How do you negotiate a fair rental increase?

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MyProperty
South Africa's #1 independent property portal

While some tenants might dread the annual rental increase, they are a fact of life and a vital tool for landlords when it comes to covering expenses and protecting their investment. Often times having a conversation about rental increases are uncomfortable and getting both parties to agree on a reasonable escalation isn't easy. However, a fair negotiation is in the best interest of every party involved.

The 10% increase myth

A lot of people are still under the impression that a 10% annual rental increase is standard, the reality, however, is that there are no legislated standard figures - increases are set on a case by case basis.

This doesn't mean that landlords can simply pick a number and force a tenant to accept the increase.

All rental increases need to be reasonable, the Rental Housing Tribunal is very clear on this. Therefore, any escalation figure needs to be backed up with properly researched trends and figures.

Not just about the numbers

Good tenants, who look after your property, pay on time, and communicates well with you or your managing agent can be worth their weight in gold. This is even more true during periods of economic crunch and when tenants in good standing are few and far in between.

For tenants, paying on time is one way of ensuring a better footing when rental increases are being negotiated. Other things that you can do to help you become an exemplary tenant is by being proactive with day-to-day maintenance chores and minor fixes. If you call the landlord for every little thing that needs to be replaced they won't be too sad to see you go.

How to determine reasonable increases

Even in traditionally strong markets, it is still very easy to lose a tenant due to unreasonable rental escalations. So how do you go about determining what is reasonable and what is not? And what’s the best way to weigh up the benefits of retaining an existing tenant against the disadvantages of reduced escalation?

This can be very hard to determine for someone that is a new landlord and we would suggest that you work with a rental agent to help you manage your property and that can give you advice on crucial matters like these. For more seasoned landlords we would suggest using services that specialises in the rental market. They usually have in-depth market reports that will allow you to see what the market is doing in terms of rental demand, increases or decreases in rental prices and what percentage of tenants are in good standing.

You will have to have a workable knowledge of the area that your property is located in and what rental prices in the area look like. Keep in mind that your tenant can do a property search and see the average price of rentals in an area and they will know if your escalation is extreme.

Have a conversation with your tenant and talk about the different options they have in a fair escalation. Look at their payment history and take it from there.

Remember to have all the information in the new contract and make sure to have it signed.