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Security deposit – is it safe?

MAIN IMAGE: Robyn Shepherd of Schoeman Law

Robyn Shepherd

One of the first roadblocks prospective tenants face when looking for property to rent is the security deposit. The purpose of a security deposit is to protect the landlord against any possible damage the tenant might cause or to cover the costs should any other unforeseeable event occur.

A security deposit agreement is an agreement between a landlord and a tenant where the tenant deposits a specific amount of money with the landlord at the time the lease is signed. This security deposit is usually an amount of three months of rent.

The security deposit agreement may stand-alone, or it may be part of the lease agreement. It will include the amount of the deposit, if the money will be held in escrow, the interest rate applicable, and the terms under which the landlord may keep the any of the deposit. The security deposit agreement will also specify the process for returning the deposit.

Section 5 (3) of the Rental Housing Act 50 of 1999 requires the landlord to invest a deposit into an interest-bearing account, which is for the benefit of the tenant. However, many tenants are unaware of this requirement by the Act, and many landlords use this as an advantage by not refunding a tenant the interest earned on the deposit paid. Landlords are known to not include this provision in a lease agreement, and if a tenant does not read through the lease agreement thoroughly, he/she will be unaware of it.

Additionally, a tenant has the right to request the landlord to provide written proof of the interest accrued, and the landlord must provide such evidence, provided that where the landlord is or has a registered estate agent in terms of the Estate Agency Affairs Act 112 of 1976, the deposit and any interest shall be dealt with under the Act.

On the expiry or termination of a lease, the tenant is entitled to a refund of the deposit initially paid. The deposit and interest accrued must be refunded to the tenant within seven days of the expiration of the lease agreement. Should there be any property damage, the landlord can use the deposit plus the interest accrued towards the cost of repairs for any damages.

Security deposits play a beneficial role for both the landlord and the tenant.

According to Property Power Magazine, Section 5 of the Rental Housing Act, No 50 of 1999 allows a landlord to take a deposit from a tenant prior to the tenant moving into the property. The amount of the deposit must be stipulated in the lease agreement. It is conventional practice to pay an amount equal to one-month’s rent as a deposit.

However, due to defaulting tenants and the lengthy process involved to evict a tenant in default, some landlords are now asking for two month’s rent as a deposit.

The Act also requires that the landlord deposits this money into an interest-bearing account, held with a financial institution. The tenant has the right to request a statement of interest earned on his money at any time. The tenant is also entitled to receive the deposit and all interest earned on the money over the period it was held for, at the end of the lease agreement period.

Since there are “fly-by-night” estate agents in the market it is important to make sure that you, as the landlord, deal with an agent (or managing agent) who is certified in terms of the PPRA. This is important for the tenant as well, as the tenant is entitled to ensure that his deposit is protected and that it will be repaid when the lease terminates.

It is the landlord’s right to deduct any expenses (from the deposit) incurred from repairing damage to the property which occurred during the lease. The balance of the money must then be refunded to the tenant. The tenant has the right to see all repair receipts to confirm what was spent to the property, to repair the tenant’s damage. The landlord may not deduct costs for general maintenance and upkeep (wear and tear) of the property, from the tenant’s deposit.

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