written by Liad Hadar – Director
Part 2 of 3: Best Practices For Managing Tenants
Following part one of this three-part series (May 2021 edition), which covered how to identify a good tenant, this article deals with best practices of managing the tenant relationship.
The landlord and tenant relationship can be traced back to the 10th century. Despite rampant changes in technology, our economy and lifestyle, there’s no question that this particular dynamic is here to stay. The principles of maintaining this age-old association are however often overlooked, particularly at times when the pendulum of power has swung in favour of one of the parties.
Neither party should forget that they are intrinsically linked to the other.
With this in mind, whilst the initial interaction between the landlord and tenant is almost always promising and exciting, as with most relationships, circumstances change and hard work is required to maintain it.
In my view, one of the most critical aspects of managing the relationship is communication, the most powerful tool in ultimately protecting and growing the value of the property owner’s asset.
When Times Are Good: Constructive and Regular Communication
Proactive and constructive communication is integral to the establishment and maintenance of a mutually beneficial landlord-tenant relationship and should be a priority throughout the course of an initial lease agreement (and hopefully many extensions beyond).
Small things can make big impact, such as a tenant taking the time to acknowledge a landlord’s timeous resolution of its requests or a landlord recognising a tenant’s prompt payment.
Most importantly, the parties should communicate at frequent intervals, not just when invoices are due or complaints received. Creating dialogue fosters not just comradery, but a sense of trust and familiarity – and this is particularly important for our next section.
When Times Are Bad: Honest and Transparent Communication
As with most relationships, we need to ensure that our foundations are sufficiently robust to weather the difficult and conflict-ridden times too.
A grounded, healthy relationship affords both parties a safe space to be vulnerable. Consider the recent implications of Covid-19 on tenants’ ability to afford rental, and the financial strain this imposed on landlords. Those relationships rooted in mutual respect and solid communication structures were far more likely to result in resolution in troubling times. I’d go so far as to say that the majority of landlords and tenants who found themselves at odds in this scenario, hadn’t taken the time to foster a culture of communication, or the ability to see things from the other’s perspective.
Another potential scenario is a tenant undergoing a major business challenge that compromises its cashflow or ability to continue operating. Rather than allowing months of unpaid rentals to go by, a proactive tenant with a healthy relationship with its landlord, would disclose this information upfront.
In turn, the landlord, although naturally not pleased with any non-payment of rental, would have the opportunity to budget accordingly and make provisions to assist the tenant by negotiating a repayment proposal upfront and not after the fact.
Good communication and a solid relationship provide both parties the opportunity to find solutions to their challenges that protect both of their interests. This sets the groundwork for a long-term, sustainable partnership that extends well beyond an initial lease agreement.
I’ve had interactions with many tenants who have felt safe enough to communicate their issues openly with their landlord who have in turn come to their aid. These tenants all vow that their landlords have gained a tenant “for life” as their loyalty has been earned.
Although the above example is ideal, even if it does not lead to a lifelong tenancy, the practical reality is that by being made aware of its tenant’s problem as a result of good communication, the landlord can decide to “nurse” its tenant out of a predicament. Practically, this is usually done on the back of an agreed extension of the lease term. This is beneficial in the long run as it both protects the asset value (by keeping a good tenant in place, without losing any money as a repayment plan will be agreed) but also growing it (by extending the lease beyond the initial term as a condition of such assistance).
Poor Communication Leads to Uncertainty and Distrust
Unfortunately, it is commonplace for a landlord to be kept in the dark regarding a tenant’s internal issues. When there is little or no communication between the parties, the first time the landlord is made aware of an issue is generally when a rental payment is missed. Alternatively, the claim of another creditor comes to its attention.
This creates uncertainty and distrust, exasperating a situation that could have been avoided by transparency and good communication.
In my experience, the weaker the communication, the bigger the problem. It is not uncommon for our firm to be instructed that a tenant is attempting a “midnight swoop” by removing its assets from a leased premises at a late hour – naturally without any notice to the landlord.
It’s a safe assumption that the parties haven’t applied the principles of this article.
Creating and Maintaining Good Communication
“Communication works for those who work at it” – John Powell
There is currently a huge gap in the communication standards between landlords and tenants and how they could, or ought to, be.
My best advice is for the landlords to appoint an “account manager” for each tenant. This representative of the landlord, be it internal or from its managing agent’s office, is the point of communication for the tenant’s representatives.
Regular, personal and helpful communication then follows as a rule.
The landlord encourages good communication by having its representative contact the tenant proactively and regularly during the month. This serves to establish that everything is in order, to address any red flag, to understand the tenant’s business status and to genuinely enquire if they can assist in any way.
The above is the secret ingredient in creating trust and building a relationship based on good communication.
I know of REITs that have invested in CRM (Customer Relationship Management) because they have identified the huge value in obtaining the tenant’s feedback and building the correct communication channels with them. Not coincidentally, the relationship between these REITs and their tenants, as well as their rental collection data, have improved tenfold.
In closing, I urge landlords to save themselves the angst and sleepless nights guessing whether a tenant is in financial difficulties or is unhappy. Creating the required communication channels and communicative relationships will help us all sleep better – and help to protect and grow our property assets to boot!