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Tuesday Jan 29, 2013

'It's wise to get a new tenant credit report before renewing a lease'

If you're a residential landlord renewing leases at this time of year, you should insist on a fresh credit check on your tenants before you sign anything, and perhaps reconsider the amount of the deposit you require.

That's the advice of Jan Davel, managing director of the RealNet estate agency group, who says that even if your tenants have been reliable until now, household budgets have been put under severe pressure in the past year due to rising energy, food and transport costs, and many consumers have been taking on additional debt to cope.

"This has been facilitated by the easy availability of unsecured personal loans but it could result in your tenants experiencing severe financial difficulty in the months to come, when they face further cost of living increases as well as their additional debt repayments."

He says the latest report from specialist credit bureau Tenant Profile Network (TPN) says a heavy debt load plays a significant role in rental defaults. It reveals that in Gauteng and KwaZulu-Natal - the provinces where most new credit has been advanced - tenants are twice as likely to skip a month's rent payment than in other provinces.

The TPN report also reveals, says Davel, that the national average of tenants paying in full and on time is only 71 percent. And although another 12 percent are also in good standing because they do pay in full, they pay late every month, which can cause serious cash flow problems for landlords who have bonds, municipal rates and sectional title levies to pay.

Meanwhile, another 17 percent (about one in six) make only partial payment of rent each month, or fail to pay at all.

Clearly then, he says, it is unwise for landlords to renew leases without making a fresh assessment of their risks with regard to their tenants.

"And even if their credit report is good, their employment or employment prospects may well have changed in the past year or two, so you should also request three to six months' bank statements and an employer's reference, just as you would do with a new tenant.

"In addition, you should conduct a new inspection of the property so you can see if it has been kept in reasonable condition during the course of the previous lease. This should be done with your tenant present and a condition report or inventory should then be signed by you and the tenant and attached to the new lease to prevent any future disputes over damages and deposits."

Weekend Argus (Sunday Edition)


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