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Good tenants are hard to come by and the Covid-19 pandemic hasn’t made things any easier. As a result, tenants seem to have more bargaining power when it comes to lease negotiations, with many opting for short-term rentals. In some instances, tenants want to sign lease agreements without paying a deposit, or they want to add certain conditions. Vulnerable landlords desperate to have a tenant too often agree to these terms. The impact of Covid has been severe on the rental market as many tenants have lost their jobs, resulting in rising vacancies. Here, property expert Grant Smee provides risks and solutions for both landlords and tenants regarding short-term rentals. – Denise Mhlanga
Short-term rentals are on the rise – what this means for landlords and tenants
Amid Covid-19 and a volatile economy, both landlords and tenants must take steps to protect themselves.
It can be a difficult task to secure reliable tenants, but the pandemic has added an extra layer of complexity into the mix.
Financial instability, job losses and negatively impacted credit scores make finding dependable stable tenants increasingly difficult.
Recent stats from the TPN Credit Bureau paint an even darker picture of the rental landscape. TPN indicates that just over 60% of tenants paid their rent on time this quarter, while 9% are not paying rent at all.
Grant Smee, Only Realty managing director, says this shift gives rise to a situation in which tenants hold more power than before. This has led to an increase in short-term rental agreements being signed.
Landlords upping the ante
Long-term rentals provide financial security for landlords. In the past, agreements were generally set up to protect the interests of both parties equally. However, today, tenants may have more say in compromises when it comes to issues such as deposit payments, too.
In a market with excess rental stock, landlords may be more amenable to reduced deposits. They can consider short-term rentals in order to stand out from the crowd, says Smee.
Landlords eyeing the short-term letting market need to ensure their property provides excellent value and a unique offering. Here, factors such as location, price, quality, and overall experience can ensure that they stand out from other competing units.
“The additional effort required to set their property apart from the competition has added tremendous pressure to owners.”
Factors at Play
Smee describes the current factors – which have a significant impact on the market – as follows:
Challenges for landlords
Landlords were largely unprepared for tenants being unable to pay during lockdown. As a result, many have been left without access to an open line of credit. Very few landlords have rent default insurance and payment holidays are now up, says Smee.
Unemployment among tenants
The local unemployment rate is sitting at an all-time high of around 30%, largely owing to Covid-19. “Around 55% of the country is made up of tenants. Large groups of this demographic are now jobless, leaving them suddenly unable to afford rent.”
Who holds the power?
While tenants are certainly able to demand compromise, they will not be able to sway landlords into drastically one-sided agreements. Some landlords are agreeing to short-term rental agreements.
Smee says the Rental Housing Act 50 of 1999 was intended to balance the contractual rights and obligations of both parties. Parties are required to follow the due legal processes to enforce their rights in the event of a breach.
Landlords are still considered to hold the majority of the negotiating power. They also retain the ability to write terms and conditions into leases which are favourable to them.
Those under pressure to retain good tenants or adjust to the difficult current market may see fit to compromise. “Some may offer lower deposits and short-term rental agreements in order to remain competitive.”
He says the rights of both landlords and tenants are protected by law. However, legal battles can be costly and complicated, especially given the special circumstances brought about by the pandemic.
Tenants can to a degree rely on the Consumer Protection Act 68 of 2008 for protection. However, they are still bound to the agreements drawn up by their landlords. Although landlords have traditionally held more negotiating power, many cannot afford the legal costs of eviction, especially in tough times.
This unique and trying situation requires agreeing on a middle ground, where both parties consider the other’s circumstances, says Smee.
Compromises should be made by both tenants and landlords. For example, tenants paying an available rent and landlords being more flexible by offering short-term rental, deposit utilisation or rental deferment.
Landlords are advised to use their judgement and approach each situation on a case-by-case basis. “Flexible measures should be extended to tenants who have demonstrated good faith and paid rent on time during normal circumstances.”
According to TPN, other options available to help landlords and tenants through the effects of the pandemic include:
- The Rent Deferral Agreement which allows landlords to confirm an agreement for the payment of unpaid rent at a future date.
- The Income Declaration Agreement. Here, tenants can declare to their landlords that their income has been reduced as a result of the pandemic. This could be either completely or in part due to dismissal, temporary unpaid leave, or because of reduced working hours.
- The Caution Use Agreement allows the tenant to authorise or decline the use of their deposit to replace rent they can’t afford to pay. It allows tenants to commit to the payment of this deposit at a later date.
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