TENANT SELECTION: A PRACTITIONER’S PERSPECTIVE.

INTRODUCTION:

Real estate investment involves committing considerable funds to purchase land, perfecting the title document upon purchase and involvement of professionals in the built environment from inception till the apartment is ready.

The real estate investor expects a return, which is rent and payable by a tenant and capital growth determined by an estate surveyor and Valuer. This can be done before letting the accommodation or at the end of the tenancy term to determine growth.

According to Baum et al. (2021), property may be acquired for purposes other than investment. A distinction can be made between property acquired for occupation by its owner and property acquired for investment.

Property is one of several alternatives for the investment of capital and must compete directly with those alternatives.

For this write-up, the definition of a tenant will be limited to the individual who rents a residential accommodation through a property manager from a landlord solely and strictly for residential use.

A real estate investor takes a massive risk by committing funds into the purchase of land, construction and finishing the property to taste with the expectation that the property will bring in returns through rent payment from the tenant.

Every real estate investor is concerned with return income or rent from a tenant on a monthly, bi-monthly, yearly, bi-yearly or long lease, depending on the type of tenant at the particular period.

Agreement terms appropriately worded show the relationship between a landlord and a tenant. This term shows the obligation of both parties, and it is essential to have an actual tenancy agreement template that must be updated periodically whenever a tenancy term expires. It allows for reviewing and inserting other obligations omitted through events to have a better working document.

There are several analyses that the investor had taken into consideration before commencing the construction of accommodation. Factors include location, the demand for the particular accommodation type and, notably, the funds to execute the project.

Most of the funds needed for the project come from financial institutions with interest. As a result of the interest payable on the loan used for the project execution, timely remittance through the rent that the tenant pays contributes to the positive outlook of the project in offsetting the acquired loan. Hence the delay in the prompt rental payment affects the investor’s credibility and gives rise to harsh behaviour from the project manager to the tenant whenever a delay arises.

MARKETING PHASE

The real estate investor expense does not end with the completion of the property. The marketing of the property’s expense will be inputted into the capital outlay for the construction of the property right from the project’s conceptualisation.

The investor bears this additional expense and, most times, passes it to the property manager, who uses social media platforms and the network of a registered estate surveyor and Valuer available to the property manager to expose the property to a suitable prospective tenant

The placing of “To let” banner usually makes available the name, phone number and office address of the property manager and always look out for the logo of credibility of The Nigerian Institution of Estate Surveyor and Valuer. It brings trust, confidence and integrity.

Why an estate surveyor and Valuer? An estate surveyor and Valuer is a professional whose service is regulated by the Estate Surveyor and Valuers Registration Board of Nigeria (ESVARBON). He/she must work and render services as contained in the Board’s code of professional conducts for estate surveyors and valuers, the scale of professional fees and Estate surveyors and Valuers Regulation 2014 made pursuant to the ESVARBON Act CAP E13 LFN 2007 in determining and paying for services

Should there be a complaint, the Board can be notified, and the member will be appropriately sanctioned. Notably, the Estate surveyor and Valuer is a well-guided professional.

As soon as the property is completed and handed over to a regulated firm, the marketing commences through the use of social media and bulletins to other registered firms, including anchor tenants and allies.

 Understanding Landlord and Tenant Obligations.

Most investors would have engaged the services of an estate surveyor and Valuer through an agreed term of reference.

The landlord would have informed the registered Valuer of what is expected in terms of the agreement. The registered Valuer will also give input to the landlord based on experience on how the contract will be drafted. As soon as the inputs are completed, the services of a lawyer for the draft agreement will be engaged.

The terms of engagement should specify the frequency of inspections and any reporting requirements. The frequency of inspections should be proportionate to the size and complexity of the scheme and the number of onsite personnel. They should also ensure that the tenant is aware of the address for the service of notice; this address should be within the same legal jurisdiction as the property and could be the client’s address. (RICS Estate Management 2016)

The Estate Surveyor and Valuer would routinely monitor the quality and cost-effectiveness of all services under their control. Advise clients and customers on monitoring procedures and provide details of how they can bring any shortcomings to the client’s attention. Any service delivery issues should be addressed without delay, with the client and customers kept informed of the estate surveyor’s authority and should take the client’s instruction where necessary.

Some landlords might not allow the keeping of pets. The contract, in some cases, might have such clauses as “fair wear and tear” and “act of God”- exempted.

It is essential to understand the expected obligation.

The prospective tenant must ensure that during the inspection of the specific property, all switches and water taps are checked to confirm working conditions. After that, an offer letter that contains a minimal obligation of both landlord and tenants is made available to the prospective tenant.

Most tenants assume that the landlord will bear tenement rate payment and other rates and taxes. As explained in practical terms, the tenement rate is a tax paid by the occupier except when the property owner also resides within such an apartment.

This is also spelt out in the offer letter that the tenant will be responsible for the payment of the tenement rate.

Note that; the offer itself is not a contract; it is subject to contract. Should the tenant not be willing to make such a payment, he/she can turn down the offer.

Also, know that the offer letter also carries a draft tenancy agreement. This will allow the tenant to read all the expected terms and conditions and make input before proceeding with the transaction.

According to Emiaso (2012). The relationship between a landlord and tenant is a legally binding contract. He further opined that upon accepting an offer, a contract comes into effect and becomes legally binding on the parties.

CRITERIA FOR SELECTING TENANT.

An acquaintance form is usually made available to the tenant, where more information about the tenant is available. It provides information that allow the firm  check the tenant’s creditworthiness integrity and relationship with his/her previous landlords.

For those coming from the personal property of the parent’s home, it is still imperative to chat with the family member, and through the interaction, some information may be received. If the information given is insufficient, other members that can supply the same can be contacted.

The following are essential when deciding on a prospective tenant through the return acquaintance form.

  • The place of work and ability to sustain rent if self-employed, what type of business and type of client the business has served in recent years,
  • Marital status and size of family, this is important especially if a caution deposit is needed prior to the commencement of the tenancy,
  • Sex, religion, name and contacts of guarantors for easy accessibility to the tenant in case of default or abscondment from the property. It is essential to get confirmation from the guarantor that he/she is willing to provide a guarantee for the named tenant before completing the transaction.

Also included within the acquaintance form is the contact of the current landlord or property manager and evidence of utility payment, amongst others.

As soon as the above information is received and processed, the managing partner will critically review the above. If all allotted weights are satisfactory, an offer letter with a draft tenancy is given to the prospective tenant, containing other terms, including the rent payment.

 PROCESS OF HANDING OVER

Immediately after the payment is made and every term is met, an inventory of the accommodation is prepared, and a prospective tenant is taken through the inventory and must sign based on the physical and working condition of the landlord’s fixtures.

The document is also necessary during a routine inspection. Recall that there is a clause in the tenancy agreement that inspection must be carried out with advance notice.

It enables the managing surveyor to confirm that the apartment is being used as stated in the offered and agreement signed.

CONCLUSION

For an investor in Real estate,  his/her concern is the rent which is the income and capital appreciation on his investment in terms of yield that real estate affect. Also, note that real estate has a hedge over inflation.

Any delay in the expected income from a tenant affect several projections, including payments of loan that the investor might have sourced from financial institutions.

On this note, the critical screening and verifying of the information given by a prospective tenant must be professionally handled.

There are cases of exceptions, however, but importantly, always check the prospective tenant with the firm’s checklist and ensure that the mandatory requirements are met.

Also, ensure that on the date of handing over, the tenancy agreement is signed, forwarded to the property owner to sign his/her portion and return the executed tenancy back to the tenant and ensure to have a copy in the file for the property.

Further Reading:

  1. Landlords and Tenants Under Nigeria Lands

Miakpo Emiaso (2012)

  1. RICS Professional Standard and Guidance, Global

REAL ESTATE MANAGEMENT

3RD Edition, October 2016

  1. Real Estate Investment Appraisal

Baum (2021)

ESV. Aladeitan Omotunde is a registered estate surveyor and Valuer, named and has his practice conveying Abuja, Lagos and Port-Harcourt.

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