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Managing late payment on a lease

The logical first step to obtain redress after a tenant defaults on its rental obligations is to contact them within 24 hours and council them as to reasons for the default. In any event a letter recording the default and the discussion regarding the rectification of the late payment should be sent within 48 hours.

Depending on the outcome of the initial discussion the default should be managed on a daily basis until resolved. If payment has not been made within 96 hours of the due date the tenant should be notifed of the landlords intention to invoke the breach clause in the agreement. They must be reminded that in the event that the breach is not resolved it could result in the tenant being evicted. Once the late payment extends beyond 120 hours the mater should be handed over to an attourneys to begin recovery proceedings and to finalise the notice of breach as soon as possible. The attourneys will in all likelihood send the tenant a letter of demand requesting the immediate payment of all rental owed. In some situations, for example, prior to instituting claims in the Small Claims Court, a letter of demand is a necessary prerequisite to issuing summons for the recovery of rental. However, regardless of whether it is legally required, there are several reasons to always issue a letter of demand prior to instituting litigation:

  • In many situations, the threat of legal proceedings may be enough for the tenant to simply pay the amount owed. Alternatively, it may lead to them contacting you to work out payment arrangements and a plan for them to vacate the premises. In either case, the expensive and time-consuming process of litigation is avoided.

Even if the matter is not resolved by issuing the letter of demand, there are important cost consequences to consider. In the case of Havenga v Lotter, 1912 T.P.D. 395 it was noted: “It is perfectly true that a person who feels aggrieved may take out a summons immediately. He need send no letter of demand; but if he omits to send a demand, and a tender is made upon the summons, then he is not entitled to the costs of the summons”. Therefore, if you want to recover the unnecessary costs you had to incur prosecuting your action against the tenant, a letter of demand will often be a prerequisite to such right of recovery. Now, having stressed the importance of a letter of demand, the question arises as to how to go about actually drafting the letter of demand? In almost all cases, it us recommend that an attorney draft the letter of demand, following a full and analytically involved review of the dispute. While other entities, such as debt collectors, may claim to offer the same service, there are several drawbacks to employing the services of anyone other than a qualified attorney to assist:

  • The only person who can institute litigation on your behalf and represent you in a court of law is a qualified attorney.
  • A letter of demand coming from someone without this power, such as a debt collector, would not carry the same level of seriousness, especially to a clever tenant which knows the real limitations of the debt collectors powers of recovery.
  • There are often numerous strategic and legal issues to consider when drafting a letter of demand, even if the matter appears on its face to be fairly simple. For example, an attorney, after having reviewed the lease agreement and after having considered the law, would be able to advise you on additional options, such as – for example, cancelling the lease agreement and re-claiming occupation of the leased premises – as well as various other issues, such as the potential to assert a hypothec over the tenant’s property. Tenants also often come up with a myriad of defences and reasons why they are not obligated to pay rent.
  • A qualified attorney will be able to quickly sift through these and determine whether they have merit or not. Aware of the superior knowledge a qualified attorney has, a tenant will definitely think twice before relying on unsupportable arguments.
  • The purpose of the letter of demand is to obtain the most favourable settlement for you. A qualified attorney, with a thorough knowledge of the law, coupled with excellent analytical skills, is more likely than anyone else to be able to draft a letter of demand which convinces a defaulting tenant that it is in his interests to settle the matter immediately without having to go through the legal process. 
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Unfair Rental Practice Regulations

The Rental housing act includes a reference to Unfair Practice Regulations. These are published from time to time by the provincial minister of housing.

A copy of the current regulations is available here. Unfair Practice Regulations

Disputes arising from a breach of these regulations should be referred to the Rental Housing Tribunal (RHT). There is some disagreement as to wether the RHT is required to hear these disputes or if a party can approach a court directly. It seems for the time being better to take all disputes to the RHT first before approaching the courts to resolve any disputes.

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Rental Housing Tribunal (RHT)

Despite the RHT having been in existence since 2001 some landlords and tenants that are unaware of its services.

This is a pity because the tribunal provides an invaluable service to all participants in the rental market.

It is essentially a free dispute resolution service staffed by independent professionals. They investigate cases reported by either landlords or tenants. They mediate and facilitate a resolution of the dispute and if necessary they conduct hearings and make findings.

They should be the first point of call if a dispute arises that can not be resolved by the parties concerned. Visit this website for more information.

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Early Termination of Lease Agreements

Prior to the commencement of the Consumer Protection (CP) Act, in April 2011, the law of contract and the common law covered the issue of when and how a tenant went about cancelling a lease agreement.

Prior to April 2011; both parties were pretty much bound by the terms of the lease agreement and this was very weighted in favour of landlords and against tenants.

Landlords often refer to an early cancellation of a lease agreement by the tenant as “a breach of contract.” This is not the case.

In terms of the Consumer Protection Act, tenants have the RIGHT to cancel their leases, as long as they do so while fulfilling ALL the cancellation criteria or requirements. Tenants who do this must do so in writing and must give at least 20 days’ notice. The rental for those 20 days is payable by the tenant; and they must pay same; pro rata, if applicable, to the landlord for that period. This action DOES NOT amount to a breach of contract.

Once the landlord or his agent have received the written notice of cancellation, they should make a note of the date on which the lease is now due to end; and should start advertising immediately for a new tenant for the property. This responsibility lies squarely on the shoulders of the landlord or his agent to find a new and suitable tenant. The costs of so advertising however should also be noted, as these costs can be charged to the tenant, as part and parcel of the “reasonable penalty” that the landlord is entitled to hold the tenant responsible for; as a result of the early cancellation of their lease agreement.

Although the landlord is entitled, in terms of the Act, to hold the tenant liable for a “reasonable penalty” fee for early cancellation of the lease; this does not and is not meant to be used to penalise tenants; but rather is intended to allow the landlord to recoup any losses she may have suffered as a result of the early cancellation of the lease agreement; and the tenant vacating before the lease has run its course.

The costs that may be included in such a penalty would for example include the credit check costs for a prospective new tenant; and any other reasonable incidental costs relating to the new tenant and which have been reasonably incurred by the landlord in finding that replacement tenant; such as advertising costs and would also include the rental lost by the landlord if and during the period that the property was to stand vacant. It is not however a carte blanche penalty which the landlord can simply impose as he sees fit; eg 3 months’ rent. That will not be acceptable to the Rental Tribunal. It must be based on her actual financial damages. It has justifiably been described as” a penalty which cannot be charged upfront. They can only be calculated once a new tenant has been found and the landlord cannot gain financially or benefit from the tenants cancellation penalty costs. He is simply reimbursed.”

On this basis; penalty clauses in lease agreements which purport to agree a cancellation penalty in advance will simply not hold up in court.

The inconvenience for a landlord caused by an early cancellation will no doubt be both annoying and time consuming; but it is clear that a tenant has the RIGHT to cancel a lease. The landlord is only then entitled to recover his actual loses in an early cancellation penalty clause.

The CP Act is however vague in that it does not define a “reasonable penalty;” and only states that a reasonable penalty may be charged for early cancellation. In practice however and in SA Law; a person who suffers damages as a result of another person’s actions is only ever entitled to recover those damages which he has actually sustained; and can prove. In practice also; it normally does not take more than a month to find another tenant.

This begs the question: what, exactly, can the landlord charge? Unfortunately the Regulations as they stand do not provide a convenient, easy formula for calculating the penalty. Thus, pending the publication of a few nuggets of wisdom from South Africa’s panel of judges, the calculation of cancellation penalties remain the subject of debate and negotiation. Presumably, the landlord will be able to claim reimbursement for lost rental for the time the property stands empty while the landlord finds a new tenant. A word of caution: this does not mean that the landlord can rest on his laurels and allow time to quietly slip away without searching for a new tenant, expecting the tenant to reimburse him in the process. The Act requires the landlord to “act diligently” in finding a new tenant, thereby mitigating loss all around. As things stand, though, it appears that it will not be possible to calculate the cancellation fee with certainty upfront.