"Rewarding" a good tenant

10pennymixup

I didn't want to derail another thread so am starting this one. Ok so "rewarding" in the title might not be the best word to use, but hopefully you'll get my gist.

In the "Giving Landlords Criminal Convictions" thread some posters have said that LL's have no choice put to put up rents to the maximum possible at each review rather than be caught out by RPZ legislation.

One reason for this is that if the area later falls into a RPZ the low paying tenant receives a 4% raise on a very low rent for 12 months (or thereabouts depending on the RPZ calculation). If they leave any new tenant receives this also. If I sell the property to an investor, the new LL must also pass along this lower than market level rent.

I have a good relationship with all my tenants (AFAIK) but realize that if I am to sell in a few years time I have limited the value of my assets and their sale-ability if I keep the rent low and fall in to an RPZ zone (not in one at present). It will limit me to owner occupiers only and rule out any investors.

So what can I do to not penalize good tenants, working families, without penalizing my own family's future?

One thought I had was a rent rebate, ie raise the rent to the current market rate but after a while return some of the rent paid. Something like pay 11 months at a new rate equal to the market rent but get the 12th month free. All done within the one tax year so as not to affect tax liability on rental income

Can this be done? Can anyone see any problems with this idea? Or have suggestions on how best to implement it or something similar?

Samuel T. Cogley

The problem I see is that you are effectively reducing the rent. My advice is a card and a nice bottle of something around Xmas and leave it at that, you're running a business and you should do that with all due consideration to your duties as a LL but also maximise your profits.

I'm not a landlord, not a tenant. So I'm completely unbiased here.


But never give a cent off the rent. If you want to, give them the equivalent of a month's rent in vouchers or something. If you give them no rent in December 2018 they'll expect it in 2019. If you do it a few times it's the norm and expected and you'll be seen a a bollocks if you don't give it for free from then on.

Absolutely reward a good tenant. Call around and ask are they having issues with anything, anything need upgrading, etc. but don't get them in the habit of less or lower rent. Keep the money situation untouched and don't mention it. Do other things instead. Give them free oil as a thanks or top up their gas card or whatever, etc. etc.

amcalester

I think anything you do that could be considered as being a rent reduction will be considered a rent reduction by the RTB so why bother.

At the end of the day the government are pursuing a policy of encouraging "professional" landlords/REITs who would never offer a discount, so why should you.

Rents are rising, tenants are plentiful so you shouldn't need to worry about replacing your tenants if they leave.

10pennymixup

Samuel T. Cogley wrote: »

The problem I see is that you are effectively reducing the rent. My advice is a card and a nice bottle of something around Xmas and leave it at that, you're running a business and you should do that with all due consideration to your duties as a LL but also maximise your profits.

I get that Sam, and in the near 30 years that I have been in this business I have learnt to recognize the value of a good customer/ tenant.

RPZ rules are kind of twisting my arm though.

10pennymixup

Deleted User wrote: »

I'm not a landlord, not a tenant. So I'm completely unbiased here.


But never give a cent off the rent. If you want to, give them the equivalent of a month's rent in vouchers or something. If you give them no rent in December 2018 they'll expect it in 2019. If you do it a few times it's the norm and expected and you'll be seen a a bollocks if you don't give it for free from then on.

Absolutely reward a good tenant. Call around and ask are they having issues with anything, anything need upgrading, etc. but don't get them in the habit of less or lower rent. Keep the money situation untouched and don't mention it. Do other things instead. Give them free oil as a thanks or top up their gas card or whatever, etc. etc.

Not bad idea, these are things that I have done in the past for different tenants. And your right, in some cases such as a couple of 100 liters of oil, it became expected of me.

This time I would have to inform the tenant. If I just upped the rent without telling them of a "rebate" type plan, I could be opening a large can of worms.

And it would be my intention, after upping the rent to market levels, of giving a regular rebate. Not reducing the rent each month.

10pennymixup

amcalester wrote: »

I think anything you do that could be considered as being a rent reduction will be considered a rent reduction by the RTB so why bother.

At the end of the day the government are pursuing a policy of encouraging "professional" landlords/REITs who would never offer a discount, so why should you.

Rents are rising, tenants are plentiful so you shouldn't need to worry about replacing your tenants if they leave.

I've been a LL a long time, I bought my first rental in 1990. I have learned to value a good tenant. It isn't all about the bottom line. There were several times in the past when the market was vastly different than today.

The particular tenant/ family that are due a two yearly review and who prompted this thread, are currently at about 60% of the market rate. The breadwinner is a low earner in an admirable job, serving their community and the family are receiving FIS. They are good people that are trying to do their best for their kids.

Considering this and some of the nightmare tenants that I have had in this property before I am inclined to try keep them. I am not greedy, just want a fair return. But RPZ rules are leaving me little choice. I am here to see if I have a choice.

My suggestion was to legally raise the rent, that would be paid in full each month. Then return a sum on a regular/ yearly basis.

The current market rate would be registered with the RTB.

The tenant would never be in arrears.

My tax liability would be on the net rent received (less allowable deductions).

Or so I hoped

amcalester

I completely understand the value of a good tenant and its admirable what you are trying to do, my worry would be that by deviating from the RTB prescribed process you are leaving yourself open to hassle further down the line.

This inability to make bespoke agreements between landlords and tenants is an unfortunate by-product of the government's wish to replace "amateur" landlords with "professional" ones.

Claw Hammer

The only way you can do it without consequence is to raise the rent and whenever a repair needs to be done, offer a temporary rebate on the rent for the inconvenience. That way it can't be claimed that you are reducing the rent.

tomofson

The relationship between a tenant and landlord is a business relationship in which both parties benefit, not a pet doing tricks for his owner.

The_Conductor

10pennymixup wrote: »

My tax liability would be on the net rent received (less allowable deductions).

Or so I hoped

Nope- your tax liability is on the gross rent received, less allowable deductions.
If you voluntarily give the tenant a rebate of some type or description- this is from the net, after tax income- not the gross- i.e. you are giving a rebate from your after-tax income...........

I see what your question was- could you account for giving them the rebate- in a tax efficient manner- without causing other issues- unfortunately, the answer is a straight, nope, you can't.

In addition to this- the rebate to the tenant- is a 'gift' to the tenant- on which they have to pay tax........... Talk about no good deed going unpunished...........

All decent tenants and landlords- really should be petitioning the Minister to do away with this anamoly.

10pennymixup

The_Conductor wrote: »

Nope- your tax liability is on the gross rent received, less allowable deductions.
If you voluntarily give the tenant a rebate of some type or description- this is from the net, after tax income- not the gross- i.e. you are giving a rebate from your after-tax income...........

I see what your question was- could you account for giving them the rebate- in a tax efficient manner- without causing other issues- unfortunately, the answer is a straight, nope, you can't.

In addition to this- the rebate to the tenant- is a 'gift' to the tenant- on which they have to pay tax........... Talk about no good deed going unpunished...........

All decent tenants and landlords- really should be petitioning the Minister to do away with this anamoly.

Thanks for that.

Claw Hammer

Rent reduced during a period when water was cut off, electricity cut off, workmen in carrying out repairs etc would not be a gift if it was reasonable in the circumstances and the rent foregone would not amount to income. A restaurant who gives a free meal to a customer for bad service is not taxed on the imaginary profits they would have made on the meal.

Browney7

The_Conductor wrote: »

Nope- your tax liability is on the gross rent received, less allowable deductions.
If you voluntarily give the tenant a rebate of some type or description- this is from the net, after tax income- not the gross- i.e. you are giving a rebate from your after-tax income...........

I see what your question was- could you account for giving them the rebate- in a tax efficient manner- without causing other issues- unfortunately, the answer is a straight, nope, you can't.

In addition to this- the rebate to the tenant- is a 'gift' to the tenant- on which they have to pay tax........... Talk about no good deed going unpunished...........

All decent tenants and landlords- really should be petitioning the Minister to do away with this anamoly.

Unless it was over a 3 grand gift there would be no tax liability on the tenant's part I suspect via the small gift exemption

10pennymixup

tomofson wrote: »

The relationship between a tenant and landlord is a business relationship in which both parties benefit, not a pet doing tricks for his owner.

I'm not going to ask you to explain that. You can see the chip on your shoulder from here.

Gumbo

Also, you have to consider if the tenant is on any social payment. HAP, RAS etc, then if you give them back one months rent you are in fact allowing them to fraud the state. Best to reward them in other ways in my
Opinion.

Wabbit Ears

My experience as a landlord is that no good deed goes unpunished.

People don't value kindness. They just don't. Any kindness given translates to expectation.

Honestly, just run it as a business. Raise the rent if you have to but if you're in for the long run just remember it's swings and roundabouts. Its all gonna crash again in the relativity near future anyway IMHO. Raise it a little. Keep good tennants and don't play silly games like you're proposing.

The_Conductor

kceire wrote: »

Also, you have to consider if the tenant is on any social payment. HAP, RAS etc, then if you give them back one months rent you are in fact allowing them to fraud the state. Best to reward them in other ways in my
Opinion.

What would you suggest?
A nice hamper at Christmas?
Serious question- how do you reward a decent tenant- without crucifying yourself- and creating a situation whereby a subsequent tenant who a landlord has no relationship with- acquires the goodwill the landlord has towards their current tenant- meanwhile their current tenant- going elsewhere- is back at the start again?

A rating system for tenants- that was structured in such a way that it was fair and not open to gaming- and a tenant got a discount on the headline rent rate commensurate to their rating on the platform- while the headline rate itself remained associated with the property- so the landlord wasn't punished for giving the tenant a discount?

Good tenants deserve to be recognised for being decent tenants. Landlords shouldn't be punished for recognising the better tenants in this manner. There should be some manner of implementing this- and it beggars belief that something hasn't been put into place.

A scheme like this would actively benefit decent tenants. A tenant who didn't rate under the scheme- would simply pay the going rate for the property?

How hard could it be to put a scheme like this in place?

10pennymixup

Op here. Thanks to everybody for their input,it's given me food for thought. Some good advice given by most (esp the Conductor), that which was not seems to have been based on some serious misconceptions though (or just laziness in not reading all the posts)

With other tenancies that I am party to, and have been party to in 28 years, I normally leave it as business only and take a fair rent. This RPZ has changed all that. And it looks like I will have to go with the general consensus here, up the rent to it's legal max until I sell up. In the process risk losing some decent people as tenants, shame really.

10pennymixup

Wabbit Ears wrote: »

My experience as a landlord is that no good deed goes unpunished.

People don't value kindness. They just don't. Any kindness given translates to expectation.

Honestly, just run it as a business. Raise the rent if you have to but if you're in for the long run just remember it's swings and roundabouts. Its all gonna crash again in the relativity near future anyway IMHO. Raise it a little. Keep good tennants and don't play silly games like you're proposing.

Nothing silly about trying not to penalize decent tenants.

The RPZ rules mean if I don't raise the rent, or raise it a little as you suggest, I'm screwed when it comes time to sell.

Not one savvy investor will buy a property that has limited yield when they can buy the one up the road that isn't stymied by the RPZ regulations

The_Conductor

Surely the prospect of an increasing discount on the headline rent- without it affecting the value of the property or the rentability for the future when the current tenant moves on- would be welcomed by any decent tenant? The current situation where a landlord is actively punished for rewarding their current tenant- is perverse, plain and simple.

Gumbo

The_Conductor wrote: »

What would you suggest?
A nice hamper at Christmas?
Serious question- how do you reward a decent tenant- without crucifying yourself- and creating a situation whereby a subsequent tenant who a landlord has no relationship with- acquires the goodwill the landlord has towards their current tenant- meanwhile their current tenant- going elsewhere- is back at the start again?

A rating system for tenants- that was structured in such a way that it was fair and not open to gaming- and a tenant got a discount on the headline rent rate commensurate to their rating on the platform- while the headline rate itself remained associated with the property- so the landlord wasn't punished for giving the tenant a discount?

Good tenants deserve to be recognised for being decent tenants. Landlords shouldn't be punished for recognising the better tenants in this manner. There should be some manner of implementing this- and it beggars belief that something hasn't been put into place.

A scheme like this would actively benefit decent tenants. A tenant who didn't rate under the scheme- would simply pay the going rate for the property?

How hard could it be to put a scheme like this in place?

I drop in a bottle of prosecco, tin of celebrations and a card every Christmas.
I drop in 3 Easter eggs for the kids every Easter.

April 73

You’ve said your tenant is currently paying 60% of the market rate. Raising it by the allowable amount under the RPZ rules means he is still getting a terrific deal & is unlikely to move.
I totally get that you are trying to behave decently to these tenants, but in doing so you have ended up with a property way below average rent & with the RPZ rules - yes, you have damaged the long term value of the property. You’re not the only one in this situation.
I think you should raise the rent by the amount you are allowed to & continue to behave like a decent LL - maintaining the property, carrying out repairs, dropping off the Christmas presents & Easter eggs. You’re doing more than enough.

gobo99

When we rented we had one particular landlady who actually dropped the rent after the first year and didn't raise it for 6 years afterwards despite an upturn in rents in the area. She included things like bin charges and tv licence in rent, and would make improvements to the house off her own bat. Things like a new stove, improved insulation, etc..
In turn we didn't rock the boat in terms of maintaining house and appliances. Looked after a lot of these things ourselves. At one stage she moved to New Zealand and we had no contact with her for 4 years. We didnt even know she was gone. Painted the whole inside of the house a year before we moved, fixed drainage issues in garden, powerhosed drive every year etc...
There's a lot to be said for keeping a good relationship with your tenant. Some landlords are mad to squeeze every last penny out of the tenant but they end up turning over tenants every other year and spending more money and time on the property.

10pennymixup

April 73 wrote: »

You’ve said your tenant is currently paying 60% of the market rate. Raising it by the allowable amount under the RPZ rules means he is still getting a terrific deal & is unlikely to move.
I totally get that you are trying to behave decently to these tenants, but in doing so you have ended up with a property way below average rent & with the RPZ rules - yes, you have damaged the long term value of the property. You’re not the only one in this situation.
I think you should raise the rent by the amount you are allowed to & continue to behave like a decent LL - maintaining the property, carrying out repairs, dropping off the Christmas presents & Easter eggs. You’re doing more than enough.

As per the op it's not in a RPZ, yet. But sooner rather than later it will go that way.

If I raise it to equal the current market rent it mean a rise of c.50% more than what they're paying now.

If I don't raise it I devalue the property.

I was looking for a way to stop both these things from happening. This is the upshot of the very rules that are supposed to stop rents rising.

I'm loathe to do it but that is most likely what will happen.

Tar.Aldarion

Up the rent but give them something of the same value in return, talk to them about it and explain your point of view. Maybe there is something they would like or some arrangement you can come to. Also, fair play to you.

Fian

10pennymixup wrote: »

As per the op it's not in a RPZ, yet. But sooner rather than later it will go that way.

If I raise it to equal the current market rent it mean a rise of c.50% more than what they're paying now.

If I don't raise it I devalue the property.

I was looking for a way to stop both these things from happening. This is the upshot of the very rules that are supposed to stop rents rising.

I'm loathe to do it but that is most likely what will happen.

Area could be deisgnated suddenly - overnight.

e.r

Could you raise the rent to market value, tell them to only pay 11months rent every year.

The 11months rent can be put down each year for tax, if audited you can say they missed payments etc.
So when you go to sell the last contract will state market value.

I could be way off the mark here?

Graces7

e.r wrote: »

Could you raise the rent to market value, tell them to only pay 11months rent every year.

The 11months rent can be put down each year for tax, if audited you can say they missed payments etc.
So when you go to sell the last contract will state market value.

I could be way off the mark here?

That would reflect back on them if they needed to prove payments?

e.r

Graces7 wrote: »

That would reflect back on them if they needed to prove payments?

Possibly, but the op can give a glowing reference.

pc7

e.r wrote: »

Possibly, but the op can give a glowing reference.

Even bad tenants get glowing references so landlords can get rid!