Understanding tenant compensation

At One Agency Orange, we are committed to empowering our landlords with knowledge and resources to make informed decisions about their investment properties. We frequently receive inquiries from landlords regarding how tenant compensation is calculated when a tenant vacates a property, and in this article, we aim to shed light on this crucial aspect of property management.

To simplify the compensation calculation process for you, our friends over at MCG Quantity Surveyors have prepared a valuable resource: The Compensation Calculation Cheat Sheet. This tool is indispensable for determining reimbursements from tenants for specific items within your property. It offers insights into typical items, their effective lifespans, depreciation rates, and even rough estimates of replacement costs.

Understanding how tenant compensation is calculated

Let’s delve into a practical example to illustrate how compensation is calculated. Suppose you have a rental property with 20 square meters of carpet damaged by the tenant, and the estimated replacement cost is $500. To determine the compensation owed, you must take into account the remaining lifespan of the carpet. If the carpet was 6 years old when it was damaged and has an effective lifespan of 8 years, there are 2 years remaining (8 – 6). This equates to 25% of its life remaining. Consequently, the compensation amount would be 25% of $500, which totals $125.

“This example underscores the importance of having a tax depreciation schedule for your investment property.” says Simone Fogarty, Senior Property Manager of One Agency Orange. “Such a schedule ensures that you maximize your returns by accounting for depreciation and seeking compensation for depreciating items within your property.”

Industry Guidelines

We acknowledge that some of the suggested lifespans for these items may appear short or complex to grasp. However, it’s essential to understand that these are industry guidelines that property managers must adhere to. In our personal homes, with proper care, these items often last much longer.

Nonetheless, when dealing with tenant damage claims, it is crucial to follow these guidelines. In the event that we cannot reach an agreement with tenants on compensation, and the matter is referred to Fair Trading at NCAT (New South Wales Civil and Administrative Tribunal), these guidelines serve as the reference point for resolution.

Our Commitment to Your Success

At One Agency Orange, we are dedicated to supporting you at every stage of managing your investment property. If you have any questions or require further assistance, please do not hesitate to contact us. Your success as a landlord is our top priority.

We are here to provide guidance and support, ensuring that you make the most of your investment property.