On the Market: Should tenants get a rent reduction if you are trying to sell a rental property?

From time to time clients will sell their rental properties.  When we notify the tenants, I often am asked “Is there any sort of compensation/rent reduction while it’s for sale?  We have been through this before, and the rent was reduced while on the market.”

The best way to handle tenants expectations while the property is on the market is to: 
a) have a good rapport with your tenants from the beginning 
b) keep them informed during the process – uncertainty is the biggest issue for most people
c) have a great real estate agent who understands how to work with tenants regarding both parties rights and responsibilities 
d) do what you can to have a short marketing campaign 
e) say thank you sincerely.  A card and small gift (wine or chocolate, but not a whole shop full) is often sufficient.  Don’t give cleaning products – it’s not saying anything good.

As for decreasing the rent, my automatic answer is ‘No’.  Why?  There are many reasons.
1. Investment properties value is connected to the rent received.  If the rent being collected is not the same as stated, it could jeopardize the sale, or the price.
2. It is an inherent risk for tenants that properties they live in are sold.  If they want to control that process they should consider carefully if they want to be tenants.
3. If tenants are on fixed term tenancies, there is little risk their tenancy should end when the sale goes through.  As a buyer I’d look less favorably on tenants who want a rent reduction at every opportunity, and would be less likely to renew their lease.  
4. Periodic tenancies have the ultimate power when the property goes on the market.  If they don’t like the open homes, they can move with only 21 days notice to the landlord.  That’s good motivation for landlords to keep tenants sweet, but there is nothing to prevent them moving even if the rent is slashed to nothing – tenants can’t contract out of their rights to 21 days notice, no matter what landlords offer in return.
5. The tenants are not doing you a favor by having the property clean and tidy for the open homes.  That’s a basic requirement of tenants in the Residential Tenancies Act.
6. Tenants are not doing you a favor by allowing open homes or viewings by appointment. Again, they are required to give reasonable access by the RTA.
7. Tenants don’t need to be there, or need to go out, while the property is being shown to prospective purchasers.  They can carry out their normal activities while purchasers are looking around, so no disruption is necessary.  This has led to some awkward and funny situations, but there is only their own modesty to stop them.
8. Some tenants express concern about their stuff being stolen when prospective purchasers view the property.  I don’t know of any property or real estate agent that has actually had this happen.  Reducing the rent won’t cover this anyway.
9. If landlords are realistic about the price they would like to see, and choose a good real estate agent to get that, the property won’t be on the market long if the tenants are meeting their obligations.  The less time on the market, the less disruption to the tenants.
10. If your tenant is adamant they won’t cooperate unless they are compensated, why would you give in?  Never negotiate with terrorists, it just breeds more.  There are ways to deal with this, ask us if you need to know more.

Just because others are doing something doesn’t mean you should.  Any tenant (or Adjudicator) telling you ‘most landlords reduce the rent’ is trying to get you to bend to peer pressure, when is that a good thing?  Instead gently ask what the issues were they experienced last time, and let them know what you intend to do to prevent or minimize those issues.  If more landlords automatically drop the rent whenever they want to do something, the harder it is for all others in our industry to enforce rights enshrined in law.  So, think of your peers and don’t agree to drop the rent.

Some property managers react to properties going on the market as a slight, and a threat to their income.  They hinder the process by not providing the information required in a timely manner, or just refuse to help.  If this has been your experience, deal with people who realize you will adjust your portfolio from time to time and want you to be financially successful.  Those are the property managers who know you and all your friends will be coming back, because they help you make more money and make it with pleasure.

Slimy pile or rich resource?

How do tenants dispose of lawn clippings?  Does your property have the classic pile of grass and weeds, and probably rubbish mixed in, in the corner of the section, up against the fence?  If the answer is yes, guess what?  Your fence is going to rot, and you will get more rubbish, more slimy grass, and more pests at your property as they burrow and breed in the slimy heap.

What can landlords do about it?  Well, we can ask tenants, tell tenants, show tenants, but we can’t force them to do the right thing.  I find it is often better to make it so easy to do the right thing, the wrong thing is too hard to bother with.  

Grass clippings and garden waste are a valuable resource and a good source of fertility for your soil.  If like me you’d rather not spend money on fertilizer and removing waste, but rather efficiently combine the two, try this.  

At your property build a compost bin (open at the bottom so earthworms can munch on the goodies within) or a raised garden bed of at least 1 cubic meter of capacity.  If there is a lot of lawn to mow, and so a lot of clippings, make the boxes bigger.  Locate them near trees you want to feed and make healthy (e.g. fruit trees), and encourage tenants to put clippings and veggie scraps there.  Your trees will thrive and you’ll no longer suffer the slimy pile by the fence.

For advanced compost management, tenants can add coffee grounds, small twigs, leaves, poop from their pet rabbit or guinea pig, cardboard and paper, and ash and lime.  I find most people have no idea about gardening though, so if they don't have a natural inclination and curiosity in this area, don't encourage creative composting. It will just become a rubbish pile, exactly what you were hoping to avoid in the first place.  Stick to the lawn clippings, and they shouldn't go too far wrong.

WINTER is coming

It’s a good time to update insulation, heating, and thermal drapes to keep your properties snug and tenants healthy.  While some landlords may not see the benefit of insulation in properties they don’t live in, they do see the benefit of rent being paid.  Insulation is an investment by the landlord to receive regular rent payments.  Cold tenants become sick tenants.  Sick tenants need time off work.  They run out of sick leave, then holiday pay, and start taking unpaid leave, which soon means missed rent.  Their irregular attendance means employers overlook them for promotions, which compromises the landlords ability to put rent up and get it paid.

You don’t need to be entirely self-serving as a landlord to insulate your properties, you can also do it out of respect for your fellow human beings, caring for the environment, and lowering demand on our power generation infrastructure.  
From 1 July, new tenancies need to specify the amount of insulation in the property, which is yet another reason to insulate.  Over time, this will influence the vacancies your property experiences, as tenants choose properties on their thermal performance, which has a direct result on your investment return.

Whatever your motivation, it’s time to insulate.  If you want assistance with this or any other matters relating to managing your properties, come see us at Rental Results.   Phone for an appointment 04 4711880.

PS. Forgive the Game of Thrones reference, it's Monday night, and I'm off home shortly to watch the latest installment and think how fortunate we are it is all make-believe. Tempting though it is to deliver 'the Kings Justice' on deserving people from time to time, imagine the cleaning bill for the carpets.