Monday, March 3, 2014

Blood is stickier than water - Renting to friends or family can leave you in a sticky situation

The saying goes that blood is thicker than water and in terms of renting a property to a family member, nine times out of ten, when renting to a family member the tenant-landlord relationship will play out just fine. However, just because it’s a rental to a friend or family member, it doesn’t mean you should treat them or the situation any differently.
The situation:

We had a case recently where a landlord rented his furnished property out to his half sister
  • He felt it was his duty to look after his nephew who was in school as they needed a place to stay. He felt he was doing her a favour
  • As she was a family member he felt he didn’t need to do a background and credit check
  • She had asked for a lease for FICA requirements but he did not enforce that the lease be signed by all parties
The problem however (and this only came out after the fact) that she was
  • A habitual delinquent tenant with a history of not paying her rent
  • Had a history of abusing and destroying furniture and appliances in furnished properties
After a few months of not collecting rent the situation naturally became ugly as she was unwilling to either move out or pay the rent. She disputed:
  • That there was no lease and that it had not been signed by all parties
  • And whether or not the house was furnished or not (even though it was not stated in any lease she had been occupying a house that was furnished)
“Background credit check is probably the single most important thing a landlord can do on a prospective tenant, even if that person is a friend or family member.”

Wrongful steps taken to fix the situation:
The landlord’s first reaction was to remove all the furniture from his property, however
  • The tenant disputed that the she accepted the house fully furnished and had been occupying it as such for six months
  • The tenant threatened the landlord with a (rightful) case of spoliation
His next course of action was to cancel the lease, but again the tenant disputed that
  • There was no original lease in the first place
  • She had paid rent in full for five months
  • She did not pay the municipal charges as there she was not sent any invoices or sent invoices for rent either
The right steps taken to fix the situation
  • The landlord became TPN Rentbook user to collate and send out accurate invoices
  • He also became a TPN Credit Bureau user in order to send out letters of demand to the tenant
What could’ve prevented this problem?
Had the landlord taken a few simple steps he could’ve avoided this sticky situation
  • Even though she was family he should’ve done a background credit check on her
    • This would’ve revealed her history of a delinquent tenant
  • Drawn up a standard lease
    • To include monthly rent amount and date payable
    • Municipal charges
  • Used a simple product like Rentbook to
    • Accurately track rentals
    • Send out invoices every month and on time
  • By becoming a member of TPN Credit Bureau member
    • For peace of mind advice especially when issuing letters of demand
What can other landlords lean from this?

Even though situation is quite extreme it can happen between family members, but it is far more likely to happen between friends. As landlords we are far more likely to trust and take a risk on friends who we perceive to ‘good for the money’. Without wanting to ruin the friendship as landlords we will not push our friends in terms of lease agreements, timeous rent payments etc. But the above situation happens time again. 
So, in order to save yourself from future unknowns, be it amongst friends or family

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