Blog Archive

Sunday, May 08, 2011

Rent - Price Controls

It seems every politician out there wants to boost their flagging popularity using populist measures!

soita shitanda [he who did not want to give up his taxpayer funded mercedes] wants to cap rents. Another bad idea that can stifle creativity & investment!

Instead of capping rents, the law [& enforce it!] should be to ensure most residential rental agreements [there are always exceptions] should be of a consistent format.

A Standard Form Agreement (SFA) of a nature that is clear, concise & enforceable should be used. Any disputes should be handled expeditiously & this will also allow for Case Law to be established. Most residential units can be placed in narrow 'types' or bands.
- Single Residences
- Flats
- Joint compounds ['Estates' in Kenya]

Lawyers may be a stumbling block since they want to charge crazy fees for drawing up [aka copy & paste] such agreements.

What should be included:
  • Legal Names for both Landlord & Tenant
  • PINs for both Landlord & Tenant
  • Clear description of the Leased Premises including physical address, as detailed as possible, including Land Registration Number & flat/unit number
  • An address or account where the Rents are to be deposited & due dates
  • How the payment must be made [Should be anything but cash for a better trail e.g. cheques cleared by banks, M-Pesa has reference number, etc]
  • Receipts to be issued [mandatory] for all payments by whatever means.
  • All information to be verified/certified by both parties
  • What is included e.g. Club House, Askari, etc
  • What is not included or requires an additional payment e.g. Askari, Club House, etc
  • Estimated Land Rates & who is responsible [typically the Landlord]
  • Maximum number of occupants.
  • Photos or verification of condition prior to Leasing
  • Unique 'serial numbers' for each SFA [to reduce fraud]
  • If any commissions were paid by either party, then reported on the form to who & how much.
  • The agreements should be filed with KRA so all tax information is captured [KRA needs to build a database to capture this information]. Also helps with reduction of fraud.
Both parties should be encouraged to use the Form Agreements. If they choose not to do so, then the 'advantage' in court in case of a disagreement or ambiguity should go to the Tenant [since it is likely the Tenant is coerced into the non-SFA].

Rather than the Court Process, there should be a court-supervised Arbitration Process as the first step.

The SFA does provide options:
  • Length of the Lease
  • Rental Payments (Amount)
  • Due Dates
  • Notice of Termination e.g. minimum of 45 days for each party
An interesting & beneficial aspect is that KRA will be able to capture massive amounts of data & tax revenue. Landlords will not only have to pay VAT [which they may recover from the Tenants] but will also pay income tax on rental income.

Furthermore, comparable units in a comparable area should have comparable rents so this allows Tenants, Landlords & KRA to watch for huge variations! Transparency not Price Controls is the name of the game!

2 comments:

@indicati said...

I agree with most of what you have written as an alternative to the rent caps, but dont you think it still leaves the landlord with the upper hand as far as hiking rents? Consider low income houses that are generally run by groups (read cartels), what is to prevent them from giving the 45 day notice and doubling the rent?

On the other hand (to add on to your SFA proposal), perhaps an introduction of a KARA sanctioned escrow system(there is an app for that ) for rental deposits that will only be released when stipulated rental lease conditions regarding termination are realized.

coldtusker said...

@indicati - The LAW [that's why I indicated the need for arbitration] should punish Landlords & Tenants who do not give 45 days notice.

As for rent increases, nothing to prevent them from 2x the rent but they can do so now!

Tenants have to compare rents across the board [not easy to do so at the moment] & choose to move elsewhere.

Rent caps will encourage demands for 'goodwill' since the Landlords will still want higher returns. Goodwill is off the books meaning the Tenant has zero protection!

I agree an escrow for deposits would be an excellent idea.