Managed vs Unmanaged Rental Leases

Using a letting agent to help manage your rental property can be beneficial if you understand the value of what's on offer.

There are various types of lease agreements and services offered in the market, the two underpinning fundamental leases remain, managed or unmanaged. Understanding the differences will help you make the right choice. Below are a few pointers to consider before deciding which lease may suit you best.

As the Landlord, you would need to consider the degree of your involvement in terms of the administration, accounting and ongoing maintenance and or upkeep of the property. This can be time-consuming and financially draining, should you get it wrong. Whilst the industry is fraught with erroneous agreements and perceptions around landlords' rights, tenants have rights as well. An intimate understanding of property management and the legal risks associated with tenancy are a must if you choose to manage the tenant and property yourself. Hence the introduction of managed and unmanaged leases. Naturally you could opt to source the tenant and manage the property yourself, this, however, comes with its own risks and may not pay dividends in the long run.

Managed Lease

A managed lease is essentially an agreement that is managed by the agency and managing agent. They are responsible for more than merely collecting the monthly rental. At the point of listing your property, the rental specialist will advise you of the correct market-related rental you should expect. Pricing your rental correctly will ensure you do not have a vacant, non-income generating asset on your hands for too long. The agency/agent will vet all applicants and qualify them based on affordability and creditworthiness. This is a vital start to the process as the right tenant will make your letting journey a pleasant one.

At the start and end of the lease, the agent will conduct an ingoing and outgoing inspection with the landlord and tenant present, to agree upon the condition of the property, pre and post the occupancy. A damages deposit is held in an interest-bearing account until the outgoing inspection has been completed and all repairs are done. The remaining deposit will then be released upon agreement by both the tenant and landlord, back to the tenant.

Throughout the lease period, the agent should ensure the property is well maintained, they will carry out interim inspections, ensure all repairs and maintenance are seen to, ensure the billing and accounting records are up to date, produce monthly invoices and statements for both landlord and tenant as well as any additional ancillary services, such as paying the monthly utility bills, taking care of any emergency repairs, and even project management on any alterations or upgrades you wish to do. In need, they will also assist with the eviction process, which on its own, can be a daunting task.

The managed lease is a full-service offering; however, it is often misconstrued that the agent is there to do everything and anything the landlord requires. This is not so and very often the agent will "go the extra mile" to provide services outside of the lease agreement to appease the landlord and tenant. It is important to understand what is being agreed upon in the lease agreement and any additional services may come at an additional cost.

At the end of the lease period, the agent will also renegotiate a renewal of the lease or assist in finding a new tenant to look after your asset.

Unmanaged Lease

An unmanaged lease is the same as a managed lease up to the point of the tenant being placed. Once the landlord has approved the tenant's application, the agent will step away from the transaction and allow the landlord to manage the administration, accounting and maintenance of the property for the duration of the lease. Essentially an unmanaged lease is a payment for placement of the tenant and this is where the services end.

Whilst it may seem simple to collect the monthly rental on a property and have a tenant live in your asset, the risks associated with managing a tenant, their rights, your obligations and legal ramifications of getting this vital part of the process wrong may well be worth allowing the specialists to help mitigate these pitfalls.

Whilst the above-mentioned points have been simplified to a large degree, it is important to be informed of the risks associated with managing your prized asset yourself. The legal and financial pitfalls are abundant. Don't be caught unawares!