Dealing with damages at a rental property

It’s interesting how model rental property tenants often transform into nightmare tenants when they move out, says PayProp CEO Louw Liebenberg.

“Sadly, the combination of damage left to the property with unpaid utility bills and rent is often enough to completely wipe out any returns the owner might have hoped to make for the year.”

He says that most damage cases arise as a result of tenants leaving the property before the end of the lease period. And, in most cases, the damage is compounded by non-payment of the last month’s rent.

“This kind of situation is the sad reality of managing a portfolio of rental properties, but there are ways to avoid landing up in this predicament,” says Liebenberg.

“As the creators of DepositGuarantee, an insurance product designed in collaboration with Rand Merchant Bank Structured Insurance, PayProp has first-hand experience in decisively dealing with damage claims when tenants move out. The product provides landlords with 2.5 times the value of the rent as cover for unpaid rent, utilities and damage, and rewards tenants who look after the property with a no-claim bonus of 40% of premiums paid under the policy.”

Liebenberg offers some tips for dealing with damages:

Selection is crucial – In 75% of cases, tenants who sign up for the DepositGuarantee leave the property in the condition they found it and meet all their financial obligations. A crucial part of this success is the stringent selection test we use to find tenants who qualify for the product: Just over 45% of tenants who apply are selected.

Tenants who leave early often create the most problems – Most claims result from tenants leaving the properly earlier than the agreed lease termination date. Shockingly, in 56% of such cases, tenants don’t pay the last month’s rent. Our advice when tenants signal that they want to move out early is to pay special attention to their payment patterns, and not to allow the use of deposits in lieu of paying rental.

One month’s deposit is not enough – On average, non-performing tenant leave with R6 781 in unpaid rent, R2 168 in unpaid utility bills, and R3 894 in damages to the property. That is a total claim of R12 843 or 1.9 times the average rent. Had the landlord opted to take a damages deposit of one to one-and-a-half times the contractual rent, there would have been a problem.

By contrast, the DepositGuarantee cover in this instance is R16 952, leaving landlords with plenty of manoeuvring space to ensure they do not suffer a loss.

Interim inspections are important – While most leases make explicit provision for interim inspections, very few landlords or agents follow through on this. We find that in cases where tenants terminate their leases early, they’ve been in the property less than nine months. This need not come as a surprise. An interim inspection mid-way into the lease can provide the landlord with early warning signs as to how well the property is being looked after.

Incoming and outgoing inspections are crucial – The Rental Housing Act is clear: you cannot charge a tenant for damages if you did not do incoming and outgoing inspections. It is done in fairness to tenants and ensures that there are no disputes later about what was damaged before and after tenants moved in. Be very specific when doing inspections, and include as many photos as possible for easy reference later. It’s just as important to ensure that both parties sign the inspection – otherwise either side may argue they were never at the inspection.