The Landlord’s Council Arrears Are Being Deducted from the Tenant’s Pre-Paid Electricity Payments! What now?

This issue was recently raised in the Property Practitioners Facebook Group . . .

This resonated with me as I have faced this issue more than once in my Residential Property Rentals career.

Is it Legal?

Now, whether this is legal or not I honestly wouldn’t know – I can only assume that it is as it’s happened to me a few times over a number of years and I accept that if it wasn’t legal then someone would have taken Council to task.

If any lawyers read this point and have an opinion on this, please feel free to share your opinion in the comments below.

How on earth (why) does this happen?

The reason that this happens is that Councils’ systems accept that all costs related to the property are for the property owners’ accounts.

In the past (if I remember correctly – and I’m referring specifically to Cape Town here) the occupants of the property (including tenants) were able to open individual electricity accounts in their own names. This resulted in the occupants/tenants being directly and personally liable to the Council for the cost of the services they consumed.

In my opinion this correctly place the onus on the consumer of the service, which makes logical sense to me.

However, this isn’t possible anymore. These days Councils automatically register the account for services in the name of the property owner – and this includes pre-paid utilities. And, as far as I have been able to ascertain, Councils’ systems have no facility at all for a property owner (landlord) to request that the utilities be billed directly to tenants where a property is rented out.

I personally think this is a step backwards and that Councils should maybe re-consider this as I think that the ‘old system’, where the user was also the account-holder, or at least the person responsible for payment, places the responsiblity for payment were it belong – with the occupant/tenant, not the property owner!

However, i don’t think that Councils are interested in my opinion.

I can only surmise that the ‘old system’ resulted in excessive arrears as account-holders could possible ‘move on’ and then ‘operate under the radar’ by not registering any further utilities accounts in their names, and getting another member of the family, or a friend, to do this for them.

Holding the property owner responsible for the payment of the utilities probable makes better business sense for the Councils as the property owner has assets (their property at the very least), which results in the Council having more of a ‘hold’ over them.

Anyway, whatever the reasoning – this is the status quo.

How can rental agents deal with these situations?

The reason for these deductions is because of arrears on the council account – not necessarily a cost that the tenant is even responsible for. In other words . . .

Money that the tenant has paid has been credited to the Landlord’s account

The best solution, as always – is to try and prevent this type of situation from occurring – the old adage rings very true here . . .

Prevention is Better than Cure

When a landlord approaches you to (find them a tenant and) manage the ensuing lease, I suggest you always convince them to ‘make their lives easier’ and offer them your ‘free add-on service’, i.e. to manage the payment of their council account and invoice and collect any amounts owing from the tenant.

I know there are many different ways to do this, but over my 20 odd years in the management of rental properties and leases I have been convinced that the best arrangement is to get the landlord to agree that you (the agent) settle their municipal account in full, out of the rent received. You then invoice the tenant for any utilities or other municipal-related costs that they are responsible for, collect these amounts and pay the money over to the landlord (essentially reimbursing them) once received.

The above process, in my view, is the very best way to ensure that the landlord’s account is always paid up in full – and that they therefore don’t have any arrears with the council. Remember that it’s the landlord’s name (and potentially their credit history) that is affected by any bad payment issues or arrears – not the tenant.

And, of course, if the tenant doesn’t pay on time, they will be in breach of lease and the usual breach procedures can be followed.

But what if it happens?

Well, for me it’s simple . . .

the tenant needs to be ‘refunded’ the money taken of their pre-paid utility payment!

Remember that the deduction from the pre-paid payment has been credited to the landlord’s municipal account, so the landlord now essentially ‘owes’ the tenant this money back, i.e. the tenant’s account with the landlord needs to be credited.

I propose you simply ask the tenant to send you a copy of the slip – which must of course be acceptable in terms of having a date on it and clearly indicating the amount deducted for the ostensible arrears.

Based on the provision of the above information, I have always passed a credit note on the tenant’s account and informed the landlord accordingly.

2 thoughts on “The Landlord’s Council Arrears Are Being Deducted from the Tenant’s Pre-Paid Electricity Payments! What now?”

  1. Loren Goslin

    Interesting this prepaid thing is… so too the council holding owner liable. As you say “status quo” it is what it is.
    We offer full management whereby included in our monthly management fee, we pay from the rent collected the owners council account, thereby ensuring that it is up to date at all times – if the tenant does not pay rental or is late and tops up his electricity, well then I say good, take the electricity payment and pay the arrears… rent is due first to keep a roof over your head.
    Another ponder… is that when you take the property onto your portfolio, make sure the bill is up to date, and if not, make sure your client (Landlord) is aware that you will be settling council first before them.
    Less stress less headache…

    1. Agree totally, Loren – important to make sure the bill is up to date when onboarding the property and then to include the management of the account in your service. I’ve also found this is the best way to work – that way you avoid soooooo many issues that simply don’t add to anyone’s bottomline and just really take up time that you could rather spend building your rental portfolio.

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