Consumer Watch: Are non-paying tenants part of the 'new normal'?
Cape Town - If you have a good, paying tenant in this Covid market, hold on to them: they’re becoming increasingly rare. And if you don’t have such a tenant, don’t despair - if they don’t pay their dues and refuse to move, you can evict them legally, eventually.
Make sure, though, that you get the proverbial ducks in a row because if you fail to follow the legal process to the letter, your non-paying tenants are likely to stay rent-free for quite a while longer.
In the latest TPN Rental Monitor Data Report, the specialised residential and commercial tenant credit bureau observed that the sector took a “sizeable” knock in the second quarter of 2020. In the first quarter of this year, about 82% of tenants were in good standing but that sank to 73.5% in the second quarter.
That’s almost on a par with the drop in paying tenants seen during the global financial crisis (71%).
First National Bank economist John Loos, who co-wrote the TNP report, says that the decline was not surprising given the fact many tenants who worked in retail, hospitality and manufacturing would have lost their income since the end of March 2020.
“We’ve seen the impact in the vacancy rates. At the end of last year, they were at 7.5% - that’s moved up to 11.3% in Q2. New household formation slows down during periods of economic shock: people lose their income, so they move out of their rental properties but merge households. Children move back home, parents move back with children, more generations live in the same household,” Loos said.
“Household growth has slowed down dramatically and the higher vacancy rates have an impact on escalations.”
Loos said there is a slight month-on-month improvement, but with the looming wave of unemployment and retrenchments, the rental market will sustain a heavy knock. “To get back to the good numbers of 85% good tenancy rates will take years. It’s not back to business as usual. So hold on to your good tenants and create attractive incentives for them to stay.”
What does this mean for tenants who either have to downscale or who might have an impaired credit record due to Covid’s decimation of the economy?
TPN’s managing director, Michelle Dickens said: “When credit providers offered customers payment holidays, they were clear - they would only give them to those whose accounts were in good standing.
“We had the same message for landlords: that they shouldn’t negotiate on payment holidays with tenants who were not in good standing because they have already shown their hand through their behaviour.
“Landlords and agencies are very much guided by prospective tenants’ behaviour before lockdown, as well as their recovery once the restrictions were gradually lifted.”
Stuck with a problem
For landlords who have non-paying, squatting tenants, all hope is not lost: They can get their tenants out but it will cost. Landlords do have the right to prompt and regular payment of their rental or any other charges payable in terms of the lease, but they cannot take the law into their own hands by “smoking” out tenants.
Leading property attorneys say they have witnessed a surge in interest in obtaining eviction orders. In many cases, these have been granted - but even with a court order in hand, landlords cannot enforce them.
“We’ve been getting eviction orders but they are suspended until the end of lockdown or when they envisage it to end, which at the moment is after January 1, 2021. And we don’t know if there is going to be a second wave,” says Marlon Shevelew. Courts are willing to grant the orders but are unwilling to evict tenants during the State of Disaster.
“People have been unable to work and courts are alive to the fact that the circumstances have to be pretty unique to grant an order.”
The amount of non-payers has increased incrementally. Shevelew says this may be due to opportunistic tenants allocating their money to other areas, knowing landlords cannot evict them, or because they want to pay but cannot.
And any landlord who tries to evict without a court order faces landing up in the dock themselves.
In the Camps Bay “collective” saga, the landlord was able to obtain an urgent eviction order and have it executed last week because the property - an Airbnb - is deemed a commercial property.
“If that had been a residential property, those people would still be there.”
Attorney Xenophon Jegels explains that section 4(2) of the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (known as the PIE Act) requires that a landlord furnishes an unlawful occupier (defaulting tenant) with a minimum of 14 calendar days’ notice that an eviction order will be sought at court.
The court must also serve written and effective notice of the proceedings on the unlawful occupier, as prescribed by the court rules. “It’s critical that the occupants be notified correctly and understand that they are free to oppose the application,” Jegels explains.
If the landlord doesn’t follow the process meticulously, all the tenant would need to do is arrive at court, state their case, and the judge will determine that due process hadn’t been followed.
The irony, says Shevelew, is that residential tenants can stretch out eviction for months and months, while the landlords are held to pay their bond. “The reality is that you should be able to sustain your bond repayments without the rent.”
Jegels said eviction orders had been trickling in for months, but now applications were being rafted and set down. “There’s a surge in interest from the public. The rental holidays have come to an end and landlords need to protect their assets - and themselves - from the banks.”
* Georgina Crouth is a consumer watchdog with serious bite. Write to her at [email protected], tweet her @georginacrouth and follow her on Facebook.
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