File Picture: Leon Nicholas/ANA
File Picture: Leon Nicholas/ANA

RENTAL WATCH: Here's what you need to know about rent deposits

By Dr Iqbal Sayed Mohamed Time of article published Jun 12, 2019

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RENTAL WATCH: In England, if a landlord requires a deposit for an assured short-hold lease (fixed-term lease), it is for security against any damage caused by the tenant and may be withheld in full or in part if the tenant owes utility charges, costs for repairs or any other relevant expense.

In South Africa, the deposit, once agreed upon, must be paid before the tenant takes occupation in terms of section 5(3)(c) of the Rental Housing Act 50 of 1999, regardless of whether the lease is for a fixed term or a common law periodic one (monthly or weekly). The landlord holds the deposit, which he or she must invest in an interest-bearing account with a financial institution and refund the deposit with interest.

The landlord must provide the tenant, on request, written proof of interest accrued on the deposit. Section 5(3)(d) of the act states: “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 such interest at the rate applicable to such account which may not be less than the rate applicable to a savings account with that financial institution, and the tenant may during the period of the lease 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.”

If there is no deduction, the deposit is refundable within seven days after the tenant moves out of the dwelling in South Africa.

In the event of a dispute, the tenant can lodge an unfair practice complaint with the provincial Rental Housing Tribunal. The tenant is entitled to the full refund of the deposit with interest if there is no rental owing or damage claim against him or her.

In terms of section 3(17) of the Gauteng unfair practices regulations, a landlord who transfers title or cedes interest in the lease, must transfer the deposit together with the accrued interest for the benefit of a tenant to their successor.

In England, the general practice is that no interest is paid on the deposit but the tenant’s deposit on an assured short-hold tenancy is protected since it must be paid into one of the government approved tenancy deposit protection schemes.

The landlord pays the deposit to the scheme administrator of the Deposit Protection Service, which is a third party and in the absence of any dispute, the tenant is guaranteed a full refund. The tenant can also check online to verify if the deposit is protected.

The other two services available for landlords, apart from the custodial scheme, are Mydeposits and a not-for-profit company, the Tenancy Dispute Service. These are insurance-backed schemes and provide a dispute resolution service.

The deposit protection schemes play an important role in the event that the landlord does not refund the deposit or makes a partial repayment. The tenant can contact the scheme that the landlord used to have the dispute resolved at no cost, through the alternative dispute resolution (ADR) services provided by the scheme as long as the landlord agrees to the ADR.

The tenant can approach the county court at his or her own cost to start legal proceedings to recover the deposit. If the landlord or agent fails to lodge the deposit with the scheme or fails to give the prescribed information to the tenant about how the money is being held within 30 days, the landlord is prevented from regaining possession of the property unless the deposit is refunded or protected. The court can order a refund up to three times the deposit amount within 14 days in the event that the tenant succeeds in a court application to have the deposit protected and proves that the landlord failed to comply with the scheme.

In a decision by the Birmingham County Court in Gardner v McCusker (2014) 3BM70525, the court held that even where the tenancy becomes a statutory periodic lease after the expiry of the fixed term lease, a landlord must provide the tenant a further copy of the prescribed information about the deposit scheme within 30 days of the expiration of the fixed lease. Failing to comply means the landlord cannot serve a notice to terminate the lease even though the deposit is protected.

The judge refused the landlord’s application for possession in terms of a section 21 notice (at least two months’ notice to the tenant for vacant occupation on a statutory periodic tenancy) and ordered the deposit be refunded to the tenant with damages two times the value of the deposit.

What if the tenant entered into a fixed-term lease prior to April 2007 and becomes a periodic tenant thereafter? In Superstrike v Rodrigues (2013) EWCA Civ 669, the Court of Appeal on June 14, 2013, ruled that landlord must protect the deposit and give the prescribed information to the tenant who continues to occupy the property on a periodic lease after the fixed term. Since the landlord failed to comply, they were not entitled to serve a notice under section 21 on June 2011 and accordingly not entitled to obtain possession of the premises.

Perhaps the next generation amendments to the Rental Housing Act should consider a scheme to protect the tenants’ deposits.

The government will have to award contracts to independent entities, but would this work for South Africans?

For now, tenants can take their dispute over deposits to the provincial tribunals.

Dr Sayed Iqbal Mohamed is the chairperson of the Organisation of Civic Rights and deputy chairperson of the KZN Rental Housing Tribunal. He writes in his personal capacity. For advice, call Pretty Gumede or Loshni Naidoo on 031 304 6451, email [email protected] or [email protected]

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