainly be able to move faster to recruit another tenant given the short lead times, taking a non-income or low-income asset and earning it the profits the landlord was counting on. Additionally, in month-to-month leases, liability over agent fees may be less onerous.
Since the Pandemic, we are adapting the way we contract our leases according to their nature (fixed term versus month by month), and certain conditional conditions. RentMaster’s goal during and after each pandemic wave is always for owners to receive rentals that may have been missed. Part of this recovery is helping homeowners understand the declining affordability of their property and adjusting rental rates accordingly.
One way to provide an additional layer of security is to encourage the collection of rents by debit order; this provides landlords with a layer of security, but also allows tenants to rehabilitate their payment records and credit scores. Finding creative ways to respond faster and more effectively to non-payment of rent is one of RentMaster’s main motivations. One way is for the tenant and landlord to sign rental agreements that give them more freedom to respond and change their arrangement due to individual circumstances.
Questions to answer when signing a lease
What type of lease, fixed term or monthly, is it? Your ability as a landlord to respond to non-payment is heavily influenced by the type of lease.
Are all adults on the property listed in the lease? As a landlord, the more adults you have listed as rental managers, the more likely you are to get a letter of request because each person receives a letter of request.
What are the termination clauses and notice periods associated with the lease?
Is there a presumption of receipt clause in the contract? It is important that you as a landlord have proof that your procedural communication has been sent to the right address and to the right person if you are to go through the legal process for debt collection or eviction.
Are all the fields and signatures that must appear on the document present? This is imperative because incomplete documents are not binding documents.
Ultimately, the optimal type of rental agreement is one that the tenant can comfortably live with and afford. As soon as affordability is called into question, a renegotiation between landlord and tenant must take place to revise the rental value and decide whether a new tenant is wanted. A month-to-month rental agreement gives both landlord and tenant the ability to work quickly and make those changes with as little time as possible between each legal step. But a 12-month deal allows for a certain degree of perceived assurance regarding the property’s income over the following year.
Rentmaster believes that homeowners shouldn’t be alone in the complex real estate landscape. We often see landlords taking ownership of their property management underestimating the time and energy required to collect rent, track tenants and collect debts.
Our world is constantly changing. To maximize wealth creation from rental properties with minimal emotional strain, landlords need to adapt their thinking from traditional contracting methods and be open to adjusting fixed-term contracts to monthly leases. In a competitive market, the sooner we can respond on behalf of landlords, the sooner we can go through the legal process for them to find another tenant and earn the money they bet on.
Shanaaz Trethewey, CEO of RentMaster.