Rentals in Lockdown #4 (Mar/Apr 2020) | Can You or Can’t You Use the Deposit During the Term of the Lease Agreement, with the agreement of both parties?

I think it’s common knowledge that the Rental Housing Act, requires that the tenant/s deposit be invested in an interest bearing account in terms of the RHA.

To be specific, in subsection 5(3) the RHA states as follows:

(c) the landlord may require a tenant, before moving into the dwelling, to pay a deposit which, at the time, may not exceed an amount equivalent to an amount specified in the agreement or otherwise agreed to between the parties;

(d) the deposit contemplated in paragraph (c) must be invested by the landlord in an interest-bearing account with a financial institution and the landlord must subject to paragraph (g) pay the tenant interest at the rate applicable to such account which may not be less than the rate applicable to a savings account with a financial institution, and the tenant may during the period of the Iease request the landlord to provide him or her with written proof in respect of interest accrued on such deposit, and the landlord must provide such proof on request: Provided that where the landlord is a registered estate agent as provided for in the Estate Agency Affairs Act, 1976 (Act No. 112 of 1976), the deposit and any interest thereon shall be dealt with in accordance with the provisions of that Act;

The following sub-sections of the Act deal with matters relating to inspections, and the next sub-section that makes reference to the deposit is sub-section 5(3)(g). You’ll also see that this is the exact paragraph that is referred to in subsection 5(3)(d) above. It states as follows:

(g) on the expiration of the lease, the landlord may apply such deposit and interest towards the payment of all amounts for which the tenant is liable under the said lease, including the reasonable cost of repairing damage to the dwelling during the lease period and the cost of replacing lost keys and the balance of the deposit and interest, if any, must then be refunded to the tenant by the landlord . . .

The very first words of this subsection hold the key . . . . ‘on the expiration of the lease . . . ‘

The only mention of the deposit being used it very clearly stated as ‘on expiration of the lease’ – no other time whatsoever.

If you think of the purpose of the the deposit, i.e. what the landlord is permitted to use the deposit for, they ALL relate to ‘end of lease’ costs or expenses.

Furthermore, all of the deadlines related to the deadlines by which deposits must be release all refer to the ‘expiration of the lease’.

Further to the above, in sub-section 5(4)the RHA says clearly that these provisions (all provisions listed in sub-section 5(3), including those mentioned above) “may not be waived by the tenant or the landlord”, i.e. neither the tenant, nor the landlord, nor both, can agree to act otherwise than required in terms of the RHA:

5(4) The standard provisions referred to in subsection (3) may not be waived by the tenant or the landlord.

So, in summary:

• the tenants deposit must be invested.
• ‘on the expiration of the lease . . . ‘ the landlord may apply the deposit for permitted expenses or amounts owing,
• all the permitted expenses or amounts owing relate to post-lease expenses or amounts,
• that balance of the deposit must be refunded to the tenant
• the tenant and/or landlord may not make any agreement that is contrary to the above

If you think about this logically, this makes perfect sense . . . the intention of the deposit is security that the landlord requires for their peace of mind and to ensure that they will not be out of pocket for any unforeseen damages, arrears, etc at the end of the lease.

Besides the above requirements of the RHA, it’s important to also consider practical considerations . . . .

The deposit is the ONLY security that the landlord holds – not only for rent arrears (at the end of the lease) but also for damages at the end of the lease, and potential other expenses.

Let’s say, for example, the landlord uses the deposit with the tenant’s permission (irrespective of the RHA) and then the tenant loses their job and needs to cancel the lease in terms of the CPA.

There will be no (or less) deposit available.

Let’s say the property is a mess when they vacate? What money will the landlord use to rectify these damages?

It makes a lot more sense to follow the RHA, let the tenant rather get into rent arrears, give them an indulgence if necessary in terms of time to catch up, but keep that deposit for when it’s REALLY needed – at the end of the lease.

It is also MUCH easier to pursue a tenant for rent arrears – even in the course of the lease – than for other amounts owing – and the cost of damages can only be pursued at the end of the lease.

But it’s the tenant’s money isn’t it?

It certainly is, BUT it’s money that the Tenant agreed to give the Landlord to hold and invest in their (the Landlord’s name) for the course of the lease agreement, as per the terms of the lease. Specifically as a gesture of goodwill in a way and to provide the Landlord with reassurance that they have some ‘insurance’ (in a manner of speaking’), should the tenant not actor perform in the way they agreed to, i.e. look after the property, pay all amounts owing on time, etc.

USING A TENANT DEPOSIT FOR RENTAL OR DAMAGES? THINK CAREFULLY!

I asked for Marlon’s input yesterday about the difference between suing a tenant for damages, vs suing, or pursuing them, for rent arrears, and he sent me this:

If at the end of the lease period a landlord (with a deposit in place) is faced with damages to the property and also outstanding rental – a choice needs to be made. What do I use the deposit for?

Simply put, it should be used towards fixing damages to the property as this will allow the landlord to put the property back onto the market, find a new tenant whilst at the same time suing for the rental owing- if the landlord wants to of course.

To use the deposit for arrear rental and then try and sue for damages instead is problematic because it could leave the property unable to be repaired and rented out which means a loss of rental.

From a legal perspective, unpaid rental versus unpaid damages, whilst one can sue for either or both though the same court for the same amount, it is actually two completely separate actions.

Rent is liquid and claimable purely by showing a rental invoice or statement.

Damages is illiquid, even if available on an invoice, such as a quote from a contractor, and will require evidence on affidavit, or even in court, to demonstrate the amount claimable.

When trying to get judgement for damages, it will be far more difficult than trying to obtain judgment for rental in a court of law because of this element of liquidity and proof needed to show the actual damages.

Source: Marlon Shevelew

LegalTalk: Leases on LockDown

Marlon Shevelew also discusses this in this interview on LegalTalk on CapeTalk

CapeTalk (31 March 2020)

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