Take care of good tenants and landlords
MAIN IMAGE: Grant Smee, managing director Only Realty; Pearl Scheltema, CEO Fitzanne Estates; Paul Stevens, CEO Just Property
Loss of jobs or reduction in salaries has led to more tenants defaulting on their rent in the months since March. This left many landlords also without an income, however, industry experts caution against hasty decisions about eviction orders.
Grant Smee, property entrepreneur and managing director of Only Realty, believes a few key factors are currently at play with the residential property industry, and that both landlords and tenants need to be aware of the bigger picture.
“We’re seeing an excess amount of vacant properties. Tenants have either: been evicted; had to move out due to affordability; or, in the case of Airbnb’s, are vacant due to a lack of tourism. This is particularly evident in Cape Town, our major tourism hub”, he says.
Also read: Airbnb’s flood rental market
Don’t be too quick to evict
The most common cause of lease cancellation is rent not being paid in full or on time, but landlords shouldn’t be too quick to evict otherwise good tenants, warns Pearl Scheltema, CEO of property management company Fitzanne Estates.
“If you have an overall good tenant who usually pays rent on time and has only defaulted due to lockdown, I recommend that you be lenient. Allow the tenant time to negotiate a plan with you,” she advises.
Scheltema explains that evicting a good tenant could result in loss of income if it takes a month or two to find a new tenant. The landlord may also find that with the oversupply of affordable rental accommodation available, he may have to drop the rent to get new tenants. “In the long run it’s better to accept an equivalent loss of income from a good tenant than to expose yourself to the unknown,” she says.
Smee also urges landlords not to get ‘desperate’ when looking to fill empty properties. “Prior to lockdown, we saw supply outweighing demand and this trend continues. Affordability levels by tenants are more important than ever before and I would strongly appeal to landlords to do their due diligence before selecting a tenant for their property”.
According to the latest PayProp rental survey the lockdown resulted in more (24%) tenants being in arrears with rental compared to March (20%). More alarming was the increase in the average size of arrears, from 78% of monthly rent in March to a massive 84% in April – and analysts expect the situation to have worsened during May and June. Huge industries such as the wine and tobacco industries as well as the tourism industry continue to see closure of businesses with thousands of jobs lost with no indication when level 3 will end.
Eviction process in level 3
During the original lockdown timeframe, no one could move, and evictions were not permitted. During level 3 the sheriff services resumed, the deeds offices reopened, and consultations related to evictions may take place. This means that an attorney is permitted to prepare an order for eviction, which may be granted during level 3. “However,” Scheltema cautions, “the order is suspended and cannot be executed until the last day of level 3.” It is only if a judge is convinced that there are compelling circumstances that an immediate eviction may be granted.
In the case of vulnerable individuals such as children, the elderly, disabled people, or woman-headed households, the court may want to ensure that the unlawful occupier can find alternative accommodation or that the landlord behaved fairly and reasonably throughout.
If the court is satisfied that the case for eviction is sound, the tenant (unlawful occupier) will be given time to vacate the property. Only if, despite this process, they fail to vacate the property within the specified period, the sheriff will be authorised to remove them and their belongings from the property. The cost of this will be borne by the tenant.
Landlords may not change the locks, physically remove personal property, or behave in a threatening way toward the tenant – only the sheriff may take any physical action against the tenant.
Rental commission and defaulting tenants
An oft raised question is if landlords are losing out on income whether rental agents are entitled to their full commission? As explained by attorney Marlon Shevelew, a legal expert in rental matters, the simple answer is that it all depends on the wording in the agreement between the landlord and the agency.
Should the wording read ‘that commission is earned on rental collected by the agent’, then it would mean that the agent will not be intitled to claim commission. There are also clauses that stipulate quite plainly that the landlord will be liable for the commission regardless of whether the tenant pays rental or not. However, there are also more ambiguous agreements that states that ‘commission will be payable on the monthly rental amount for the duration of the lease’. In the latter case, says Shevelew, the fact that the tenant is in arrears or defaulting, does not absolve the landlord from his responsibility from paying commission each month. Such an agreement may include a clause that the landlord could recover some of the commission payable from an early cancellation penalty.
Find the full explanation in: Must commission be paid if tenants default?
There are some agencies that stepped in to pay the commission owed to rental agents. Paul Stevens, CEO of Just Property, explains why they decided to take ‘the knock’ on behalf of landlords who weren’t receiving rental income.
Good rental agents work hard to manage properties across a range of service areas, and rent collection is one part of a larger service commitment that also includes maintenance, inspections, disbursements, body corporate matters and liaison between landlords and tenants. In situations where tenants do not fulfil their rental obligations, agents often need to work even harder, issuing letters of demand, negotiating payment plans, initiating legal proceedings etc. Agents are still rendering their services and, for this reason, should receive their full commission.
Our agents receive their commission in a lump sum at the commencement of a lease, in recognition of services rendered (placement of a tenant) or in advance for services that will be rendered over the term of the lease (management services). This protects their income, which we believe is critical if we are to retain our agents, especially during these troubled and turbulent times. As agencies, we need to do what we can to protect the needs and interests of our agents as much as possible and, in this case, it means taking the knock.
As an agency, our role is to partner with landlords, to walk with them through this period and to assist them in every way that we can. At a time like this, we are there to support them and should not charge them a commission while they are not earning any income. We (the agencies) take a knock while they (the landlords) take a knock and, acting in good faith, we carry on doing the job required. We need to take a long-term view here as, I believe, this is what builds trust and relationships that transcend tough times like this.