Fortunately this doesn’t happen often in our experience, but when it does it can have severe financial consequences for the property owner – not only are they out of pocket in terms of the lost rental income, as well as service and/or utility costs that they have to bear, but addressing and rectifying the situation can require legal intervention which, in itself, is an additional cost to bear – when you’re already out of pocket.
When a tenant doesn’t pay their rent in terms of their lease agreement, the Landlord can take steps to recover their lost rent. If, however, the Landlord wants to terminate their lease with the Tenant, under the Consumer Protection Act (CPA) the Landlord (i.e. the “service provider”) in most instances will need to give the Tenant (i.e. the “consumer”) 20 business days (essentially a month) in which to rectify the breach, i.e. pay the outstanding amount in full to get their rent up to date, before the lease can be cancelled. Furthermore, if the Tenant pays their outstanding amounts owing within the allotted 20 business days, the Landlord’s recourse to cancel the lease falls away.
If the tenant doesn’t pay up after being given notice to rectify the aforementioned breach under the CPA, by the time the 20 business day notice runs out the tenant will already be two months’ rent in arrears as another rent cycle will have passed.
So now you have a tenant that is still in occupation of the premises and is two months’ behind in their rent in.
The next available recourse to the Landlord will be to cancel the Lease.
Most ‘reasonable’ tenants will vacate the premises if the lease is cancelled, but what happens if they don’t?
If the lease is cancelled and the Tenants are instructed to vacate the premises and they don’t, the only legal recourse for the Landlord is to apply to the courts for an eviction order under the Prevention of Illegal Evictions (PIE) Act.
We have had the unfortunate experience of having to take these steps on behalf of Landlords and our real life experience shows that . . .
- it will take a minimum of 3+ months from lodging eviction proceedings to the point of eviction – based on applying through the Western Cape High Court and the application not being opposed by the Tenant; and
- the legal costs to the Landlord will probably be a minimum of approximately R20,000 – this is based on the tenant not opposing the eviction and includes costs like sheriff costs, etc.
So, in summary, by the time the Landlord actually gets the tenant evicted, they are out of pocket about 5 months rent and other property related costs, and have had to spend another R20,000+ on expenses related to eviction.
It’s not surprising that this can easily ruin a Landlord . . .
So, how can you plan for this, or at least mitigate your risk?
The simplest solution that we have come up with is to insure our Landlords for up to R50,000 per annum’s legal costs associated with owning a rental property* – after all, the last thing you need when you’ve already lost rental income is the additional burden of legal costs.
In terms of lost rental we always advise Landlords to take a minimum deposit of 2 months’ rent in terms of the lease agreement. As you will realise from the above, by the time you can actually cancel the lease
If you would like to request more information on the insurance cover we offer our Landlords, please click here.
*Terms & Conditions Apply
This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Errors and omission excepted. (E&OE)