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Monday Feb 09, 2015

What you need to know about renting residential property

Tenants who rent residential property through an estate agent are not automatically entitled to receive the interest that accrues on their deposit, so you should carefully check what the lease states about who will receive the interest before you sign the contract.

The situation is different if you rent directly from the owner of the property. If you are required to pay a deposit, the landlord must ensure that interest is paid on the deposit (see "Renting directly from an owner", right). When the lease expires, the landlord must refund the deposit, plus the accrued interest, to you, unless he or she is entitled to use the deposit and interest to offset amounts you owe, including the "reasonable" cost of repairing damage to the dwelling while you occupied it.

However, whether you rent directly from the owner or through an estate agent, the refund of your deposit - let alone the payment of any interest - is directly linked to the inspections of the property before you take occupation and when you move out, as well as your obligation to return the dwelling in "a good state of repair", save for "fair wear and tear" (see "Rental deposits and property inspections: what the law says").

The Rental Housing Act of 1999 governs the letting of residential property in South Africa. It includes sections on how deposits must be managed and the conditions under which landlords may use deposits to cover tenants' liabilities.

For the purposes of the Act, a "landlord" is not only the owner of a dwelling that is rented out, but includes his or her duly authorised agent (see "Who is a landlord?" and "Who is an estate agent?", below).

If you rent through a registered estate agent under the Estate Agency Affairs Act of 1976, the Rental Housing Act states that the deposit and any interest thereon will be dealt with in terms of the Estate Agency Affairs Act of 1976.

Estate agents are required to open one or more trust accounts at a bank. The Estate Agency Affairs Board (EAAB) must be notified of the account numbers and the names of the banks where the trust accounts are held. In addition, an estate agent may invest in a savings or other interest-bearing account opened at a financial institution any money deposited into his or her trust account that is "not immediately required".

In most cases, the estate agent (not the property owner) has the sole discretion to decide whether the deposit will remain in a trust account or be transferred to a savings account.

What is crucial for tenants to note is that, unless the lease agreement states otherwise, they are not entitled to receive the interest earned on money held in an estate agent's trust account or savings account. The default position, under the Estate Agency Affairs Act, is for the estate agent to pay the interest over to the Estate Agents Fidelity Fund. However, the fidelity fund "refunds" half of the interest to the estate agent - in effect, the agent is entitled to deduct and retain half of the interest earned.

One purpose of the fidelity fund is to enable people to be reimbursed if their money is stolen from an estate agent's trust account. All estate agents are required to pay an annual contribution to the fund.

Remember, the lease agreement can provide for the interest not to be paid to the fidelity fund.

The EAAB's Code of Conduct says that an agent shall pay the full interest amount to the party entitled to the interest, or the fidelity fund (as the case may be), "subject to any written agreement in this regard between the agent and such party".

An implication of the "subject to" phrase is that, even when the interest is paid over to the tenant, it may be less a certain percentage to cover the estate agent's "administrative expenses".

In many cases, estate agents have standard lease agreements that provide for how the interest on deposits is dealt with. Good-quality rental property is hard to find, and prospective tenants may not be in a position to demand that the lease states that the interest is paid over to them.

The EAAB Code of Conduct makes it mandatory for an estate agent, before receiving any money in trust in respect of a lease agreement, to disclose to the parties to the agreement that, unless they agree in writing to whom interest earned on such money must be paid, the interest shall be paid to the fidelity fund.

In other words, you, as a prospective tenant, should be told at the outset where the interest will be paid. If the standard lease agreement does not stipulate that you will receive the interest, this is your opportunity to have the lease amended - or at least try to have the agreement altered - in your favour.

The code of conduct states that an estate agent must invest money held in trust at the "best rate of interest available in the circumstances" at the bank where he or she normally keeps his or her trust accounts. You should check what the agreement says about the rate at which your deposit will earn interest.

A senior associate at law firm Smith Tabata Buchanan Boyes says that, in her experience, the standard lease agreements used by estate agents are generally fair.

"Few agreements that I have seen had a provision in which the agent retained any part of the deposit for itself, although there sometimes is a provision for administrative charges to be paid in respect of managing the trust deposit and interest earned," she says.

But IH, a Personal Finance reader, says he has had very unpleasant experiences with estate agents' handling of deposits. IH says he had to employ a lawyer to force an estate to refund the deposit paid by his son and other students, who rented a house in Grahamstown two years ago.

In 2014, when his daughter rented a flat in Pretoria, he says the lease stated that no interest would be paid on the deposit. IH says he had to "fight" with the agent to persuade her to change the agreement. However, he says the agent is still refusing to pay interest.

IH says he approached the EAAB for help, but has received no response to his emails. "Unfortunately, the EAAB is a cozy cartel that is for the agents only."

  • Tips to ensure you get your deposit back

    Estate or letting agents say it is in your interests as a tenant to do the following to receive back your full deposit:

    1 Return the dwelling in a neat and clean condition. A landlord is more likely to take a broad view about "fair wear and tear" if it is evident that you have treated his or her property with respect. Ensure that cupboards and built-in hobs and ovens are clean, and remove any mildew from bathrooms.

    2 It is crucial that you put all communication with your landlord about damage or repairs and maintenance in writing, supported by photographic evidence. Not only will this help to prevent misunderstandings or "things falling through the cracks", but a welldocumented paper trail will also be invaluable if a dispute arises.

    3 Report damage to the landlord timeously; do not hope that it will go unnoticed or that you can leave the problem until the end of the lease. Being open and upfront will facilitate trust between you and your landlord.

    4 If you damage the dwelling and undertake to have the damage repaired before the lease expires, ensure that you do not expose yourself to further liability by using unqualified contractors and inappropriate materials. You must come to a written agreement with your landlord about:

  • The number of quotations that should be obtained;

  • Whether you or the landlord will decide which contractor to use and on what basis (price, references, quality of finishes); and

  • What will constitute restoring the property to its original condition. Tenants can only be held liable for repairs and not improvements, unless expressly agreed with their landlord.

    5 Do not make any changes to the dwelling, including painting walls a different colour or knocking nails into walls, unless the lease agreement allows you to do so, or you have obtained the landlord's consent.

    6 It is the common-law responsibility of a landlord to maintain the dwelling. However, the lease agreement can provide for aspects of this obligation to be delegated to the tenant. If the lease agreement contains such provisions, ensure that you understand your obligations. As is the case when undertaking repairs, ensure that you and the landlord agree in writing on how the maintenance should be undertaken.

    The Rental Housing Act was amended at the end of 2014. One of the amendments will make it an offence, punishable by a fine or imprisonment, or both, for a landlord not to refund a deposit, unless the landlord has lawful reasons for making deductions from the deposit. The President has yet to announce the date on which the amendments will take effect, but it is expected to be within the next six months.

  • Rental deposits and property inspections: what the law says

    The Rental Housing Act contains detailed provisions about refunding or making deductions from deposits. It states that the landlord (or letting agent) and the tenant must jointly inspect the dwelling both before the tenant takes occupation and when the lease is about to be terminated.

    Before occupation

    The viewing of a property advertised as "to rent" does not qualify as an inspection. During a pre-occupation inspection, the landlord and tenant must carefully go through the property (including any garages or outbuildings that are subject to the lease) and make a detailed inventory of any defects. The inventory should be attached to the lease agreement. It is a good idea for the inventory to be supported with photographs or video clips.

    A landlord who does not hold a pre-occupation inspection loses the right to claim against a tenant at the end of the lease.

    Landlords are not entitled to withhold a deposit for defects that were there before the tenant moved in. Either the landlord will agree to repair all or some of the defects within a certain period or the tenant can agree to take occupation despite the defects. What is agreed to should be recorded in writing.

    The Act is silent about inspections during the lease, although it is in the interests of the landlord to conduct them regularly. However, the Act does state that tenants have a right to privacy and the undisturbed use of the dwelling, so they should be given fair notice of inspections. Alternatively, the lease can provide for inspections at set intervals.

    A tenant is obliged to return the dwelling to the landlord in "a good state of repair, save for fair wear and tear".

    The Act does not define what constitutes "fair wear and tear". However, it is not regarded as acceptable for landlords to hold tenants liable for deterioration that arises in the course of the normal activities associated with daily living, such as moving about the dwelling, cooking and bathing.

    The Act gives landlords the right to claim compensation from tenants if they damage the property. In fact, this right includes damage caused by members of a tenant's household and his or her visitors.

    When the lease expires

    At least three days before the lease is due to expire, the landlord and the tenant must jointly inspect the property. If the landlord fails to attend the inspection, he or she forfeits the right to claim against the tenant's deposit.

    If the landlord has no claims for damages and the tenant does not owe rent or charges for utilities, the landlord must refund the deposit within seven days of the tenant vacating the dwelling.

    If an amount is owed, the landlord must refund the balance (if any) of the deposit within 14 days of the restoration of the dwelling to the landlord.

    Michelle Dickens, the managing director of TPN credit bureau, which specialises in property rentals, says the Rental Housing Tribunal has defined "restoration" as a reasonable time for a property to be repaired after damage caused by the tenant, or, for example, after the landlord has received the final utility bill, which might be six weeks after the tenant has vacated the dwelling.

    If a tenant refuses to participate in a joint inspection, the landlord has 21 days from the expiry of the lease to carry out any repairs and refund the balance of the deposit.

    The tenant is entitled to be given proof of the cost of any repairs, so the landlord must keep invoices and quotations.

    If the deposit is not sufficient to cover the cost of repairs, utility accounts in arrears or outstanding rental, the landlord will have to go to court to recover these losses.

    Most lease agreements specifically state that the deposit may not be used as the rental in the final month of the lease.

    If a rental property with an existing tenant changes ownership and the outgoing owner fails to pay over the tenant's deposit to the new owner, the tenant is entitled to claim the deposit from the new owner.

  • Renting directly from an owner

    If you rent directly from the owner of a property - usually, a private individual or a close corporation - the Rental Housing Act states that your deposit must be managed as follows:

    The landlord must invest the deposit in an interest-bearing account with a financial institution;

    The rate of interest must not be less than the rate applicable to a savings account with that institution; and

    You are entitled to ask the landlord to provide you with written proof of the interest that is accruing on the deposit, and the landlord must provide you with such proof.

    The Act does not make it compulsory for a landlord to require a tenant to pay a deposit. If a deposit is required - as it normally is - the Act does not provide for how the deposit amount should be calculated. It does require that the amount of the deposit must be specified in the lease agreement or "otherwise agreed to".

    The Act is very specific about when, after the lease has expired, the landlord must refund the deposit and the conditions under which a landlord may use the deposit to offset tenant liabilities (see "Rental deposits and property inspections: what the law says", above).

  • Who is an Estate Agent?

    The EAAB's Code of Conduct says that According to the Estate Agency Affairs Act, an estate agent is a person who, for gain on his or her own account or in partnership, "in any manner holds himself out as a person who, directly or indirectly, advertises that he, on the instructions of or on behalf of any other person":

  • Buys or sells property;

  • Negotiates to buy or sell property;

  • Canvasses, or offers to canvass, for a lessee or a lessor for the rental of a property;

  • Publicly exhibits that a property is for sale or to let;

  • Collects or receives any money payable on account of a lease of immovable property or business undertaking; or

  • Renders any other service that the Minister of Human Settlements may specify by means of a notice in the Government Gazette.

    Marc Bechard
    Personal Finance

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