How Alert Level 4 impacts landlords and tenants
MAIN IMAGE: Samuel Seeff, chairman of Seeff Property Group; Cilna Steyn, managing director of property law firm SSLR
Moving from lockdown into Alert Level 4 did bring relief for some but brought little change to the rental market as tenants are still unable to move out of their current rental premises and estate agents may not do physical inspections. One change is that courts may grant eviction orders but it may only be executed after Alert Level 4 ends (unless otherwise decided by the courts*).
“The rental market has been hit with a double whammy in the form of the Covid-19 lockdown and the deteriorating economic climate,” says Samuel Seeff, chairman of Seeff Property Group. Many tenants are faced with reduced income and many will suffer the inevitable consequence of job losses. Preliminary information from TPN indicates that almost 16% of tenants did not pay their full rent in April and a further 16% did not pay any rent at all, and TPN expects this to deteriorate further as the lockdown progresses.
Many landlords are dependent upon rental income and are now obliged to make arrangements with banks or financial lending institutions for relief on mortgage payments and with their local municipalities regarding levy payments.
Unfortunately phasing out of the complete lockdown into Alert Level 4 won’t bring much relief to the rental market sector.
Where does Alert Level 4 leave landlords and tenants?
While moving into Alert Level 4 brought relief for some with for instance more people able to return to work, it has brought little change to the residential rental market. “Both tenants and landlords will remain in a holding pattern until such time as the regulatory restrictions are lifted to such an extent that movement can take place,” says Seeff.
Tenants may not move: During Alert Level 4 people are still only allowed to leave their home if it is for work purposes when they fall under essential services (which now includes more business sectors); need medical care or supplies; are going shopping for any items on the broadened approved list of goods that may be sold; exercise within the set restrictions. People are also allowed to return to their home to be close to their work if before lockdown they found themselves elsewhere in the country.
However, people can’t take occupation of their new properties and tenants are still not allowed to move to other accommodation says Cilna Steyn, managing director of property law firm SSLR.
What about people that signed lease agreements to take occupation on 1 April? Steyn explains that this would still not be allowed as the regulations clearly state ‘return’ to a previously occupied place of residence. However, persons classified as essential services under Alert Level will be able to move into temporary accommodation, as allowed for in the regulations, to be close to their place of work.
Will estate agents be able to do inspections? “Estate agents will not be able to do physical inspections because they are not allowed to function under Alert Level 4,” says Steyn. However, inspection and maintenance software platforms are available that make it possible for agents to continue performing this important function without physically visiting the tenant’s premises.
Courts may grant evictions – what does that mean? During lockdown there was a complete moratorium on all evictions. That has now changed. According to the new regulations for Level 4 a competent court may grant an eviction order: “in terms of the provisions of the Extension of Security of Tenure Act 62 of 1997 and the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998: Provided that any order of eviction shall be stayed and suspended until the last day Alert Level 4”. Steyn says this means that a landlord may apply for an eviction order from the court but it may only be executed after Alert Level 4 is lifted.
“It is very important that landlords start that process now and not wait till Alert Level 4 is lifted,” says Steyn. She explains: “Because there will be a major influx of cases to our courts once we can function again, meaning that our court rolls will be extremely congested which will lead to a delay in the time period to obtain eviction orders. Starting as soon as possible with the eviction process will allow an owner to obtain the order, which could mean that as soon as the regulations allow, they can execute the eviction order and then place a new paying tenant as soon as possible. To only commence proceedings in Alert Level 3 will lead to an even more severe loss of income.”
For more on how lockdown level 4 restrictions affect tenants and landlords watch this discussion between SSLR’s Rowan Terry and Cilna Steyn with Bruno Simao of Bruno Simao Attorneys.
Holiday rentals: Due to the decline in tourism, an influx of holiday rental stock is also expected. Property owners may need to consider storage of furniture if they do not want to suffer financial losses.
University rentals: The Consumer Protection Act (CPA) allows for cancellation of leases giving 20 business days’ notice and the landlord will then be entitled to a fair penalty. The challenge of course is that the landlord cannot fill the space for as long as there is a restriction on movement. As with residential rentals, landlords need to be accommodating and there will need to be a level of give and take here too.
For now ‘there should be give and take’
Currently thousands of people are still unable to return to work because of the regulatory restrictions during Alert Level 4. This is a nightmare situation both for tenants who are without financial means to pay their rent and for their landlords who have to forgo the rental income. “Each landlord/tenant situation is unique and must be approached as such with a solution for their particular challenges. There should be give and take where needed,” advises Seeff.
He says landlords will need to negotiate with tenants in the event that the tenant is finding it difficult to pay their rent. “Keep in mind it may be difficult to replace the tenant at the same rent or at all in the aftermath of the lockdown. Tenants who can, should continue to pay. Those who find themselves in difficult financial conditions should liaise with their agent or landlord,” he says.
Also read: Answers to lockdown rental questions
Seeff’s advice to landlords and tenants is to make use of the various relief programmes available, if it is at all possible for them to qualify for any form of assistance. Landlords, who are dependent on the rental payments to cover municipal rates and taxes, can approach their local municipality for relief.
Various municipalities have announced some form of relief. In the Cape the City of Cape Town, Stellenbosch, Overstrand and Mossel Bay municipalities are all offering some form of payment relief to property owners whose accounts fall into arrears due to loss of income from the coronavirus crisis.
What can landlords and tenants expect post-lockdown?
Rental agents should expect a great deal of movement post-lockdown. Many tenants will need to find more affordable accommodation or move in with family or friends if they lost their jobs or had to take a pay cut. Rental rates are expected to be under pressure.
Landlords should expect that rental rates will come under pressure even if there is a higher demand for rental accommodation because tenants simply cannot pay more. Rental stock will increase after the lockdown as many sellers, especially developers, look to withdraw their properties from the sales market until conditions improve.
(*This was added after the article was published. Editor.)