The importance of lease renegotiations

property management

One of the most important responsibilities of a property manager is to ensure you are receiving the maximum rent possible on your investment property. Whilst naturally most property investors focus on fees (and we have one of the most competitive fees on the market), property management fees are often dwarfed by the additional return generated by securing the highest possible rent increase.

This is particularly the case in a rising rental market. To illustrate the point, we have secured rental increases of between 20% and 30% for many of our clients compared to the preceding 12 month period. On a $600 per week rental property, that is between $6250 and $9450 per year in additional rent. This is a significant amount of rent that makes a meaningful difference to the return profile of the investment property.

Achieving these sort of rent increases for our clients is not necessarily easy. Many tenants are experiencing significant cost of living pressures, as are many landlords. We are sympathetic to tenants that receive significant rent adjustments, but we must act in the interests of our clients in securing the best rent possible that matches market realities as demand increases.

Our property managers ensure they are respectful and delicate in achieving these results for our clients, particularly where the tenants have been great to work with and have treated the property well (and always paid rent on time!). There is little benefit in a lease renegotiation resulting in a vacant property, and our property management team is always conscious that we increase the total income generated over the term rather than just the highest weekly rent.

We take a data driven approach to lease renegotiations. Not only do we conduct rental assessments by utilising our deep local market knowledge, but we use independent data sources such as SQM Research to confirm our rental opinions. We provide these recommendations to our clients who provide the ultimate instructions as to how to proceed with a proposed increase.

By being transparent with tenants as to how we came to this proposed rental increase and the data sources we have used, tenants are naturally more receptive to the proposed increase. For us, this is also a matter of respecting that a good tenant has likely made the property feel like their own home that they don’t want to leave. We work with tenants to negotiate an outcome that works for both them and our clients.

The other reason why being proactive with lease renegotiations is important is that there are different rights that come with a periodic lease (also known as a month to month lease), and a fixed term lease. There are several advantages to both lease types, and when a lease has expired it doesn’t necessarily mean that there is a disadvantage to either party.

In fact, due to short notice periods in New South Wales for fixed term leases, arguably there are greater protections for landlords being on a periodic lease rather than a fixed term lease. If there is any doubt whether your specific circumstances would make it advantageous to be on either a periodic lease or a fixed term lease, our team will happily assist.

If you would like to discuss how Certainty Property can provide you with an exceptional property management experience, please reach out via the Contact Us page or the online chat, and our team will happily assist.