Dealing with delinquent tenants
In the current economic climate, people are struggling now more than ever to make ends meet on a monthly basis, and that normally leads to tenants defaulting on their monthly rental payments. What actions can you take to ensure this doesn’t happen and what is the legal process for tenant eviction in light of the Consumer Protection Act (CPA)?
When it comes to renting out a property to a tenant, the first line of defence is the initial screening process. Grant Rea, a rental specialist at RE/MAX Living, says, “The initial screening process should include meeting a tenant face to face when the property is shown initially as well as collecting the essential personal information from a prospective tenant.” As a managing or rental agent, the vetting process is crucial. Gail Cawood, rental manager for Knight Frank, says, “The advice given to all rental or managing agents is to avoid the risk of bad payers and do a thorough check on the tenant before signing a lease with a new tenant. The application form should be as detailed as possible and the application process should include a complete credit check (which is sometimes problematic with younger people as they do not have much of a credit record), three months’ bank statements so that it can be seen how they conduct their account, a current salary advice slip and full employee details, including landline telephone numbers and the company name to check that they are fully employed with the company and for how long, credit references and references from previous landlords. A ‘gut’ feel will also help gauge whether the tenant is someone who is trustworthy and will look after the home as his own. As we know, nothing is foolproof, but following as many steps as possible in choosing the right tenant will help avoid having to deal with a delinquent tenant later.”
But even with extensive vetting, tenants still default on their rental payments either through financial difficulties, job loss or extenuating circumstances. What options are there when a tenant defaults?
Communicate with your Tenants
Often in a circumstance where the tenant has not paid rent, they face an embarrassing situation and may try and avoid contact with you. Before resorting to legal proceedings you can institute communication with them and see if the situation can be resolved. Rea says, “The most important aspect of dealing with a defaulting tenant is not to let a day go by without taking action. Many tenants will abuse the grace shown by agents and stretch the situation as far as possible. It is important to get things in writing and send registered letters or emails with ‘read receipts’. Remember to quote elements of the lease and state amounts owed with original documents indicating utility amounts outstanding. If adequate records are kept and you act decisively, there is no need to lose sleep over a delinquent tenant.”
Sometimes the situation can be salvaged and Bill Rawson, chairman of the Rawson Property Group, says, ““The first point to be grasped is that if you have a good or even a reasonably good tenant, it usually pays to hold onto him rather than to risk looking around for a replacement that may not be as reliable or as satisfactory. You have, therefore, to get across to your struggling tenant that although he may now be in difficulties, disaster is not inevitable provided he plays open cards with you.”
If, for example, says Rawson, the tenant has lost his job or suddenly faces huge medical expenses and simply cannot pay his rent, he must tell this to the agent or landlord immediately. Then the wise landlord/agent will try and arrange for a one- or two-month – or possibly even longer – rent moratorium, in many cases linking this to an agreement whereby the tenant pays the sums back in extra rent if and when his circumstances improve. “Obviously this can simply compound the problem,” says Rawson, “but again it is worth stressing that if the tenant has proved responsible to that point it is usually worth helping him through a difficult patch.” It might also pay to go the whole hog, says Rawson, and to draw up a new lease with the tenant where an initially significantly lower rent is compensated for by an obligatory higher rate paid six months or a year later.”
“Alternatively,” says Rawson, “the tenant in financial trouble should consider asking if he can sublet the unit or simply find another tenant to take over his lease. A big advantage of this system is that it can save the landlord paying any extra agency commission and it enables the tenant to retain control of potential visiting times, thereby preserving his privacy.”
Not all situations can be solved through communication and you may encounter a tenant who refuses to communicate and continues to default on rental payments; this is where legal action is needed. This is also where the Consumer Protection Act comes into play. All too often tenants think they have greater powers and can behave as they please as they are protected by the Act, but this is simply not true. Wayne Albutt, Western Cape regional sales manager for Rawson, says, “Tenants have sometimes picked up the idea that they are now in a laissez-faire, free-for-all situation and that they can behave in a thoroughly irresponsible and illegal manner. The reality, however, is that in property rental matters the Rental Housing Act of 1999 is still paramount and is in almost no way superseded by the CPA. Landlords and tenants should take the time to Google this act, download it and study it. It is only 14 pages long and is exceptionally clearly written and easily understood. Its great advantage is that it is fair to both landlords and tenants.”
Just a few of the salient points in the Act of which those involved in rental property should be aware, says Albutt, are that:
If a lease expires and the agent agrees to the tenant staying on without signing a new lease, either party (landlord or tenant) is by law entitled to give just one month’s notice of lease cancellation from then on. It is, however, advisable to sign a new lease because under the CPA the tenant has the right to cancel the lease at any time subject to giving 20 business days’ written notice. This does not apply to certain juristic parties, but be warned, if the cancellation right is exercised, the CPA also stipulates that the landlord is entitled to a ‘reasonable’ cancellation fee and this could be as high as three months’ rental. However, if the tenant is replaced quickly, the cancellation would in most cases be far lower.
It should also be clearly understood that the Rental Housing Act gives landlords and agents ample power over tenants who default on their rental payments. Among the public, says Albutt, it is now a common misconception that the Consumer Protection Act will make life for defaulters easier – but this is not so.
“Section 4 (5) (c), of the RHA, actually stipulates that the landlord/agent has the right to cancel the lease the moment a rent is paid late. This could mean that if it is not paid on the stipulated date, the very next day the landlord/agent is entitled to cancel the lease and if the tenant is then tardy about leaving, the landlord can apply for an eviction order. In some cases, the lease may provide softer terms and conditions, which would take precedence over the Act, but this should never be assumed until the facts have been checked out,” says Albutt. There are certain other clauses in the Rental Housing Act which are frequently misunderstood and a good rental agent, if properly trained, will quietly and patiently work through these clauses with the tenant and the landlord at the start of every lease.
What is the legal eviction process?
JP Ricketts, Seeff rental manager, says, “Payment of rent is due on or before the date specified in the lease agreement, usually the 1st of each month. A tenant may only be evicted once a breach in lease has occurred that has not been remedied, and then only through obtaining a court order. One has to send a Letter of Demand to the tenant, informing them of the relevant breach in lease and giving them 20 business days’ notice to remedy the breach. This could theoretically be on the second day of the month. If no payment is received by the end of this 20 business-day period, i.e. the breach has not been remedied, a letter cancelling the lease is sent, giving the tenants notice to vacate. The tenant could then also be listed with a credit bureau. Should the tenant not vacate the premises after cancellation of lease, an eviction order would have to be sought and due process followed. The proper legal channels have to be followed and the services of a lawyer specialising in the field of evictions should be sought.”
Martin Oostehuizen from Oostehuizen & Co outlines the eviction process for managing agents. The managing agent must have the written authority of the landlord to act in such a matter. The process is different if the property is urban or rural, but presuming it is urban, it involves the following:
- Notice to tenant to vacate – minimum one calendar month notice. If the tenant fails to vacate, he/she becomes an illegal occupier.
- Ex parte application to court for service directive (how the main application must be delivered to the occupier) – no notice required, but dependent on court availability.
- Application to court for an order to vacate, supported by affidavit of the landlord or his representative – minimum five working days’ notice.
- Now it depends on the response of the occupier, if any.
- If no response, the court can, after another five working days’ notice to the occupier, give an order to vacate, failing which the occupier will be evicted – normally the court allows reasonable time for the occupier to find alternative accommodation
- If the occupier opposes the application, he/she has to give notice of such opposition within the five working days allocated.
- The occupier must then file an opposing affidavit within 10 working days of his/her notice of opposition.
- The applicant may then file a replying affidavit within 10 working days of the opposing affidavit.
- Thereafter the applicant may within five working days apply for a court date – which will be allocated as soon as possible depending on the availability of court dates.
- On the hearing date, each party has the opportunity to address the court. This process is regulated by the court rules.
- The court may postpone the matter in order to deliberate.
- Once the court has made a decision, the court will make an order.
- The applicant, if he/she is the successful party in eviction matters, very seldom gets a cost order against the respondent.
The process above may be protracted by postponements on the request of either party, at the court’s discretion. It can become a lengthy and frustrating process, depending on the nature and vigour of the opposition. It is therefore imperative that the application must be done correctly first time around.
It is very important to note that the provisions of the Prevention of Illegal Eviction Act need to be complied with. Actions such as changing the locks, interrupting services and threatening action and forcible eviction without a court order are unlawful, and will result in a delay in the eviction process and can lead to criminal cases. The best way to deal with a delinquent tenant who refuses to communicate or be part of a solution is to follow the letter of the law. Communication is key and can often be used as a solution. Evictions are a lengthy and costly procedure and can in some instances take up to three months. If, however, communication fails, then the best method of eviction is to follow the due legal process and to institute proceedings straight away to avoid rental arrears building up.
Text: Colleen May