The 4 C’s of Lease Negotiation

The residential property management market in Toronto is huge. Stats Canada Census data from 2011 shows that 69% of households throughout Canada owned their home, meaning that 31% of the population are renters.

However, the number of renters increases drastically when talking about non-family households, as 51.5% did not own their household throughout the country. In Toronto, 46% of the population rents their homes, condos, and apartments.

However, these tenants are moving around a lot more, and in order to act as a better landlord, you want to establish a relationship with your tenants from the get-go. We’re not saying become their friends; you need to remain professional, fair but firm, and rational throughout the entire business transaction.

When you put yourself into your tenants shoes throughout the lease negotiation phase, you can ensure the start of a mutually beneficial relationship.

First Off, What’s in a rental agreement?

Whether you call it a lease, rental contract, tenancy agreement, residential lease, or rental agreement, your basic contract for rental property management should include the following:

1. Length of tenancy
2. Rent due date
3. What’s included (hydro, electricity, water, cable?)
4. Utility payment responsibility (if not all included above)
5. Notice of potential rent increase & first applicable date (legally, that’s only 12 months from the day the lease was signed)
6. Repairs and maintenance responsibilities
7. Access to the unit — As the landlord, you’re required to give notice of entry to inspect the unit. Clearly lay out how much notice you’ll give.
8. Ending the tenancy — Does your tenant have to give 1 month, 2 months?
9. Alterations to the unit — Are they allowed to paint? Hang pictures? What are the rules around this?

How to understand the resident’s perspective when negotiating a lease: The 4 C’s

Customize – Include as much detail, in as common English as possible to avoid confusion. Walk them through it to make sure they understand.

Be willing to budge. Your best tenant may not need that parking space, but they may require a storage locker. Your potential tenant may not have previous landlord references, but can offer a cosigner that can vouch for them. Establish your baseline of deal breakers and minimum requirements and then work from there.

For example, you may have a firm no pets policy, however, since this is not grounds for voiding a rental agreement, so be open to discussing this upfront. Simply ask if they intend to bring pets, which kind, and ensure that they understand that according the Landlord Tenant Board, pets can be cause for eviction if they are damaging the unit, causing noise, or are an inherently dangerous breed. A firm no pets policy means that you could be eliminating some great residents from your unit, but if you fear for your carpets, other tenants allergies, or have strict condominium regulations just be upfront with that information.

Cost – Rental prices in the City of Toronto are going up and up. However, if your unit isn’t a luxury unit situated in a desirable neighbourhood, you can’t justify pricing it as one.

Establish a baseline in comparison with units in the neighbourhood, this research can help you get a great idea of what’s available. If your 2-bedroom unit is priced at $3,000, but the same type of unit next door is $2,500, guess where your tenants are going to go?

Unfortunately, Toronto’s rental market is now as inflated as New York’s. According to a TD Economics report, 43.5% of renters pay more than the suggested 30% of their pre-tax income on shelter costs. The reality is that the majority of these people are spending as much as 50% of their income on rent. While that’s the price to pay for the convenience of living downtown, irrationally pricing your units will only create a bigger headache for you in the long run.

Be Clear in Your Screening –  As a landlord, you have every right to ask for information from a potential tenant such as their employment history, income information, and credit background to make sure that they’re consistently in work, and will be able to regularly afford the apartment. As long as your request falls under Regulation 290/98 of the Human Rights Code, ensuring that it’s not discriminatory and checks are done through companies authorized to access this information, clearly let them know that you’ll be seeking out this information.

Be Compassionate – Not every resident is going to look amazing on paper, but may actually be an amazing tenant. By having open and honest communication with them about their career, their income, and their goals, you can determine if they are the kind of person that you want renting your unit.

All Tenants want is to be treated fairly, they are human after all — not just a business transaction. Don’t take this to mean that you should be overly nice, your property relies on you being fair but firm. But this doesn’t mean that you can’t be empathetic in their situation. Some say that being a great landlord means being a great judge of character, you can include all of the above research in your approval or denial of your tenant, but ensure that you’ve made the effort to learn about them instead of just running a credit check and red stamping their application.

Being a good landlord isn’t simply about keeping your building maintained. Being compassionate and clear in your requirements, while customizing a lease if need be and ensuring that your cost is reasonable are the first building blocks in creating a lasting tenant-landlord business relationship.

If you’re trying to navigate the world of residential property management and aren’t sure how to compassionately negotiate a lease, get in touch with our team at ICC^® Property Management. With over 25+ years’ experience in commercial and rental property management, our team can ensure that your rental properties are properly maintained and operated as efficiently as possible. Get in touch today and let us worry about the lease negotiations.