RESIDENTIAL TENANCY RISK ANALYSIS

1. The main markers of risk associated with tenant characteristics or circumstances in

the context of tenant selection and allocation are the ‘(in)ability to pay’ and/or
‘(in)ability to care’ for the rented property.

2. Ability to pay is generally determined using a 30 per cent rent to income ratio as an
affordability benchmark, whereas ability to care is often based on less quantifiable
assessments.

3. For instance, as the rental property in question is earmarked at N650,000 per year,
the relevant income threshold will be N 180,553 per month.

RELEVANT CONSIDERATIONS

The ‘most suitable tenant’ is typified as:

1. being resourceful,
2. having adequate financial resources,
3. reputable and capable,
4. possessing appropriate social capital (including appropriate references),
5. having an understanding of what is entailed in applying for tenancy in the private
rental market, and demonstrating an ability to care for the rental property.
6. Other factors that reflect positively upon the applicant at the time of allocation
include:
a. having all relevant documents available,
b. offering to pay rent in advance (in practice, some landlords request for a post-
dated cheque bearing value at a future date) or accept special conditions of
tenancy, and
c. presenting oneself appropriately.
7. Beyond expecting that applicants will have adequate income to pay rent, the
expectations that tenants demonstrate that they are capable of managing their
financial resources effectively, and conducting themselves in a way that presents no
risks of damage to the property or annoyance to neighbours., e.g. smoking habits.

THE MAJOR RISK CONCERNS ARE:

1. Inability to demonstrate frequent income that will satisfy the threshold and the
associated uncertainty about the level and stability of income;
2. Large family size, cultural practices, the presence of several children in the
household (perceived as causing more wear and tear, and potential damage to the
property);
3. Experience of domestic violence and the perceived ongoing potential for damage to
property;
 4. Marital breakdown (and associated instability); and

A rental agreement should establish, in clear terms, the duties and responsibilities of the
owner/landlord and the tenant. The following items should be considered for inclusion in
the standard rental agreement, depending on the circumstances:
 Maintenance and Upkeep:  The rental agreement should establish that tenant will
be responsible for general upkeep such as trash pickup, repairing broken steps, clearing
weeds around the compound, etc.
 Indemnification Clause: The agreement should include a provision holding the
owner/landlord harmless for any negligent acts or omissions by the tenant during the term
of the lease.

VETTING CRITERIA

Vetting includes:

 Verifying the identity of the prospective tenant

 Checking the legal right to enter into a tenancy agreement
 Verifying the truth or accuracy of information relied upon
 Taking up references
 Checking credit worthiness
 An assessment of affordability

Procedures have to be adopted to apply some level of diligence to the process. Best practice
in this area should reveal the bad payers and the high risk tenants. This is the process that
will be followed-

1. Application form

It is vital to ask questions. Such information may be relevant should evidence be

required to support any action for fraud. However, the agent must have proof -
asking the right questions in an application form is the best way to obtain this. The
Form will ask questions regarding the indicative factors identified above.

2. Viewing

For two reasons it is essential for a prospective tenant to view the property.
Firstly, it is clearly unwise to let to a tenant who has not actually seen the property,
its location and amenities. Whilst a tenant may be committed to proceed following a
recommendation from a friend or relative, they may find the property does not meet
their expectation; this may lead to a troublesome let and potential for non-payment
 of rent. It also makes pre tenancy ID more of a problem and any agreement to let in
these circumstances, must be subject to verification of the tenants identity when
they arrive.

Secondly, the viewings are a valuable part of the referencing process and this should
be an intentional vetting point for the lawyer. A prudent lawyer will observe the
prospective tenant at the viewings and during informal conversations ask questions
about the tenant’s situation, which can later be verified on the completed
application form. A lawyer’s skills and personal experiences are a huge asset in
making a judgement about the suitability of a tenant.

3. Interviewing

We will conduct a more formal interview as part of the referencing process. A

convenient time to do so is when checking the ID. We will ask the prospective tenant
to complete the application form in our presence and conduct the interview at the
same time. The purpose of the interview, apart from forming a relationship, is to ‘get
a feel’ as to whether this applicant will be a good match for the property and the
landlord. Imbalance here often leads to rent and management issues. There is a huge
difference between the tenant ‘who can’t pay’ and the tenant ‘who won’t pay’ in
terms of recovering rent arrears. Inappropriate attitudes are often revealed at this
stage. It is important to focus questions around verifying the application.

4. References

We can take up references from employer, previous landlord, personal and others.
We will request names and postal addresses, in addition to email and telephone, for
each referee. Specific questions to the referees are essential. We will write and post
or email a letter of request explaining that the applicant has applied to rent a home,
specify the proposed period and the annual rent. We will avoid general questions
which invite evasiveness, and be specific and ask:

 Employer – Commencement and employment term. Salary and bonus. Hours

worked. Place of work. Any outstanding disciplinary action.
 Landlord – Commencement and term of tenancy. Has the applicant ever been
late with rent, if so how many times. Any notices served. Has the landlord
complained about any breaches of tenancy? Is there a deposit dispute?
 Personal – Relationship, knowledge of rent arrears, job, specific questions about
character and past addresses where appropriate.
 Self employed – Accountant: copies of last audited accounts or copy of Tax
Assessment, is tax paid? Any claims from customers or clients? We might request
references from supplier or trade creditors of the applicant.

5. ID
 We will insist on photo identification for all tenants. A passport or driving licence is
acceptable; We will copy this and check it is still valid.
6. Change of identity

Where a tenant has had a name change, we will ask for proof such as a Deed Poll or
marriage certificate, otherwise where the ID and history is in the previous name,
we will use both names on the tenancy agreement – i.e. Rowena Okoro (previously
known as Rowena Akintunde)

7. Proof of address

Copies of utility bills and land line phone bills are useful for proving the addresses
match up and proving residency.

8. Income

Where there is uncertainty about income or where it is difficult to verify the facts,
we will request the applicant for sight of bank statements for a minimum of three
months. Check the bank details match the banking information already supplied and
examine the applicant’s cash flow and pay day (you might want to link the rent
payment day to a couple of days after the salary goes in).