COSTS INVOLVED FOR TENANT AND LANDLORD FOR RENTING OUT PROPERTIES
Managing property investments optimally requires knowledge of what the costs are relating to each rental property, and a clear understanding of who is responsible – tenant or landlord.
No lease agreement is the same and making provision for recovering specific costs should be stipulated in the contract. A written contract that gives clarity on the responsibilities of each party makes for a congenial working relationship from the outset and avoids unnecessary and often costly disputes later.
There are two types of costs, direct and indirect, which should be included in the rental agreement:
Costs borne by the TENANT
1. Direct costs include electricity, water, sewerage and refuse. These are generally for the tenant’s account, but this should always be stipulated in the contract. Individual metering, or even better, prepaid meters simplify the process of managing monthly readings and costs.
2. Other costs involved will be the deposit for example if the rental is R 10 000 the deposit is rule of thumb 2 months rental being R 20 000.
3. The lease fee is also for the tenants account and payable upon signing of lease agreement. This amount varies from agency to agency. Some agencies also charge a credit verification fee. Normally this is included in the lease fee. This will also vary from Agency to Agency and Landlord to Landlord.
4. The landlord / agent MUST invest the tenants deposit into an INTEREST-BEARING account for the benefit of the tenant. The tenants deposit MAY NOT under any circumstances be used for anything including last month’s rental. The tenants deposit is simply there for damages and outstanding utilities at the expiry date of the lease agreement. Deposit needs to be reimbursed within 7 working days and after outgoing inspection has been done.
Interest accumulated throughout the lease period is worked out on the CURRENT exchange rate on expiry of lease agreement. Please advise your tenant that by Law half of the interest goes to the EAAB and the remainder goes to the tenant as per the Estate Agency Affairs Act 112, 1976
Costs paid by the LANDLORD
1. Rates, taxes, building insurance, levies, home association are indirect operating costs and are the responsibility of the Landlord.
2. Annual increases can be factored into rental increases, for example, when your building insurance premiums go up or rates rise. Also, if a tenant is using the property in any way not covered by normal building insurance then additional insurance may be required. However, rental increases should be market related and any dramatic rise in rent could chase away a valued tenant.
3. The Landlord is responsible for the commission due to the agent. If agent manages the property on a monthly basis, the commission is normally 10% of the rental amount for example rental is R5000 the commission will be R500 payable monthly. Should the landlord choose to sign a procurement mandate / once off mandate the commission will be the first month’s rental and thereafter no other fees. Other fee that are payable by the landlord is a Finders fee. This is normally worked out at a rate of 2.5% of the whole lease agreement period. This is a once off payment.
Maintenance of property
Landlords are responsible for the structural maintenance of the property, which would include the painting and maintenance of the external walls and the roof. This would include repairing roof leaks, damp and rising damp.
The Tenants responsibility is to maintain the garden in a neat condition as well as the swimming pool. The inside of the house is also for the tenants account meaning painting and upkeep of the household. Tenant MAY NOT make any alterations to the house EXCEPT with the written permission from the Landlord.
Ingoing and outgoing inspection is EXTREMELY IMPORTANT due to these factors.
