Letting out your property over the holiday season

This Question and Answer session with Michelle Dickens, managing director of TPN credit bureau takes a closer look at the ins and outs of letting out your property over the holiday season 

Q: Many people are too scared to let out their properties over the holiday season. What is really involved in letting out a property? 

In TPN’s view, letting out your property over the holiday season is exactly the same as letting it out long term. You are going to go through exactly the same processes as you would with pre-vetting a tenant so that you know your tenant, understand their background and understand if they have had any issues in the past. You are going to collect a deposit from your tenant to secure the property because the last thing you want is to let the property only to have the tenant not arrive and you lose the opportunity for that income.
You are going to enter into a written lease agreement. The agreement does not have to be written, it can be verbal but obviously it is going to better protect you and the tenant if the terms are set out in a written agreement. 

You are going to go through the same incoming inspection with the tenant when they move in and you are going to go through an outgoing inspection and refunding of the deposit when the tenant moves out.

From a holiday let perspective you are going to have a wonderful opportunity to charge a premium rate, certainly in the coastal towns, and get a higher monthly income than you would get during the rest of the year. 

Q: Which is the best - a written document or a verbal understanding between the parties?

The Rental Housing Act regulates property leases. Whether it is short-term holiday leasing, long-term or student leasing, it regulates all residential rentals. The Act says that a lease can be verbal but there are certain terms that you would have to agree to. You would have to agree to what the property is that is being rented and what the term of the lease is: is it for the weekend, for a week or is it for the month and what the rent is that you are going to be paying for that specific period.
Over and above that, there are other terms that the Rental Housing Act will protect for both the tenant and the landlord.

For example, if an incoming and outgoing inspection is not performed, the deposit cannot be used for any damages and of course with a holiday let, you have a furnished property so your opportunity for damage is slightly higher. As a landlord, you still want to protect yourself thoroughly even though there are certain terms in the Act that will protect you regardless of whether your agreement is in writing or not. 

Q: Does one need the help of a rental agency?

As a landlord, you can put your property on any property listing portal. TPN allows you as an individual landlord to credit check your tenant and we will give you a holiday lease agreement to download for the purposes of renting your holiday home. In the event that your tenant does damage the property or there is a default at the end of the lease, we will allow you to list that default and record it on the credit bureau database. Although that sounds quite practical, if you are new to the game, it is easier to make use of an agent. As a rental agent, you have this wonderful opportunity of marketing the property and tenants approaching you pre-vetted as you have a brand, you have a name. So, sometimes it simply is better to leave it to the professionals. Also with holiday letting it is very often your own holiday home and your second property - you are not near it, it is in a different city or province. If that is the case, having a rental agent manage that property for you makes a lot more sense. 

Q: Does it make more sense to rent out a holiday property as opposed to renting out your primary residence?

Actually, it is not uncommon for people to let out their primary residence to holiday makers. I am actually leaving for Cape Town in a few days and will be there for 10 days. I have chosen to AirBnB it and happen to be staying in the property where the landlord is on the top floor and I am going to be on the bottom floor. So, it is perfect really!

Q: Is one meant to seek permission from a body of authority before renting out your property?

Not if you are the landlord and you are renting out your own property. There are murmurs in the market place that body corporates are beginning to feel uncomfortable with the movement of holiday letting, especially in the coastal towns.

However, if your body corporate rules do not make provision or prevent you from renting out your property then no, you don’t need to seek permission from anybody else.

Q: What are the risks involved in letting out your property over the holidays? For all you know, a tenant could be performing illegal activities from your property.

It is important to have a really-well drafted lease agreement. In terms of criminal activity, your lease should allow for immediate cancellation should it be discovered that there are criminal activities on the premises because ultimately it is the landlord’s responsibility as to what happens on his premises. If your tenants’ are not adhering to the body corporate rules or they have damaged the common areas, the Body Corporate might have fines that they will initiate against the landlord not the tenant. Unless your lease agreement allows you to pass those fines on to your tenants, short-term or long-term, you could be left with an unpleasant levy statement at the end of the month which you cannot recover. Usually, in short-term lets what you are doing is agreeing to a rental amount for that period but not normally the additional costs such as your water, your electricity usage, your sewerage, your refuse or Dstv costs that you would normally pass on to a longer term let. So in a holiday let, you might overlook the ability to pass on additional costs such as a fine.

Q: Can you factor those costs in to the price you charge for that period?

You can factor your costs in so far as water and electricity consumption are concerned, those are widely understood numbers; you can also factor in your Dstv costs but fines, on the other hand, are a little more difficult. If your tenant is in the habit of having loud parties in the evenings and your body corporate or trustees are issuing nightly fines that can really build up! The fact is, unless you have provided for it in your lease agreement, you will not be able to pass the cost of body corporate fines on to your tenant.
Q: What recourse do landlords have where there are additional costs after the lease agreement has ended?

This is one of the things that TPN is very successful in, our business is built around understanding tenant behaviour. We want to understand tenant behaviour from our residential leases, month-to-month, commercial, student and long-term leases and so, holiday leases are no different to us. 

We want to profile the applicant up front because it is all about placing a quality tenant, it does not matter for how long the stay is. The better profiled your tenant is that is moving into the property, the less likely you are to have a nasty experience during the term of the lease. If you do have a nasty experience and there is damage to the property which the deposit does not cover, you demand that those damages be paid and the tenant fails to pay – you then have the right to list the tenant on the credit bureau data base. But, you must give 20 business days’ notice, your notice must include your intention to list on the bureaus and you must then wait 3 consecutive billing cycles before you can load the information onto the bureau. 

The tenant has a right to recourse at that point. So, if the tenant feels that the listing is inaccurate or does not reflect the circumstances accurately, they have the right to log a dispute back with TPN. We must by law log that dispute, investigate it and make a finding based on the accuracy of it within 20 business days. Again, if the tenant is still unhappy with that finding, they have the right to go to the Credit Ombudsman and the National Credit Regulator. 

Of course, we also have the Rental Housing Tribunal which is there to handle all disputes between residential tenants and landlords. As an example, if the tenant feels that the deposit was used to repair damages that they don’t agree they were the cause of, they have the right to take the matter to the Rental Housing Tribunal. The Tribunal has the same standing as a Magistrates Court and the tenant can ask for the tribunal to mediate and if necessary, make a ruling on the matter. 

Q: How do you verify a tenant?

We encourage short-term leases and long-term leases to undergo the same application process. The application process is a requirement in law regulated by the FICA Act. The questions that you should be asking in your application form is:

what is their identity number, passport number, name and surname and their current address. In addition to that, you have to collect documents: their identity document or their passport, a utility bill and their SARS tax reference number believe it or not. You collect all of this information and then with consent - this is very important, the National Credit Act requires consent before we can do a credit check - we go into the system and do an identity verification first, does the identity number and surname match according to home affairs. You will not believe me if I told you that on our database, we had 33 applications in September for rental by people who were deceased! So, identity theft is rife. 

After the identity verification, we have a check that pulls through all the data on this person. How have they performed in their rentals in the past; what sort of value rentals have they been paying; how did they pay their rent every month over the period of the lease; what other commitments do they have, what are their other credit agreements and what is their affordability? Once you have done that assessment we will give you a score which is very easy to understand. It is important to get your deposit upfront. It is going to secure your property even if it is only a fifty percent deposit. And lastly, you sign a lease agreement. 

Q: Are the coastal areas still as popular as they always have been for holiday rentals? 

Absolutely! The whole of Joburg moves down to the Cape or to the south or north coast - you just have to take a look at our roads to see the evidence of that. And I think people are less likely to travel internationally at the moment, so people are staying local which is why there is a lot of activity in our coastal towns at the moment. 

Q: Isn’t there then an opportunity for Joburgers to capitalise on the wave of holidaymakers who migrate to the coast?
A: Most certainly. I know of many people who are ‘airbnbing’ or putting their properties up for rent over this holiday season and there are a lot of different portals for this, TPN has RentBay as an example which is a free rental listing website. 

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