LEASE RENEWALS AND BOND INCREASES

Published: 16 March 2007.

LEASE RENEWALS AND BOND INCREASES

In many offices lease renewals are conducted on a monthly basis with the percentages of periodic leases being minimal. How is this carried out so effectively? The answer is ?Systems!?

The following processes are considered ?best practice systems?:

A letter to the Lessor two months prior to the end of the lease advising that the lease is due for renewal and agency?s recommendations outlined very clearly as to whether a 6 or 12 month lease is preferred and an increase if applicable (enclosing a comparative rental analysis (CRA).
Request for the Lessor to respond in writing within a set timeframe their preferred option. The original letter would allow for the Lessor to respond using the same paperwork.
Lease agreement to the Tenant at least 30 days prior to the end of the lease with a covering letter outlining the options available (options outlined are only dot points for the purpose of this newsletter. You would need to expand details of each option.):

Option 1 ? sign the enclosed lease agreement or

Option 2 ? sign the enclosed Notice of Intention to Leave (RTA Form 13)

Letter would also cover whether the rent is to be increased and also if the bond is to be increased at this point.
Follow up procedure minimum 18 days prior to the end of the lease if the lease has not been returned.
If the tenant does not wish to sign the fixed term lease or pay the increased rent, contact must be made with the Lessor as to their instructions. Preferably this must be done in writing.
If applicable, issue a Notice to Leave and commence reletting procedures.

Points to note during the lease renewal procedure:

Provide a comparative rental analysis to the Lessor of what properties are renting for in the area. Include at least 3 or 4 properties of similar type and the rental amount. This will assist the Lessor with their instructions back to the Agent.

Be very clear to the Tenant what their options are in your covering letter to them.

If the rent is to be increased, agents are only allowed to increase the bond every 11 months and provide one month?s notice. Some recent incidents involving bond increases?

An office recently had a phone call from the RTA advising them they were in breach of the Act as they had increased the bond on a particular property only six months prior.

A tenant marched into the agency holding the Form 17a Information Statement Renting in Queensland and referred page 5 to the property manager which states:

?The rent can be increased at the end of a fixed term agreement, or at any time during a periodic agreement. If the rent is being increased during a periodic agreement, the lessor/agent must give you at least 2 month?s notice in writing. The written notice can be a letter saying how much the rent will increase by, and the day when you need to start to pay the increased rent.

If the rent goes up, the lessor/agent might also ask you to pay more rental bond. Notice of bond increase can only be given if it is at least 11 months since the last bond increase. One month?s notice about the bond increase must be given. The extra bond must be lodged with the RTA using either a Bond Lodgement (Form 2) or Part Payment of Rental Bond (Form 7).?

Following, is an extract from our system PM BOSS. This shows very clearly how often the bond can be increased.

Lease Renewals and Bond Increases

RESIDENTIAL TENANCIES ACT - S83

The Tenant must increase a rental bond if ?

(c) the notice is given at least 11months after-

(i) the agreement started, or

(ii) if the rental bond has been increased previously following the giving of a notice under this section-the day stated in the notice, or the last notice, for making the increase.

Eg. 1 January ? 30 June ? six month lease

Lease renewal offer with an increase of $10 per week is accepted and signed by all parties prior to the lease expiry date. Renewed tenancy - 1 July ? 31 December.

The increase of bond cannot be taken at this time as 11 months has not passed.

One month prior to 31 December, Tenants accepted a lease renewal offer with an increase of $10 per week.

As 11 months has passed, a bond increase of $80 (4 times the weekly rent) is due and payable and lodged with the RTA with the RTA Form 7. Renewed tenancy 1 January ? 30 June.

If the tenant does not sign the new fixed term tenancy with the rental increase then again instructions will have to be sought from the Lessor as to their preference.

The RTA Spring Update 2002 ? Increasing the Rent provides this information?.

?Rent can be increased at the end of a fixed term agreement. A property manager has two options if their lessor wishes to increase the rent at the end of a current fixed term agreement. Firstly, they can wait until the end of the agreement when it automatically becomes a periodic agreement and then give the 2 month?s notice of the rent increase required by section 53 (3) (a) of the Act for periodic agreements.

Secondly, the property manager can advise the tenant well in advance of the end of the fixed term agreement that the lessor is offering a new agreement with higher rent. The tenant has the option of either accepting the new agreement (which will commence at the end of the current agreement) or not accepting it. If they do not accept the offer of the new agreement, the lessor has the option of either letting the agreement roll over into a periodic agreement on the same terms and conditions including the rent, or of offering a new fixed term agreement with the same rent or of giving the tenant 14 days notice that the agreement will end on the end date of the agreement.?

It is important to note that the offer of a new agreement at the end of the current agreement is an offerand not a notice of a rent increase. The offer does not take effect unless the tenant accepts it.

Other Ideas

Monitor periodic tenancies for rent increases and aim for less than 15% of the rent roll being on periodic tenancies.

Track the percentage of rental increases and fixed term tenancies achieved each month and use these statistics to ?sell the benefits? of a lease renewal fee to the potential Lessor.

Article Supplied by Caroll Levitt from www.Realestatedynamics.com.au