Tenant asking for reduction in rent

[Goodstuff]

One of my tenants is asking for a reduction in rent. They`ve been in the place for a year and a half and are now going month to month as opposed to a one year lease. They have seen the price of similar rentals being advertised all around them and some landlords seem to be panicking and offering ridiculously low rent just to get someone into their place quick.

So now they`re asking for a reduction in their rent. They`ve been very good tenants, so I guess I don`t have much choice. Either lower the rent or lose them.

Anyone had a similar experience?

This unit is in Calgary, where things seem to be deteriorating at the moment for landlords.

 

[housingrental]

What does your property rent for?
What is the market rent for this property if needing to re-rent it?
Is there anything unique that would allow it to get a premium?

 

[Sherilynn]

Depends on the property, the tenant, and the cashflow. If you have an average or better suite in an average or better neighbourhood, there is no reason for you to settle for less rent unless either you want to do the tenant a favour or you don`t feel like finding a new tenant.
Last year I lowered rent for one excellent tenant in a slightly-below-average property, but only to the breakeven point. The tenants had just renewed for a second one-year lease and then one of them lost his job. They would have had to break the lease so they still would have been legally responsible for the rent. Since this suite is across the street from a college, I like to have the lease start on Sept 1 every year, so I didn`t want to find a new tenant in mid-October and was able to lower the rent to accommodate the existing tenants.

However, this year I have raised rents on a few of my suites, including the above unit. (All of my rents are at or above market rent, and there is nothing special or unique about them...just good marketing.)

Regards,
Sherilynn

 

[Berubeland]

If you are going to give a rent reduction make sure you get something in return such as an additional 1 year lease. You might also consider giving them a one time discount rather than resetting the rent, your increases for the future when things get better are based on your gross rent, rather than any promotions you give them.

For instance give them a month free assuming the rent is $1200, they sign a new lease for a year at $1200 rather than giving them $100 off per month.

 

[JohnS]

QUOTE (Berubeland @ Aug 22 2010, 09:12 PM) ... increases for the future when things get better are based on your gross rent, rather than any promotions you give them.
...

I have no problems with the first sentence here, but I believe the second sentence isn`t applicable. It would be if the property were in Ontario, but I think the laws in Alberta still say that the landlords can raise the rent however much they want, once a year.

Have a good one, all!

JohnS

 

[Sherilynn]

Yes, we can raise the rent as much as we want, but only after a full year since the last increase.

I agree that I would institute a discount program rather than rewrite the lease agreement. For one, it makes a difference when qualifying for your next mortgage (although banks seem to prefer fixed-term leases anyway). Second, you could make the discount conditional upon prompt payment. If they pay late or a cheque bounces, they lose the discount. This signed agreement becomes an addendum to the lease.

In my case, the tenants had 11 months remaining on the lease. I reduced the rent by a larger amount for 6 months and then a smaller amount for the remaining 5 months. I also had them sign an agreement that if they broke the lease they would have to repay the additional discount so that they wouldn`t enjoy more than the average discount and then leave me hanging. (The original lease was never changed.)

Regards,
Sherilynn

 

[terri]

QUOTE (Sherilynn @ Aug 22 2010, 11:20 PM) I agree that I would institute a discount program rather than rewrite the lease agreement. For one, it makes a difference when qualifying for your next mortgage (although banks seem to prefer fixed-term leases anyway).


I`ve had banks request photocopies of post dated cheques, even with copies of signed fixed term lease agreements. Make sure that when you are applying for a mortgage, you state the actual rent that you are currently getting and not the pre-discounted rate unless you are attaching the addendum and the term is almost up.

 

[Thomas Beyer]

QUOTE (Goodstuff @ Aug 22 2010, 11:21 AM) .. They`ve been very good tenants, so I guess I don`t have much choice. Either lower the rent or lose them.
..
What would it rent for if re-rented ? If lower anyway .. why not give this to existing tenants ?

Rents in Calgary are down about 10% from its peak in late 2007/early 2008 .. around $900 for 1BR (used to be slightly over $1000), $1050 for 2BR (used to be close to $1200), $1150 for 3BR .. more for a house with a yard .. less for crappo .. but rents have firmed up lately.

 

[Goodstuff]

QUOTE (ThomasBeyer @ Aug 23 2010, 10:39 AM) What would it rent for if re-rented ? If lower anyway .. why not give this to existing tenants ?

Rents in Calgary are down about 10% from its peak in late 2007/early 2008 .. around $900 for 1BR (used to be slightly over $1000), $1050 for 2BR (used to be close to $1200), $1150 for 3BR .. more for a house with a yard .. less for crappo .. but rents have firmed up lately.


When you say $900 for 1BR, etc. does this refer to one including or excluding utilities?
ie. $900 plus utilities?

This makes a big difference.

Thanks for everyone`s input, by the way!

 

[Thomas Beyer]

QUOTE (Goodstuff @ Aug 24 2010, 12:04 AM) When you say $900 for 1BR, etc. does this refer to one including or excluding utilities?
ie. $900 plus utilities?
In Alberta it usually includes cold water, hot water, garbage and (baseboard) heating .. but not electricity !

 

[jseib]

If the tenant pays on time and doesn`t cause trouble then I would consider it.

However make sure you look at both sides of the numbers, if you say no to the discount and they move out then odds are your rent will go lower anyways and you will have to eat some vacancy losses.

But at the same time if the tenant leaves they will have to pack up all their stuff and either hire movers or spend time themselves moving themselves. Either way that costs time, money and who knows what their new landlord and neighbors are going to be like.

So if rents have dropped by $100 maybe offer them a $50 or $75 decrease on a new 1 year lease. You may have to price match to current rent but Id try and meet them somewhere in the middle unless your really worried about losing them.

 

[Sherilynn]

Further to what jseib said, exactly what decrease have the tenants asked for?
In my case, I offered the best I could do and still keep positive cashflow. I offered 3 options with the same average rent (over the remainder of the one-year lease):

Option 1 was to have the average decrease over the remaining 11 months
Option 2 was to have a large decrease for 6 months and back to regular rent for 5 months
Option 3 was to have a medium decrease for 6 months and a small decrease for 5 months.

The average rent was still above market rent for that suite! The tenants were happy to have a landlord that was willing to help in any way; and because they didn`t really want to move, they managed to make it work. Frankly, I was surprised that they stayed since money was supposedly such an issue and they could have easily found a cheaper place.

The bottom line is that they didn`t really want to move and that I helped them to stay.

So find out what your tenants really need and construct some options that may suit you both. You never know until you ask.

Regards,
Sherilynn