Headache for land­lords

Finweek English Edition - - INSIGHT -

The so-called Credit Amnesty Act came i nto ef f ect on 1 April. These reg­u­la­tions re­quire credit bu­reaus to re­move all ad­verse credit in­for­ma­tion – in­clud­ing ac­counts handed over for col­lec­tion, pay­ment de­faults and set­tled civil judg­ments – from its data­bases. While these reg­u­la­tions wiped the slate clean for strug­gling South African con­sumers, it left prop­erty own­ers in a bind.

For many years land­lords used credit records to weed out prospec­tive ten­ants with bad pay­ment records in an at­tempt to hedge against rent de­faults. Martin Good­man, direc­tor of Rentshield, says that while prop­erty own­ers can no longer see whether po­ten­tial ten­ants pay on time, they can ask ten­ants to di­vulge any ad­verse pay­ment his­tory. Whether a prospec­tive ten­ant with a chequered past will be truth­ful is another mat­ter en­tirely. Good­man and other in­dus­try play­ers agree that the onus to con­duct com­pre­hen­sive back­ground checks on ten­ants rests f irmly on land­lords and rental agents.

“Credit checks show how well ten­ants pay, but [land­lords can] also get a char­ac­ter ref­er­ence. They could do this by calling present em­ploy­ers and past land­lords or es­tate agents. This will give you a bet­ter idea of their past rental his­tory and you will soon un­der­stand if the ten­ant is a suit­able can­di­date or not,” Good­man says.

While it might take a lit­tle longer than a sim­ple credit check, Grant Rea, rental spe­cial­ist at RE/ MAX Liv­ing, agrees. He says that land­lords can still do their due dili­gence by in­clud­ing a faceto-face meet­ing and col­lect­ing rel­e­vant per­sonal in­for­ma­tion di­rectly from the ten­ant dur­ing the ini­tial screen­ing process. “There is also the mat­ter of vet­ting the ten­ant by ver­i­fy­ing em­ploy­ment, ref­er­ences, their iden­tity and con­duct­ing gen­eral back­ground checks,” Rea says.

RE/ MAX CEO Adrian Goslett adds that land­lords can ask for sup­port­ing doc­u­ments like a copy of a prospec­tive ten­ant’s ID and a salary slip to ver­ify em­ploy­ment and es­tab­lish whether the ten­ant can af­ford the rental re­pay­ments.

Good­man says that many land­lords are tempted to in­crease the de­posit amount from one month’s to two months’ rent. “Land­lords need to know that this de­posit can’t be touched un­til af­ter the ten­ant has moved out and can then only be used to pay for dam­ages caused to the prop­erty or for non-pay­ment. There­fore, in­creas­ing a ten­ant’s de­posit doesn’t safe­guard land­lords from defaulting or slow pay­ing ten­ants,” he says.

Thank­fully the out­look for land­lords is not com­pletely bleak. Ac­cord­ing to Good­man, new-age in­sur­ance prod­ucts can pro­tect land­lords from defaulting ten­ants or tardy pay­ments. Goslett ex­plains that some in­for­ma­tion is ex­empt from amnesty, such as SARS judg­ments, ad­min­is­tra­tion and se­ques­tra­tion or­ders, re­ha­bil­i­ta­tion no­tices and debt re­view, mean­ing credit checks aren’t com­pletely point­less. “The in­for­ma­tion of cur­rent credit ac­tive con­sumers will still be re­tained by credit bu­reaus and will be made avail­able to credit providers, so the amnesty will only im­pact con­sumers who do not have credit at the mo­ment,” he adds.

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