Few days ago the Nigeria government announced that the country is out of recession and everyone was like wow, we all are happy to hear the good news and hope for better days ahead until the National Statistical Board burst our bubble to inform us that although we are out of recession but the aftermath of the recession will in fact linger on for some months before we can fully be say we are out of recession.
I want to believe that very few people understand all these complex and confusing statistical figures that take you in and out of recession and all what the people know and can relate with is what they experienced during this economic downturns, the adversity, harsh economic conditions, inability to provide and properly care for their family, pay bills and school fees of their children and of course the constant fear of the uncertainties created by the parlous state of the economy.
One of the major problems of this recession period many people had to deal with particularly occupiers who pay rent in their leased homes and apartment is the incessant and unreasonable increase in rent by their homeowners all on the pretext of economic downturns and harship in the country.
The incessant and unreasonable increase in rent by homeowners especially in Lagos State has been a reoccuring issue even prior to the economic meltdown and I believe it is time for the state government to urgently attend to this in order to forestall normalcy in the homeowner-occupier relationship in rental properties in order to check the excesses of homeowners.
It might interest you to know that many rental property homeowners now see rent increment as a sure way out of their economic harship and predicaments as well as to meet some of their secondary needs such as considering throwing a loud and big party for their loved ones such as birthdays, naming, wedding and burial ceremonies.
Surprisingly the state tenancy law does not explicitly delineate how reasonably a rental property owner can increase rent, it only encourages occupiers to escalate by filing a case and applying in the court of law an order declaring the outrageous or unreasonable increase in rent by the property owners.
In my own opinion the inability of the tenancy law to regulate or properly take care of rent increase is responsible for the incessant and preposterous increase in rent and I must say that as I type now there are no provisions in the tenancy law to regulate and control rent.
Although we used to have a rent control laws in the past, I think the last I saw was the rent control law which was amended in 2007 but today none is functional anymore which indirectly or instinctively arrogate the power and right to place ambiguous values on properties by the homeowners and property owners.
I presume that, if there exist a rent regulation or guide as to how rent must be increased the way it is done in develop countries of the world perhaps it would be extremely difficult for anyone to raise or increase rent arbitrarily and this will probably offer or present us with the opportunity and benefits of a good and functional rental property or investment property rent control system that everyone would be proud of and if you ask me there would be less cases of incessant and unreasonable increase of rent filed in court.
I find it necessary and important to examine and address this incessant and untrammelled rent Increase as a proponent of excellent initiatives in real estate investing and investment property management and the fact many see Ordiez Resources Inc as a newbroom in the industry who is out not only to sensitize, create awareness but also edify the general public on how they can successfully deal with unreasonable rent increase as well as share and bare my opinion on how rent can be increased in a wise, sensible and reasonable manner as we have in develop countries of the world.
Many might not like or completely agree with what am about to reveal in this post and some may selfishly disregard it or see it as hogwash ideas and initiatives because of the drastic and perceptible change or the effect rent regulation law will have on the homeowners, which will definitely put a stop to illegal and unlawful rent increase as well as the backwash its implementation might create for this group of people.
If you ask me, It is entirely the duty and responsibility of the state government to control, regulate and stabilize rate for rent increase simply by introducing a rent ceiling and a rate rent increase for rental properties. I want to emphatically state that no one has the right to increase rent in a rent controlled and regulated country.
The government is also expected to create a platform, an enabling environment and a functional system to make this work well not only by promulgating laws to control and regulate rent increase but also to encourage property owners to create or have records by filing the details of their rental or investment property with the government agencies designated to administer this service to the people or property owners.
This system or exercise will allow the government agencies responsible for recording and administering housing or the rental properties, the general public and of course the title insurer if there is any base on what is obtainable in Nigeria and virtually everyone to search and access information and records of rent history of all rental properties as well as enable them to view the progress of rent increase of various properties to determine if their rates are in line with the provision of the state law on rent increment.
The great news is that, this will help to limit rent amount to legally acceptable amount, forestall normalcy in rent, guide and checkmate illegal rent and constraint excesses of homeowner’s actions and activities against the occupiers. It ensures that homeowners do all that is necessary to consistently increase their property asset value, keeping the building save enough to live in as well as protect the interest of the occupiers in vacancy lease agreement with homeowners or rental property owners against unlawful or forceful eviction.
As I have stated earlier, government must establish a rent ceiling for all type of properties, building and each apartment in every registered rental property in the state and also set rate rent increase as it done in develop countries of the world which can be adjusted or reviewed every two years at a predetermined day to reflect the changes in the operating cost based on the economic realities and other factors in that year to allow everyone to adjust accordingly.
This is a way of compensating homeowners who are law abiding and who are providing, offering, delivering quality and essential rental service with no violation of the occupier’s right the opportunity to increase their rent up to a percentage of the original rent which often time is up to or between 7% and 7.5% until the base rent is attained.
Hence, anyone taking up a lease apartment could have access to and easily determine the previous rent of the apartment as well as check the current rent increase rate from the appropriate or constituted government agencies to accurately determine what he or she should lawfully pay for as rent and rate rent increase for the apartment.
However, rent increase could only be achieved legitimately only if the homeowner gives a written notice to that effect seeking the consent of the occupier and of course with the approval of the government agencies with the constituted power to approve such increase of rent request which most times are granted based on the evaluated reasons or grounds provided by the rental property owner, who feels he or she deserves a rent increment approval for additional major capital or individual apartment improvement.
I crave your indulgence to quickly walk you through how this rent ceiling and rate rent increase processes work. Homeowners are expected to file an initial registration within few months, usually about three months after the rental property or apartment has been taken up or occupied by an occupier.
The aim of filing an initial registration is to update and regularize the status of the apartment with the government agencies in charge of this process and this exercise is repeated and must be carried out every year for all the units or apartments in the building and expectedly homeowners are oblige to give a copy of this registration form for each apartment to their occupiers.
Any homeowner who is reasonable and responsible enough to comply with this law by registering his or her rental properties with the government agencies in charge for rent recording and monitoring services would have the opportunity to lawfully increase rent at the regulated or set rate for increment with the approval of the government agencies of course.
Let us quickly peek at what is obtainable or what I can call an internationally acceptable conditions or situations that may warrant or necessitate a rent increase or perhaps an adjustment in rent by the homeowner.
I would say one of the major reasons that could or may necessitate rent increase or adjustment in rent is what is known as Vacancy Lease Rent Increase which is a concept adopted to argument for the loss incurred in rent on rental properties for the period for which the home or apartment was vacant till when another or a new occupier takes over the apartment.
If a new occupier is moving into a newly leased apartment, it gives the property owner the opportunity to ask for at least a year rent according to the Lagos State Tenancy law from the vacancy occupier, who happens to be the person taking up or leasing a vacant apartment.
In order to reflect this vacancy lease rent increase in the rent amount, the new rent for the vacant apartment is calculated thus, the sum of the last paid rent in the apartment by the previous occupier and the applicable vacancy lease increase rate set by government which most times is only allowed once a year but homeowners may as well have other lawful reasons and grounds to increase rent such as carrying out Major Capital and Individual Improvement also with the approval of the government control agency administering rent and rent increment.
The advantage and benefit of this creative concept of Vacancy Increase is that it can be applied in so many ways to help cushion or reduce the negative effect and impact of the vacancy period when the rental apartment was unoccupied.
To further expatiate on this concept as it is used and applied in civilized countries of the world. The applicable vacancy increase for rental apartments which are considered as investment properties heavily and solely depends on the rent ceiling and rate rent increase set by government which are review sometimes every two or three years depending on what the government settled for in the rent control law.
The government may promulgate a law that allows investment or rental property that is vacant for let say less than two years to lawfully raise its rent by 5%. It can also allow apartment that has been vacant for less than three years to raise its rent by 10%, If vacant for less than four years then the homeowner can increase the rent by 15% but if it is more four years this will or may allow the property owner to raise the rent by 20% on and on like that.
Let me reiterate that this can only be achieved successfully only if the homeowners register their properties to enable everyone know and have access to the legal or last acceptable rent for easy computation and determination of the new lawful rent which a new occupier would pay for the apartment without having to meet with the property owners or their representatives.
In addition to that, If there exist rental properties leased that has been occupied by an occupier for a period of eight years and above without collecting any vacancy increase then such homeowners or property owners are allowed to request for a new vacancy lease which will allow such homeowners to add between 0.5% and 0.6% of the numbers of years since the last noted or recorded legal increase of the apartment.
Patently it will be extremely difficult to achieve this without an accurate and proper documentation and recording of the investment or rental properties. I know many may still find this creative and not so complex concept difficult to understand but never mind I would further break it down a little bit.
Let us quickly look at an example of how this is calculated but we have to assume we have a rent control and regulation system in place. Hence, let say Dr Ajose leased an apartment for an undisclosed amount and stayed in an apartment for fifteen years but his last rent paid to the homeowner was #60,000 per month prior to moving out of the apartment when we checked from the government agencies website.
If same apartment was prepared for another occupier, let say Mr Kola for a year vacancy lease that begins on June 1 2017. Then the property owner will be legally permitted to a vacancy rent of #76,500:00 per month which is calculated as thus.
1.The original known legal rent is #60,000:00
2.If the law says rental properties that has been vacant for more than four years can add 20% of the last legal rent, this will give us #12,000:00.
3. Also the property owner is allowed to add between 0.5% and 0.6% of the numbers of years since the last noted or recorded legal increase of the apartment as we have in this example is fifteen years which will give us #4,500:00.
Mathematically we have
1. Original legal rent to be #60,000:00
2. 20% of #60,000:00 will give us #12,000:00
3.0.5 of the numbers of years of the legal amount will be 0.5%*15 *#60,000:00 will be #4,500:00
Finally, If we sum all of this up, we will arrive at #76,000:00 per month to be paid by the new occupier, Mr Kola and he would be able to know this without having to meet the homeowner and no one can unreasonable increase the rent because the whole world can see how the rent was computed and expectedly the law of course must protect the interest of the occupier.
Let’s now consider another situation or condition that may call for an increase in rent by the homeowners, this is known as the Major Capital Improvement and this is another lawful rent increase which also must be subject to the considerations and approval of the government agencies responsible for rent regulation, monitoring and housing administration.
The Major Capital Improvement refers to all form of improvement made on the property such as installation of new equipments and systems such as electrical, mechanical, heating, plumbing etc. The homeowner may charge rent increase for any of this but it is definitely subject to the approval of the agency and often time are capped at a rent increase ceiling of about 6% of the amount of increase that may be collected each year.
It will do us a lot of good if we look at another important reason that may call for the need to adjust rent of a particular apartment and it is known as the Individual Apartment Improvement rent increase. This always come to fur when the homeowner add modcons such as new appliances to make an improvement and it allows the property owner to increase the rent of such apartment by a fraction set by law depending on the type of building and the numbers of units.
Individual Apartment Improvement carried out in an occupied apartment can only be achieved by if the property owner obtain a written consent of the occupier to the rent increase, it will legally enable the property owner charge and collect the increase from the occupier.
Moreover it must be required by law for homeowners to file with the government the Owner’s Notice of rent increase, new installations of systems and equipments, works like furnishing and painting as well as the occupier’s statement of consent before attempting to increase or raise rent.
At this point, I need not belabour the importance and the need for the government to have some level of control in regulating rent as well as set rate for rent increase to curb and prevent homeowners and property owners from arrogating the power or the right to incessantly increase rent at any given opportunity.
The government must lead examplarily by setting the ball rolling and playing a greater role to ensure transparency and give access to or make available to the general public or everyone who cares all the rent documentation for rent ceiling and rent rate increment by homeowners.
Finally, I will drop the curtain here on this post today and probably in the next subsequence post we shall discuss other issues surroundings this particularly vacancy lease increase concepts that help keep and maintain rental properties as investment properties by reducing losses due its vacancy period of its life cycle.
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