residential tenancy risk analysis

8/7/2019 Residential Tenancy Risk Analysis

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RESIDENTIAL TENANCYRISKANALYSIS

1. The main markers of risk associated with tenant characteristics or circumstances inthe context of tenant selection and allocation are the (in)ability to pay and/or(in)ability to care for the rented property.

2. Ability to pay is generally determined using a 30 per cent rent to income ratio as anaffordability benchmark, whereas ability to care is often based on less quantifiable

assessments.

3. For instance, as the rental property in question is earmarked at N650,000 per year,the relevant income threshold will be N 180,553 per month.

RELEVANT CONSIDERATIONS

The most suitable tenant is typified as:

1. being resourceful,2. having adequate financial resources,3. reputable and capable,4. possessing appropriate social capital (including appropriate references),5. having an understanding of what is entailed in applying for tenancy in the private

rental market, anddemonstrating an ability to care for the rental property.

6. Other factors that reflect positively upon the applicant at the time of allocationinclude:a. having all relevantdocuments available,b. offering to pay rent in advance (in practice, some landlords request for a post-

dated cheque bearing value at a future date) or accept special conditions oftenancy, and

c. presenting oneself appropriately.7. Beyond expecting that applicants will have adequate income to pay rent, the

expectations that tenants demonstrate that they are capable of managing their

financial resources effectively, and conducting themselves in a way that presents norisks ofdamage to the property or annoyance to neighbours., e.g. smoking habits.

THE MAJOR RISK CONCERNS ARE:

1. Inability to demonstrate frequent income that will satisfy the threshold and theassociated uncertainty about thelevel and stability of income;

2. Large family size, cultural practices, the presence of several children in thehousehold (perceived as causing more wear and tear, and potentialdamage to the

property);3. Experience ofdomestic violence and the perceived ongoing potential for damage to

property;


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4. Marital breakdown (and associated instability); andA rental agreement shouldestablish, in clear terms, theduties and responsibilities of the

owner/landlord and the tenant. The following items should be considered for inclusion in

the standard rental agreement, depending on the circumstances:

y Maintenance and Upkeep: The rental agreement should establish that tenant will beresponsible for general upkeep such as trash pickup, repairing broken steps, clearing

weeds around the compound, etc.

y Indemnification Clause:The agreement should include a provision holding theowner/landlordharmless for any negligent acts or omissions by the tenantduring the term

of thelease.

VETTING CRITERIA

Vetting includes:

y Verifying the identity of the prospective tenanty Checking thelegal right to enter into a tenancy agreementy Verifying the truth or accuracy of information relied upony Taking up referencesy Checking credit worthinessy An assessment of affordability

Procedures have to be adopted to apply somelevel ofdiligence to the process. Best practicein this area should reveal the bad payers and thehigh risk tenants. This is the process that

will be followed-

1. Application formIt is vital to ask questions. Such information may be relevant shouldevidence be

required to support any action for fraud. However, the agent must have proof -asking the right questions in an application form is the best way to obtain this. The

Form will ask questions regarding the indicative factors identified above.

2. ViewingFor two reasons it is essential for a prospective tenant to view the property.Firstly, it is clearly unwise to let to a tenant who has not actually seen the property,

its location and amenities. Whilst a tenant may be committed to proceed following arecommendation from a friend or relative, they may find the property does not meet

their expectation; this may lead to a troublesomelet and potential for non-payment

of rent. It also makes pre tenancy ID more of a problem and any agreement to let in


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these circumstances, must be subject to verification of the tenants identity when

they arrive.

Secondly, theviewings are a valuable part of the referencing process and this shouldbe an intentionalvetting point for the lawyer. A prudent lawyer will observe the

prospective tenant at theviewings andduring informal conversations ask questionsabout the tenants situation, which can later be verified on the completedapplication form. A lawyers skills and personal experiences are a huge asset in

making a judgement about the suitability of a tenant.

3. InterviewingWe will conduct a more formal interview as part of the referencing process. A

convenient time to do so is when checking theID. We will ask the prospective tenant

to complete the application form in our presence and conduct the interview at thesame time. The purpose of the interview, apart from forming a relationship, is to get

a feel as to whether this applicant will be a good match for the property and thelandlord. Imbalance here often leads to rent and management issues. There is ahugedifference between the tenant who cant pay and the tenant who wont pay

in terms of recovering rent arrears. Inappropriate attitudes are often revealed atthis stage. It is important to focus questions aroundverifying the application.

4. ReferencesWe can take up references from employer, previous landlord, personal and others.We will request names and postal addresses, in addition to email and telephone, for

each referee. Specific questions to the referees areessential. We will write and post

or email a letter of requestexplaining that the applicanthas applied to rent a home,specify the proposed period and the annual rent. We will avoid general questions

which inviteevasiveness, and be specific and ask:

y Employer Commencement and employment term. Salary and bonus. Hoursworked. Place of work. Any outstanding disciplinary action.

y Landlord Commencement and term of tenancy. Has the applicant ever beenlate with rent, if so how many times. Any notices served. Has the landlordcomplained about any breaches of tenancy? Is there a depositdispute?

y Personal Relationship, knowledge of rent arrears, job, specific questions aboutcharacter and past addresses where appropriate.

y Self employed

Accountant: copies of last audited accounts or copy ofTaxAssessment, is tax paid? Any claims from customers or clients? We mightrequest references from supplier or trade creditors of the applicant.

5. IDWe will insist on photo identification for all tenants. A passport or driving licence isacceptable; We will copy this and check it is stillvalid.


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6. Change of identityWhere a tenanthas had a name change, we will ask for proof such as a Deed Poll or

marriage certificate, otherwise where the ID andhistory is in the previous name,we will use both names on the tenancy agreement i.e. Rowena Okoro (previously

known as Rowena Akintunde)

7. Proof of addressCopies of utility bills and landline phone bills are useful for proving the addressesmatch up and proving residency.

8. IncomeWhere there is uncertainty about income or where it is difficult to verify the facts,

we will request the applicant for sight of bank statements for a minimum of threemonths. Check the bankdetails match the banking information already supplied andexamine the applicants cash flow and pay day (you might want to link the rent

paymentday to a couple ofdays after the salary goes in).

residential tenancy risk analysis

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