Headache for landlords
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.