Real case: The tenant pays for a year’s rent upfront in crisp, cold hard cash. The landlord is impressed and happily receives the upfront payments, sometimes for 12 months and other times for 6 months in advance. Until one day when payments come to a screeching halt because the tenant gets shot in the hand.
At this point, the landlord
has been primed to trust the tenant as upfront payments have a powerful positive
impact on the relationship of trust between tenant and landlord.
Because of the psychological
sway that a history of large upfront payments has, the landlord allows the
tenant some leeway. But 6 months of non-payment later the lease had to be
cancelled and to this day, not a cent of outstanding rental has been received!
The moral? A willingness
to pay upfront may allude to the fact that money comes and goes for that tenant
and while they can feast now, famine may very well follow.
Utilities, utilities!
Another big issue we see is that landlords do not agree upfront on how the payment of utilities will be
handled. While you may have agreed that the tenant will pay the rental up
front, if the utilities are not included in that rental amount, you must ensure that the tenant is aware
that they will be required to make a monthly utility payment and that this is clearly
set out in the lease agreement.
Frequently, a tenant
will pay up front and assume that their whole obligation to the landlord has
been met and that no further payments are required for the remainder of the
lease, only to receive a utility bill which they then duly ignore under the
impression that it is not for their account. This leads to the tenant falling
into arrears almost immediately and the next issue arising …
The tenant’s right of cancellation
Regardless of whether
the tenant has paid up front or not, the tenant is entitled to cancel their
fixed-term lease in terms of section 14 of the Consumer Protection Act by
giving 20 business days’ notice and being liable for a cancellation penalty.
A significant problem
arises when that penalty is paid and the landlord is required to refund the
tenant the balance of the rental for the remainder of the contract period.
A
new car… a remodel of your kitchen… that extension you’ve been contemplating -
the upfront rental money can be spent almost as quickly as it was received.
But what happens if
your tenant cancels early!? Suddenly you are responsible for repaying
the tenant for the remainder of the lease agreement which is a very difficult
financial position to find yourself in.
Solution
The simplest way to handle
the situation is making use of an estate agent as the intermediary. An
arrangement can be made for the upfront rental to be paid into the agency’s trust
account where it will accrue interest for your benefit and you can be paid out
monthly.
Alternatively, you can
place the money in a separate account yourself with a monthly withdrawal set up
to periodically release the rental amount to you.
Taking safeguards to
ensure that upfront rental is not spent may seem slightly conservative but wise
none the less! It’s the only way to avoid the 'upfront rental trap' which can end in a serious financial headache for landlords.
2 Comments
what about estate agents coming taking properties for themselves and then not paying, is that not defrauding the landlord as they are using there profession to gain trust? what or where can these agents be listed so they dont continue this behavior? #campbellpropertiesumhlanga #agentsofcampbellpropertiesdurbannorth
ReplyDeleteIn an instance of fraud, the best course of action is to approach the police.
ReplyDelete