RENTAL INCREASES - WHAT'S PERMISSABLE ?
Category Legal Updates
In terms of South Africa property law there are no limits to the amount by which a landlord can increase the rent on a property, but in practice most leases contain a clause stipulating that the annual increase will be a specified percentage (usually 10%) at the expiry of a twelve month period. However, this clause is not fully binding and can be renegotiated by the landlord or tenant. If the tenant finds the new increase unacceptable, he can give notice to the landlord and vacate the premises. Similarly, if the landlord finds that the rental is below the market rentals in the area, he can give the tenant notice that he will terminate the lease, the minimum time allowed for this being one calendar month. Caution should be exercised on renewing options, says Michael Bauer, general manager of IHFM, and landlords must guard against a single sided option, i.e. allowing only the tenant to decide. He says landlords should be especially cautious when entering into long-term leases and take into account interest rate cycles, general inflation and cost inflation, and likely increases in municipal charges, operating expenses, and property rates. “Also, the lease should contain a clause in which the landlord is allowed to recover indirect operating expenses on a pro-rata basis from the tenant as well as pass on increases in property rates when they incur,” says Bauer. Three facts, says Bauer, should be borne in mind when an above inflationary increase in rental is called for. The first is that these are usually warranted if they are accompanied by significant improvements to the property and it is good policy, he says, to upgrade the premises every two to three years. The second, says Bauer, is that certain tenants (a minority) will always see the landlord as a capitalist exploiter and will try to avoid paying the increased rent and municipal charges. The third fact he adds is that a responsible and regularly paying tenant should be nurtured and kept, even if this means on occasion reducing the amounts that are charged for a time. “A good rental agent will balance these three factors to the landlord’s advantage,” says Bauer.