There are many factors landlords need to consider before escalating a tenant’s rental rate.
A reasonable rental escalation rate is generally anywhere between 7% and 10%, but that this also depends heavily on the rental market’s demand for the property and similar properties, the increase in cost of maintaining the premises and the market value of similar properties.
“It is extremely important to take note of what similar properties are rented for in the market place, because it will not be wise to lose a good paying tenant by overpricing your property at the time of escalation”.
Van der Linde adds that the landlord is responsible for paying rates and taxes, but when these costs increase it does not imply that the rental payable by the tenant must increase by the same rate.
“A landlord’s number one priority is to have a good paying tenant that looks after the premises and that abides by the terms of the lease agreement. If a landlord has such a tenant my advice would be to make it attractive for the tenant to continue renting the premises by giving a discounted escalation rate.
“Tenants must also understand that the cost of owning the premises increases annually for the landlord and that one cannot expect to rent the premises for the same price year-on-year. I believe it is important to negotiate an escalation rate that benefits both parties to the agreement as this will contribute to a healthy tenant-landlord relationship”.
There are factors like demand for rentals in the specific area, demand for property in that rental price range, demand for furnished or unfurnished property and estate property versus suburban property also play a key role when determining a rental increase.
“The increase percentage or how the increase is calculated will usually be specified in the Lease agreement”