The scenario of two year rent has become rampant especially in Lagos State. Most landlords have stuck to their guns in demanding two years rent from tenants undermining the tenancy bill passed in August 5th 2011 (which prohibits any landlord in Lagos from collecting rent in excess of one year). What are the possible factors fuelling the demand for two years rent especially in Lagos? Is it a win-win situation for both parties? To answer these questions, industry experts at RE/MAX Nigeria conducted a survey to investigate the pros and cons of a two year agreement for both landlords and tenants respectively.
Despite the economic situation of the country, and the efforts of the Lagos State Government to discourage the collection of two years rent in Lagos, landlords have doggedly persisted in their demand for two years rent for the following reasons;
Investment purposes: The first reason is that most Landlords demand two year rent because they need the lump sum of money for investment purposes. A year’s rent might not be enough to invest so most landlords insist on two years.
To attract committed tenants: Most landlords believe that a two year lease shows that the individual is serious and willing to commit to their property by committing to stay longer. So most landlords put a two year rent in other to attract people who are financially buoyant, and have plans of staying for a longer period of time.
Peace of mind: Renting a property takes a lot of time. Some properties stay vacant for about 6 months or more in some cases. A two year lease gives the landlord peace of mind that their property will not be vacant for the next two years.
Despite the advantages, a two year lease may pose some problems for landlords. Some of the common problems include;
Difficulty in vacating troublesome tenants: If a tenant is troublesome for example, the landlord may have to bear with such a tenant for a period of two years when their rent expires before he can vacate such person. This could be a sour period that would require patience on the part of the landlord to bear until their rent is due. This is the reason why you should employ the services of a certified real estate agency like RE/MAX when looking for a tenant or a property. Our experts ensure that due diligence is taken and potential clients are screened thoroughly.
Difficulty in yearly rent increment: A two year rent also makes it tough for a landlord to raise the rent. This may only be possible if the landlord puts a clause in the agreement that rent would be increased at a certain percentage after the first year, of which many potential tenants would decline. Otherwise, the landlord would only be able to increase the rent every two years instead of every year.
Property might remain vacant for longer: Taking the economic situation of the country into consideration, not many people have lump sum of money to pay a two year rent, as a result it might take longer to find someone to rent the property. Thus, the property might remain vacant for longer.
As opposed to common believe, a two year contract has some benefits to the tenant. Some of these benefits include;
Stall rent increment: Most notably, the tenant will benefit because the landlord cannot increase the rent until after two years.
Better deal on the long run: In return for promising to stay a two year term, a tenant could save a reasonable amount of money on the long run. Filling a vacancy can be stressful for landlords – they have to paint the walls, clean, fix damages, etc. which can cause serious financial strain in between tenants. Sometimes the risk of not finding a new resident quickly is enough for your landlord to offer you a less expensive rental rate than what you would get with a one-year lease.
Stall the stress of packing: The best thing about signing a two-year lease: You won't have to go through the painstaking process of packing and moving all of your stuff again for at least two years.
The major downside for the tenant is having to produce a lump sum to pay for the two year contract. Other issues maybe, not thoroughly examining the house and its facilities well enough before moving in. If the area is prone to flooding, or the interior finishing is substandard, the tenant would have to bear until 24 months when their rent is due.
The findings show that it is more profitable and economical for both parties to sign a two year lease agreement. The landlord will not have to renovate every year or have to look for someone each year to rent the property. On the other hand, tenants stand a chance of getting a fairer deal in a two year agreement as opposed to one year contract, as landlords are looking for lump sums to invest. The major problem remains that, not many people are able to produce this lump sum to pay for a two year rent as a result of the high cost of living in Lagos and the country in general. In this regard, one can understand why the Lagos State Government have placed a ban on landlords demanding two years rent though the law has remained ineffective thus far. As a recommendation, landlords should not insist on a two year rent (as not many have the capability to produce such lumps sums) but rather make it more attractive to pay for a two year contract (at a cheaper rate) as opposed to paying for one.
Mr. Webber is an American citizen who has been
living and working within the Middle East for the past forty (40) years.
Chip Brekken is
Director of Global Development. Chip joined RE/MAX in 2003 as a Franchise
Development Consultant in the Southwest Region. He was promoted to
Regional Vice President in 2005. Chip has over 12 years of experience in
a number of critical positions in other U.S. Regions including Central Atlantic
and Pacific Northwest. In all, Chip has served over 1,000 RE/MAX
Broker/Owners in his career. Chip serves the Regions in Africa, across
the Arabian Peninsula, and Central and Southeast Asia.
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