Ten­ants need not panic when land­lords go broke

Weekend Argus (Saturday Edition) - - PROPERTY -

LAND­LORDS and home­own­ers could find them­selves in fi­nan­cial trou­ble in the next few months as a re­sult of South Africa’s wors­en­ing eco­nomic pic­ture, and ten­ants need to know what their po­si­tions would be in such cir­cum­stances.

“There are three things they need to note in par­tic­u­lar. The first is that the state of the land­lord’s fi­nances has noth­ing to do with the obli­ga­tion of ten­ants to keep pay­ing their rent in full and on time,” says Greg Har­ris, CEO of Chas Everitt Prop­erty Rentals.

“The land­lord might be in ar­rears with bond re­pay­ments to the bank, for ex­am­ple, but even if the ten­ants find out, they can’t stop pay­ing rent or move out with­out giv­ing the proper amount of no­tice set out in the lease.”

Sec­ond, the fi­nan­cially dis­tressed land­lord may try to sell the prop­erty and pay it off be­fore his bond ac­count moves too far into ar­rears, or list it for sale through a bank “as­sisted sale” pro­gramme.

“This also should have no im­me­di­ate ef­fect on the ten­ant, ex­cept per­haps be­ing asked to co-op­er­ate with ar­rang­ing view­ings by po­ten­tial buy­ers.

“In terms of South African law, any­one buy­ing the prop­erty would have to do so sub­ject to the terms of the ex­ist­ing lease, and at the end of the trans­fer process the only change for the ten­ant would be to make pay­ments to and in­ter­act with a new owner or new rental man­age­ment agent.

“The new owner will not be able to ter­mi­nate the ex­ist­ing lease with­out good cause and suf­fi­cient no­tice, and will also be­come re­spon­si­ble for the re­turn of the ten­ant’s se­cu­rity de­posit at the end of the lease term. Al­ter­na­tively, the new owner may ap­proach the ten­ant at this point to ask them to stay on and sign a new lease, es­pe­cially if they are re­li­able pay­ers and have looked af­ter the prop­erty.”

Third, even if the dis­tressed land­lord waits too long to try to ad­dress his prob­lem and the prop­erty is sold at auc­tion or re­pos­sessed, it is un­likely the ten­ants will be thrown out with­out no­tice, says Har­ris.

“The bank will first have to go to court to get a debt judg­ment against the land­lord who is in de­fault, and only af­ter that is granted will the prop­erty be at­tached by the sher­iff of the court and then ei­ther sold at auc­tion or re­pos­sessed by the bank. This is a long process and the term of the lease may ex­pire in the mean­while, giv­ing the ten­ant plenty of op­por­tu­nity to find some­where else to live.

“Al­ter­na­tively, if the prop­erty is re­pos­sessed, the bank will have to give the ten­ant no­tice to move in terms of their ex­ist­ing lease, or al­low the lease to run out. Or it might of­fer the ten­ant good terms to stay on, at least un­til the prop­erty is resold.

“How­ever, the ten­ant will be en­ti­tled to refuse to sign an­other lease at this point, and to look to the lender to re­pay their se­cu­rity de­posit.”

He says ten­ants should not be fi­nan­cially dis­ad­van­taged no mat­ter what hap­pens, although deal­ing with the dis­rup­tion of a forced sale or a re­pos­ses­sion can be un­pleas­ant.

“This is an­other rea­son to rent only through an es­tab­lished and rep­utable agency. That will en­sure de­posits do not go miss­ing when a land­lord gets into trou­ble, and that ev­ery­one abides by the lease,” says Har­ris.

PIC­TURE: PEXELS

Rent­ing through an agency en­sures a ten­ant is pro­tected.

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