Category Archive: Lease Agreement

Unpaid municipal bills – what’s a landlord to do?

The sting in the tail when a tenant moves out is often a legacy of unpaid bills

Your tenants have moved out, either willingly or through the eviction process. Then you get hit with a large unpaid rates bill by the local municipality. What do you do?

Utility bills can be a sore point for landrlds and tenants. They don't have to be.

If it comes to this, the answer is very little. It’s more important to avoid this scenario altogether. We’ll look at what to do if this happens to you, and in Utility bills – who’s responsible and how to manage them we show you how to prevent it happening again.

Whose bill is it anyway?

Ultimately, the payment of utilities and taxes (often combined in one “rates” bill by the municipality) is the responsibility of the property owner. You may agree that these will be paid by the tenant, but if the tenant reneges on this obligation, the municipality will be within its rights to chase you as owner for payment.

The account may be registered in the tenant’s name, and you may have ensured a watertight wording in your lease agreement to this effect. But don’t take too much comfort from this. There have been many cases of tenants vacating premises and leaving accounts left unpaid. Property owners would deny responsibility as the account was in the tenant’s name. Municipalities, understandably, ran out of patience and many now do not allow the account to be in any name other than the registered owner of the property. If the account was registered prior to this decision, it may still be in the tenant’s name, but unfortunately that does not absolve you of the liability for the account.

Recovering unpaid bills from a tenant

Your first port of call is of course the deposit. For this reason it is a good idea not to be too hasty in returning the deposit after the tenant moves out. They will of course pressure you for prompt payment, particularly if they have to pay a deposit on a new property. But you are within your rights to ensure there are no outstanding unpaid bills against the property as well as checking the inventory and inspecting the property for damage. If you have taken two months’ rent as a deposit, hopefully you will have enough to cover what is owing. However, this may not be the case if the rates have gone unpaid for some time or if there are cleaning and repair bills to cover too. 

If the deposit in insufficient to offset the debt, in the first instance try to contact the tenant and ask for settlement. Be reasonable and offer to accept payment by instalments. An acknowledgment of debt signed by both parties is a good idea. If the tenant does not offer or is unable to pay the full amount upfront, you must pay the bill yourself. Failure to do so may result in the property’s utilities being cut off, which will only give you a bigger headache if you have new tenants or are trying to re-let the property. Recovering the debt is your problem, not the municipality’s.

Recovery via Small Claims Court

It is always better to settle amicably and out of court, but if that fails, and the debt is less than R20 000, you can pursue the debtor through the Small Claims Court. You do not need an attorney for this action and indeed are not permitted to be represented by one. Find your nearest Small Claims Court and contact the Clerk of the Court, who will instruct you in the procedure.

Help from the services of an expert lawyer

The Small Claims Court has limited powers. You may not be successful in recovering your unpaid municipal bills, or the amount may exceed R20 000. If you choose to continue to pursue your tenant for the money, you will need to sue them, using the services of a suitable law firm experienced in litigation. At this stage you will have to decide whether it is worth the hassle. Sometimes the prudent course of action is to cut one’s losses and move on. This is a personal decision, and we at SDLAW will support you if you choose to litigate.  

Prevention is better than cure

If you are reading this because you have been stung by a tenant, it is of little consolation to know that the situation could have been prevented. But presuming you will continue to lease your property and manage tenants, you will want to take the necessary steps in future to ensure you are not landed with an outgoing tenant’s rates bill again. Read Utility bills – who’s responsible and how to manage them to find out how to avoid this sting in the tail.

Seek the guidance of an expert eviction lawyer

If you need to pursue a tenant who has left you with unpaid municipal bills, contact Simon on 086 099 5146 or email sdippenaar@sdlaw.co.za to discuss your case in confidence. Eviction lawyers Johannesburg and Cape Town are experts in rental property and will help you choose the most appropriate course of action for your circumstances. We will also advise you on lease agreements and tenant screening to ensure your tenancies run smoothly in future.

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Utility bills – who’s responsible and how to manage them

The end of a tenancy is not the time to discover your tenant has not been paying the municipal bills or “rates” – property taxes and utility bills like electricity, water and sewerage, etc. At that stage you are faced with the difficult task of trying to recover the money. It is far better to ensure due process is in place from the outset of the occupancy to cover all bills that will accrue to the property. This is best done via a written lease agreement, which sets out the terms and conditions of the rental and can be as detailed as you like, clearly stating the responsibilities of tenant and landlord for every cost. For example, you may wish to differentiate between utilities like water and electricity and “add-ons” like WiFi and garden maintenance. 

Rental Housing Amendment Act

Remember that when the Rental Housing Amendment Act comes into force it will be a requirement to have a written lease. If you don’t have one now, it’s time to draw one up. You will only have six months from when the Act becomes law to comply. This is your chance to incorporate all these details into your rental agreement with your tenant. 

Prepaid electricity meters

One of the simplest ways to avoid disputes over electricity bills is to install a a prepaid electricity meter. This is becoming more and more common in rental properties. The landlord has the comfort of knowing the electricity is paid for, and the tenant has control over consumption and can make economies if necessary, an option not available if the rent is “all-in”, i.e. the landlord pays the bills and allows for the costs in the rent charged (see below). Many municipalities no longer allow electricity accounts to be in any name other than the registered property owner, so a prepaid meter is a good compromise. The landlord remains the responsible person, and the tenant has no choice but to pay for use. If the account is not in the owner’s name, perhaps because the tenant has been in situ for a long time, it is a good idea to have the account transferred, as the owner will be held liable regardless.

Other utility bills

If the municipal account is still in the tenant’s name and the tenant is responsible for payment, the landlord can ask the tenant for proof of payment each month. If this is not forthcoming or there is any suspicion of arrears, you as registered owner are entitled to ask the municipality for a copy of the account. If you exercise diligence in ensuring these accounts are up to date, you will avoid any nasty shocks at the end of the rental period. 

“All-in” rent

An option some landlords prefer is to take on the liability for all bills (sometimes with some exceptions as noted above). The rent is then adjusted to accommodate this. This is known as an “all-in rent”. There are pros and cons to this arrangement for both parties. For the tenant, it can be helpful, certainly in terms of budgeting, to have one monthly fee to pay. The cost of living in the property won’t vary summer to winter with changing consumption patterns. For those on a tight budget this can be a real boon. The downside, from the tenant’s perspective, is that there is no financial benefit to be gained from minimising consumption. (And this may lead to waste, a downside for the landlord.) The tenant also does not have any utility bills in their name, which can be a problem when address verification is needed for credit or other applications. However, the lease will usually suffice.

For the landlord, there are no concerns about unpaid bills. Everything is under their control. However, the adjusted rent is based on past average consumption. If the tenant is wasteful in their use of water, gas or electricity, the owner can be faced with a bill in excess of what has been included in the rent. The solution to this is a clause in the lease agreement stating that the landlord reserves the right to make a surcharge should consumption exceed reasonable amounts (“reasonable” can be difficult to define so the wording may refer to a figure or percentage). The landlord will also bear the burden of rate hikes, as they cannot increase the rent until the lease is due for renewal.

The alternative – charging utility bills to the tenant as they arise

A more transparent, albeit more labour-intensive, solution is to charge the utilities to the tenant as they arise. This means the landlord will always carry one month’s obligation for these costs and may still be left with unpaid bills at the end of the tenancy, but any liability will be limited and should be covered by the deposit. If this process is adopted, property owners should remember that tenants have a right to be treated fairly and equitably. It is good practice to:

  • Provide the tenant with copies of bills and meter readings
  • Give the tenant a formal invoice for their share of the costs as set out in the lease agreement
  • Avoid charging the tenant an estimate if the meter reading has not been done for the period. Many Rental Housing Tribunals do not support this practice. It is usually possible to email a photo of the meter reading to the municipality and request an accurate bill
  • Provide the tenant with a monthly statement and keep a record of all communications pertaining to utilities (this is particularly important for transparency where the rent is all-in)

It’s important to note that a property owner may not charge property taxes to the tenant. The cost can be factored into the rent, but may not be passed on to the tenant in a literal sense. 

Whether you opt for an all-in rent or charging the tenant on a PAYG basis, this can be a workable solution, particularly for a property owner who has been saddled with unpaid bills in the past. At the end of the lease, it is reasonable to deduct any amounts owing from the deposit, and this should not trigger a dispute, particularly if clearly stated in the lease.

Landlords may not…

Finally, if you hold control over power and water, it may be tempting to use this as leverage if your tenant fails to pay rent or breaches the lease conditions in any other way. Don’t do this! It is unlawful to disconnect your tenant’s electricity in the event of non-payment of rent. Disconnection without a court order is illegal. If your tenant is in arrears with rent, you must follow the correct eviction procedure as set out in the Rental Housing Act and Consumer Protection Act (CPA) and give them an opportunity to rectify the breach. 

Seek the guidance of an expert eviction lawyer

If you need help to draw up a lease agreement, screen tenants or negotiate utility bill arrangements with your tenant, contact Simon on 086 099 5146 or email sdippenaar@sdlaw.co.za to discuss your case in confidence. Eviction lawyers Johannesburg and Cape Town are experts in rental property and will help you select the best option for your circumstances. We will ensure your tenancies run smoothly, with no nasty shocks waiting in store for you.

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Rental arrears? Is it worth trying to collect?

What can you do when your tenant falls into rental arrears?

Nobody wants to fall into rental arrears, but unfortunately it happens. Times are tough, and the economic climate isn’t forecast to improve for some time yet, so it is all too common for tenants to default on their rental payments.

Arrear rentals - eviction lawyers

This is a stressful situation for both landlord and tenant and it must be approached with caution and a full knowledge of the rights of each.

What’s in the lease?

Depending on the specific lease agreement, in general, if a tenant is seven days late with their rental payment, they are then deemed, in the eyes of the law, to be in breach of the lease agreement.

It is up the landlord to inform the tenant in writing of the arrear rental, but the landlord does not have the right to immediately evict the tenant. Through this official notice, the landlord is giving the tenant the opportunity to resolve the breach of the lease agreement. A landlord can blacklist the tenant with credit bureaux at this point.

In general, if the tenant does not resolve the arrear rental within 20 days, the landlord can consider cancelling the lease, and suing for the arrears. The landlord may attach the tenant’s belongings in terms of the landlord’s tacit hypothec. They can also begin the eviction process. A landlord cannot evict a tenant without following the correct legal procedure. For that reason, if a tenant has defaulted on their rental payments, a landlord should obtain legal assistance as soon as possible.

Tacit hypothec

If a tenant falls into rent arrears, common law grants the landlord “tacit hypothec” over the tenant’s goods on the property. What does this mean in plain English? “Hypothec” is an old term, dating back to the 16th century and having its origins in French, which has survived in legal jargon and means “a right established by law over a debtor’s property that remains in the debtor’s possession”. Tacit means “implied” or “understood without being stated”.

When might the landlord’s tacit hypothec apply?

The provision for tacit hypothec is enshrined in Section 32 of the Magistrates’ Courts Act. Section 32 allows a landlord to apply for the attachment and, in certain circumstances, for the removal of a tenant’s movable goods in the leased premises, in lieu of rent owed. A landlord may choose to invoke Section 32 because it can be more effective than a rent interdict summons. Understandably, tenants will not want to see their possessions impounded and may respond more swiftly to this threat than to an interdict for payment of arrears.

How does it work?

The landlord applies to the Magistrate’s Court for an attachment under Section 32 in securitatem debiti – in other words, to secure the debt. However, if there is reason to suspect the tenant might abscond with the goods, the landlord can request an immediate order. This allows for removal of goods as security for unpaid rent without giving notice, because such notice could result in the tenant removing things in advance, thus rendering the landlord’s tacit hypothec worthless.

Burden of proof

It is the landlord’s responsibility to prove grounds for a Section 32 order. If the application is opposed and a dispute arises, resolution is based on the balance of probabilities. If this fails, there must be substantial doubt regarding the landlord’s case for the attachment to be set aside. Therefore, the landlord’s right to enjoy the rental income from a property is protected, but that right may not be abused by invoking Section 32 without due cause. In this way common law seeks to treat all parties equitably.

Costs and benefits of collecting arrears or invoking the tacit hypothec

As with anything in business, it’s important for landlords to weigh up the costs and benefits of any action taken. Loss of income through rental arrears is never pleasant but will the cost of recovering the lost rent be worth the effort? The benefit of invoking the landlord’s tacit hypothec is that it compounds the effectiveness of the eviction procedure. A tenant, particularly one with a history of flitting, may not be unduly fazed by an eviction notice. The threat of losing belongings may be taken more seriously. It adds litigation pressure and puts the landlord in a better bargaining position, resulting in more likelihood of the tenant meeting the rental demand. If the tenant has little of any value to attach, the landlord can apply for a long-term order. This is binding for 30 years against the occupier’s assets or salary, so there is no escaping!

On the other hand, there are legal costs involved. Although the tacit hypothec gives the landlord a bargaining chip, assets are not cash. It may be some time before the landlord can recover arrears and costs. If all else fails and the landlord takes the tenant’s goods to auction, to realise the rental arrears, the Sheriff costs can be in excess of R5 000. There are also storage costs to consider while holding the goods as collateral.

Time to cut one’s losses?

If the rental arrear is not substantial, e.g. R10 000 – 15 000, it may not be worth pursuing.  This is not to suggest that tenants should get away with not paying their rent. But if the proper procedures are followed, i.e. the tenant is given a chance to rectify the breach of the lease agreement, and the rent is still not forthcoming, it may be best to begin the eviction process and leave it at that. The sooner the recalcitrant tenant is off the property, the sooner a new occupier can be found and the income stream can start flowing again.

Eviction Lawyers South Africa can help

However, if your loss is significant, we can help you recover your rental arrears, using the landlord’s tacit hypothec if necessary Cape Town law firm SD Law & Associates are property and eviction lawyers in South Africa, with offices in Cape Town, Johannesburg, Durban and Pretoria. We uphold everyone’s constitutional rights and act for both landlords and tenants. If you’re a landlord with unpaid rent and you would like to take action, or if you are in rent arrears and think you may be subject to a Section 32 order, we can help. Contact Cape Town Attorney Simon on 086 099 5146 or email sdippenaar@sdlaw.co.za.

Source: Eviction Specialists

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