Thursday, February 26, 2015

The New Rental Housing Amendment Act

Changes to the rental housing environment have been proposed with the Rental Housing Amendment Act. Although at first glance, the proposed changes may not seem overly dramatic in nature, a closer study does reveal implications both for landlords and tenants. Any person that contravenes the Act can be held liable and face criminal charges, but landlords specifically are a focus of the proposed legislation.

To start with, tenants may now ask for written receipts for all payments made, which include dates, a description of the property to which they relate and details of the purpose for which payments were made eg. rental payments, arrears, deposits etc, as well as for which period the payments were made. This can help a tenant with proper recordkeeping of payments made and serve as proof against allegations of non-payment.

The landlord can also not unreasonably withhold consent for the subletting of the property. What is meant with “unreasonable” will have to be established by the Provincial Rental Housing Tribunal (“Tribunal”) or a court of law.

Landlords must also invest the deposits they receive from tenants in an interest bearing account at any financial institution, for which interest accrued may not be less than from a savings account. The tenant may also request the landlord during the period of the lease to provide him with written proof of the interest accrued on the deposit and the landlord must provide such proof. Granted, the investing of the deposit received from the tenant is not a new regulation - but the legislator intends making it tougher not to comply with as the landlord can face up to two years in jail or a fine if contravened.

In addition the responsibility now falls to the landlord to arrange for a joint inspection with the tenant at the termination of the lease on a date and time that suits both parties. Importantly, this is not a joint responsibility but a responsibility of the landlord. If not done by the landlord it is assumed that the property was returned in good order and the landlord cannot withhold the deposit for repairs or maintenance.

Furthermore tenants must be provided with fit and suitable accommodation to live in. If a tenant’s health or safety is compromised, the landlord can be held liable. How onerous this right will be in reality only time will tell, and would in our view have to incorporate some measurement of reasonableness in any evaluation.

An interesting inclusion is the requirement that all lease agreements must now be in writing, and that the Minister of Human Settlements will create a standard lease agreement to be used in all official eleven languages. Making written lease agreements compulsory will make the evidence of lease terms easier and help protect tenants against unscrupulous landlords, and landlords in turn against tenants that refuse to pay rent claiming no agreement exists. That said, formalising a written contract for something as basic as a R500 rental for a few months could be excessive. Other questions arise, such as what happens if the lease is not in writing – is it void from the beginning or voidable? Can parties sign different language versions of the rental agreement, and what will happen if there is a discrepancy in interpretation? These scenarios will have to be addressed to avoid more rather than less confusion.

Despite certain question marks regarding the practicalities of the proposed amendments, the intent of the legislature is positive in seeking to reduce uncertainty and abuse in the rental environment. Once implemented landlords in particular, given the criminalisation of transgressions, will need to review their current rental processes and agreements and ensure compliance with the new amendments.

Are you liable for historical arrear property rates on your property?

Who is responsible for historical arrear property rates and taxes on your property? The good news is that the person who owned the property at the time the debt was incurred is liable. But did you know that a municipality can in some instances cause your property to be sold in execution for debts being owed by a previous owner?

Municipalities are obliged to collect charges that are payable to them for property rates and taxes and for the provision of municipal services. If you buy a house, the relevant municipality will - after the Seller has settled the required amount - issue a clearance certificate that certifies, amongst other things, that all debts have been settled in respect thereof for two years preceding the date of application for the certificate. Now the question arises: What about debts owed to the municipality that are older than two years?

The short answer is that of course the person who owned the property at the time the debt was incurred will be liable. Despite this reality, a threat exists to the new owner of the property based on the infamous section 118(3) of the Municipal Systems Act which provides a municipality with a lien over a property within its jurisdiction to secure payment of money due to it on that property.

What this means is that if there are monies owed to the municipality which relates to the property, the municipality can obtain a judgment against the person liable for the debt (remember it will be the person who owned the property at the time the debt was incurred), but because of section 118(3) the municipality will have the right to attach the property and cause it to be sold in execution to recover the money being owed. And this property may just be that dream house that was registered in your name not that long ago.

Our Supreme Court of Appeal ruled that the transfer of ownership does not destroy the lien created by section 118(3) and the lien will in fact "follow the property". The appalling result of this is that a new owner may be forced to have to save his property by paying the municipal debt of someone else. You can later try and recover the money from a previous owner, but this may be a futile exercise, leaving you even more out of pocket.

A notable exception to the above rule is where properties are purchased at execution sales where the municipality did not exercise its rights in terms of its lien. In such a case, our courts have recently ruled, the lien of a municipality over a property lapses. Accordingly, where a municipality is aware of the sale in execution of a property and it issues a clearance certificate without any objection or without exercising its rights in terms of section 118(3), the purchaser will acquire a clean title over the property.

Not all debt older than two years are recoverable by the municipality and it is necessary to distinguish between the following types of debt:  rates charges (taxes) and charges for electricity, water, gas and sewer and refuse charges. The reason for having to differentiate is because certain debts prescribe after three years in terms of the Prescription Act and are no longer enforceable.

Rates and taxes only prescribe after 30 years and electricity, water and gas charges after 3 years. It would seem that, at least at present, sewer and refuse charges also count as 'rates and taxes' and will thus only prescribe after 30 years.

If you are a potential buyer your must consult with your attorney who can assist you to include a relevant provision in the Deed of Sale that obliges the Seller to settle all debts due to the relevant municipality, and not just the debt incurred during the two years preceding the date of application for the clearance certificate.

As a Seller you would need to consult with your attorney to discuss any provision in the Deed of Sale which has the effect that you guarantee that all debts due to the municipality are settled.

Also estate agents should take note and ensure that their pro forma contracts cover this scenario and that they inform the parties of the effect of section 118(3) as discussed above.

The liability for old municipal debts against the property is a contentious issue and will evoke strong emotions from Sellers and Buyers alike. It is therefore critical that both parties carefully consider the wording of any Deed of Sale and where necessary discuss the situation with a property specialist before entering into any agreement.