June 4, 2008

Renting to Tenants:

Preventing Tenant Turnover in New Construction Condos

by Dave Peniuk and Julie Broad

Three months into owning two beautiful loft units at the Toy Factory Lofts in Toronto, we already were renting one of the units out for a second time. Despite being in what is quickly becoming Toronto's most desirable neighbourhood for the under 40 downtown worker, and being awarded the highest rating and positive compliments from condo reviewer Christopher Hume, the building is still a construction zone. And it can be very tough renting to tenants when they have to deal with the developer's workers fixing deficiencies and intruding on their space on a regular basis.

Foreseeing this to some extent, we offered rental concessions for the first six months to one tenant, and a lower first month rate to a second tenant. But, at least for one tenant, it wasn't enough. After only 6 weeks the renter left, complaining of dust, noise, and deficiencies. We took special care renting to the the next tenant in the hopes that the next tenant would stay for much longer. One of the things we did differently was we wrote the Tenancy Agreement to ensure the tenant did not have an opportunity to plead ignorance to the construction issues and use that as an excuse to break the lease.

Some lessons for renting to tenants in new construction units (a big thanks to Lindsay Widsten, our Nanaimo-based Property Manager for suggesting some of these):

• Ensure your prospective tenant visits the unit and building at least 2 times to experience the "construction zone";
• In your Tenancy Agreement note "the tenant is aware that the rental unit may be impacted by various construction issues including: noise, dust, and workers tending to deficiencies";
• Also note in your Agreement that the tenant agrees that they cannot break the Tenancy Agreement under grounds that they were unaware of such potential issues;
• Clearly explain to your prospective tenant that there will be some challenges with the building and possibly their unit over the upcoming months; and
• If necessary, make a deal with your tenant that you will reimburse them X dollars at the end of their lease to compensate them for no late rent payments and living thru the construction zone. Ideally don't reduce their monthly rent, rather, reward them after a full lease term has been served.

The Tenancy Agreement is not something we've talked about much because it's different in each province. Make sure you know the landlord tenant law in your province before you rent out your basement or buy a rental property. There are standard forms for tenancy agreements but they may not cover every situation (like renting out a new construction condo). Some things we have included in agreements for various reasons:

• No-smoking policy,
• No dogs or no cats,
• No assignment or subletting of the unit without our prior and written consent,
• No change of tenants without our prior and written consent (very important with student roommates - but that is a big story for another day),
• Tenant's obligations for things like snow removal, lawn care or other maintenance and care
• Penalty for late payment of rent or penalty for cheques that bounce.

As always, we hope that by sharing some of our mistakes/tribulations/screw-ups with you, you'll be that much better prepared to take on the real estate investing world! Let us know if this helps, or if you have a question about something else. Email us at julie@revnyou.com or dave@revnyou.com.

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