Marto Lafitte & Associates Inc » Marto

WHO IS LIABLE FOR TENANT’S COUNCIL BILLS?

Marto — Mon, 27 Jan 2014 11:48:12 +0000

WHO IS LIABLE FOR THE TENANT’S COUNCIL BILLS?

Many investors have heard of and in certain instances have fallen victim to being liable for payment of Council bills incurred by their tenant. In this article I deal with who is liable for the tenant’s Council bills, Section 118(1) of Local Government Municipal Systems Act 32 of 2000, the effects of the Judgment of Mkontwana vs Nelson Mandela Metropolitan Municipality and Another and lastly recommendations which will assist owners of properties in protecting themselves.

1. Introduction

Generally speaking, in Law, the party that incurs a debt is the party responsible for payment thereof. It would seem natural then that a tenant would be liable for consumption charges that he incurs and that same would not interfere with the owner/landlord’s rights in the property much less make him liable for same. In practice however, the situation is more complex as a result of legislation that in effect burdens owners in relation to consumption charges supplied to tenants who occupy their immovable property.

2. Section 118

2.1. Section 118(1) of Local Government: Municipal Systems Act (“the Act”) places limits on the owner’s power to transfer immovable property. The Registrar of Deeds is restricted from allowing the transfer of any property without a certificate issued by the Municipality confirming that the consumption charges due during a period of two years prior to the date of issue of the certificate have been paid.

2.2. Despite the liability of the consumption charges not being directly attributed to the owner, by virtue of s118 placing a restriction on transfer, in practice the only way the owner would be able to transfer the property is to settle the outstanding debt for consumption charges created by the tenant.

3. The Court Decision of Mkontwana vs Nelson Mandela Metro

3.1. The Constitutional validity of Section 118 was the very subject matter of the Mkontwana matter referred to the Constitutional Court for Judgment. It was argued that Section 118(1) burdened owners in relation to payment for consumption charges supplied to tenants who occupy the property. Section 118(3) of the Act confirms in effect that the consumption charge owing is a “charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property”. Certain by-laws with similar effect to Section 118 were also challenged in this case.

3.2. In recent economic times, there has been an escalation of debt in respect of consumption charges. Owners argue that in many instances these charges are incurred without their knowledge. In many instances Municipalities are requested to cut-off electricity supply and fail to do so. In other instances, tenants illegally re-connect water and electricity. The Municipalities arguably do little or nothing to assist the owners in such instances. There are also counter-arguments by Municipalities that owners do not take action to enforce payment by the tenants.

3.3. The Applicants challenging the constitutionality of Section 118 argued that:-

3.4.1. Section 118 was unconstitutional as it contravened certain Sections of the Constitution by limiting their rights to their own property;

3.4.2. Section 118 must be interpreted narrowly that the liability by the owner of consumption charges is limited to those charges incurred by the owner, excluding those of the tenant;

3.4.3. It is inconsistent for Section 25(1) of the Constitution as it amounts to an arbitrary deprivation of property.

The Court agreed that “it was correctly pointed out that these Laws do not literary require the owner to pay outstanding consumption charges. The reality is, however, that if the person liable for the debt does not, or cannot, pay, the owner who wants to effect transfer must, unless the relevant agreement provides for a party other than the owner to effect the payment, pay all outstanding consumption charges. The payment must be made regardless of whether the owner is liable to pay”. The Court agreed that “there are a substantive obstacle to alienation that constituted deprivation of property within the meaning of Section 25(1)”. In the circumstances the Court had to determine whether such deprivation is arbitrary or procedurally unfair.

3.4. The core question which the Court had to determine was whether it is the Municipality or the owner of a property that should bear the risk when tenants who are liable for consumption charges fail to make payment.

4. Court Decision:

The Court found that despite Section 118 depriving an owner of his rights in relation to his property, that it was reasonable and necessary for the following reasons:

4.1. The Municipality does not merely have the power to take steps to evict a tenant and only an owner can do so.

4.2. It is therefore not unreasonable to expect the owner to bear the risk in respect of same.

4.3. The supply of water and electricity to a property increase the value of that property for which the owner ordinarily receives a benefit through rentals.

4.4. It is accepted in Law that owners of properties have to bear the risk in relation to many other occurrences as an integral part of the right of ownership. For example, they bear the risk if the property is damaged or destroyed. Similarly, Section 118(1) places a further burden by virtue of the right of ownership.

One aspect that if often not transmitted in the media is that, despite the Court having found that Section 118 is Constitutional, the Court confirmed that Section 118(1) does not relieve the Municipality of its duty. In this regard, a Municipality is required to:-

Do everything reasonable to ensure appropriate collection of its debts.

“If the inefficiency of the Municipality degenerates to the extent where it can be proved to be negligence that occasioned damage to the owner of the property concerned, owners may have a delictual claim for damages against the Municipality”.

It is necessary for Municipalities to have reasonably accurate records and that they are able to provide complete, credible, comprehensible and reasonably detailed information in relation to consumption charges that are owing within a reasonable time of being requested to furnish it.

Municipalities must provide owners of properties with copies of all accounts, whether the owner is the occupier or not, on a written request of the owner.

5. Recommendations:

5.1. Choose tenants carefully.

5.2. Do proper credit checks.

5.3. Include provisions in lease agreements which include an obligation on tenants to pay consumption charges and, in addition, keep the owner informed of such payments.

5.4. Owners can install prepaid electricity meters on the premises and require occupiers to pay for the use of electricity in advance.

5.5. Owners must take immediate steps to enforce lease agreements and/or evict tenants who breach the lease agreement by failing to effect payment of consumption charges.

5.6. Request municipalities to provide a copy of consumption charges to the owner.

5.7. Notify the Municipality of any unlawful occupier and request assistance by the Municipality to cut off electricity supply (a Municipality is currently not allowed to cut off water supply).

5.8. Worst case scenario, as Section 118(1) relates to charges for two years preceding the request for the certificate, an owner can wait out the two year period prior to selling the property. In this instance, it would be essential for the owner to evict the errant tenant to ensure that the liability is not ongoing.

PREPARED BY RUI MARTO

MARTO LAFITTE & ASSOCIATES INC

31 May 2012

CPA: WHAT IS REASONABLE LEASE CANCELLATION FEE

Marto — Mon, 27 Jan 2014 11:43:53 +0000

CONSUMER PROTECTION ACT: WHAT IS A REASONABLE CANCELLATION FEE FOR PREMATURE CANCELLATION OF A LEASE AGREEMENT?

The Consumer Protection Act (CPA) has introduced some far-reaching consequences to suppliers and consumers. The CPA has created numerous new rights and obligations for parties entering into contracts. This is applicable to lease agreements. The CPA, allows, in certain circumstances, the early cancellation of a lease agreement by a tenant. The landlord’s only remedy is the ability to charge a reasonable cancellation fee. This article explores the circumstances under which a tenant may prematurely cancel a lease agreement and what a reasonable cancellation fee is, in these circumstances.

Early Cancellation:

Where a tenant is a natural person, the CPA confers certain rights, namely:-

1. The duration of the lease cannot exceed twenty four months unless a longer period is expressly agreed to and the landlord can show a demonstrable financial benefit to a tenant; and

2. The tenant is entitled to cancel a lease agreement at any stage thereof by simply giving the landlord twenty business days’ written notice.

Landlord’s Recourse:

As a result, a landlord’s rights to enforce the duration of a fixed term lease agreement have certainly been diluted. This does not mean however, that a landlord has no remedy against a tenant who cancels a lease agreement prematurely. The CPA allows a landlord to claim:-

1. For any amounts owed to the landlord in terms of the lease agreement up to the date of cancellation; and

2. A reasonable cancellation penalty in contemplation of the agreement enduring for its intended fixed term.

The question that is being repeatedly asked in these circumstances, is what constitutes a reasonable cancellation fee?

Reasonable Cancellation Fee:

The CPA read together with the Regulations to the Act, prescribe a list of factors which must be taken into consideration to determine a reasonable cancellation fee. These factors include, amongst others:-

• The amount which the tenant is still liable for to the landlord up to the date of cancellation;

• The total value of the lease up to cancellation;

• The duration of the lease, as initially agreed;

• Losses suffered or benefits accrued by the tenant as a result of the tenant entering into the lease agreement;

• The length of notice of cancellation provided by the tenant;

• The reasonable potential for the landlord, acting diligently, to find an alternative tenant between the time of receiving the cancellation notice and the time of the cancelled reservation; and

• The general practice of the property industry.

Notwithstanding the aforesaid considerations, the landlord may not charge a charge which would have the effect of negating the tenant’s right to cancel a lease agreement in terms of the CPA. This provision has been interpreted by many in the legal field as implying that the CPA alters the pre-CPA common law position in terms of what a landlord can claim in damages for a breach of contract should a tenant prematurely cancel a lease agreement.

Pre-CPA Position:

Prior to CPA, alternatively, should the CPA not apply, a landlord, in instances of a premature cancellation by the tenant, may claim for arrears, damage caused to the property and for the monthly rental payable until such time as the landlord finds a new tenant up to a maximum of the balance of the duration of the lease agreement.

While a number of the aforesaid have been incorporated into the CPA, it appears that the CPA has sought to limit the damages or penalty claimable by a landlord. I am of the opinion that while one would still claim for arrears and damages effected by the tenant, the landlord is curtailed in terms of claiming for the balance of duration of the lease agreement with the factors listed above being the new factors contributing to the reasonable cancellation penalty.

It is important to note however, that the reasonable cancellation penalty would include any discounts which have been offered to the tenant. So, for example, if a lower rental has been negotiated by virtue of a longer period being concluded, it appears that the landlord would be able to claim for the difference between the initial negotiated rental and such discounted rental on that basis.

Is it worth having a written lease agreement?

As a result of the tenant’s right to prematurely cancel a lease agreement, many critics have asked whether it is worth having a written lease agreement. I am of the opinion that one should not throw out the baby with the bathwater.

There is still great value in having a written lease agreement. A written lease agreement still provides clarity to both parties as to the terms agreed upon. It would also facilitate legal claims in respect of other types of potential breaches by either party. It is also important to highlight that while the landlord’s claim may be partly diluted, depending on the circumstances, the tenant does certainly not escape censure and is still liable for the cancellation penalty.

Calculation of Reasonable Cancellation Penalty:

Various industries, alternatively companies, within such industries have adopted different policies in respect of the calculation of the cancellation penalty. It has been reported, for example, that in the cellular telephone industry, that companies have utilised an “across the board” thirty or forty percent cancellation penalty.

In my opinion, this clearly is not in compliance with what is required in terms of the Regulations to the CPA, as outlined above. It is clear from the method prescribed by the Act and its Regulations, that one has to adopt a case by case consideration of the cancellation penalty.

Recommendation:

I recommend the following to a landlord:-

• A re-analysis of one’s leasing strategy, considering the dilution of security of a long term fixed lease. This would include considerations of an amount towards tenant allowance, commission paid to estate agents and leasing brokers, discounts afforded to a tenant, etc.;

• A specific inclusion in a lease agreement should the tenant receive such discounts, tenant’s allowances, etc. and an acknowledgment by the tenant that such amounts would be part of a reasonable cancellation penalty should there by an early cancellation of the lease agreement;

• Continued use of written lease agreements;

• Obtain necessary legal advice whether the CPA applies to a lease agreement;

• Obtain necessary legal advice from a legal specialist as to what a reasonable cancellation penalty should be in a specific circumstance.

PREPARED BY RUI MARTO

MARTO LAFITTE & ASSOCIATES INC

30 April 2012

NEW LEGISLATION IMMINENT- POPI: ARE YOU ALL SET?

Marto — Mon, 27 Jan 2014 11:40:27 +0000

NEW LEGISLATION IMMINENT- POPI: ARE YOU ALL SET?

The Protection of Personal Information Act (“POPI”) was recently passed by the National Assembly and is now awaiting enactment. POPI will have as its main aim the protection of personal information. It has been stated that POPI has been designed to protect personal information given the fact that in today’s digital age there are serious implications in how this type of information is handled. Should an organisation or “responsible party” as named by POPI, request your personal information, they can only capture and use it with your consent. Organisations will further have to ensure that it is kept up to date and that they have put in place, reasonable security measures which are in line with industry standards. This in itself can be quite a tall order for many organisations that handle personal information of their clients.

As soon as POPI is signed into law all public and private organisations that process personal information will have a transition period of one year to address their compliance. The onus rests on the organisation to comply and compliance failure cannot only bring about reputational damage but can also lead to fines of up to R10 million or imprisonment of up to 10 years. An individual can at any time, free of charge request from an organisation whether they hold any of their private information. Upon provision thereof, the individual may demand correction or deletion of information that is inaccurate, out of date, misleading or that was obtained illegally. Organisations need to take note of these principles and assess to what extent these principles will apply to them. Proactively obtain help to assess the compliance of your business and start putting measures in place to ensure your compliance with POPI as compliance will not be an overnight exercise and will require planning and understanding on your part.

TOLLS TO CAUSE MASS TENANT MIGRATION – Property24

Marto — Mon, 27 Jan 2014 11:39:06 +0000

TOLLS TO CAUSE MASS TENANT MIGRATION – Property24

The introduction of e-tolling is set to cause a major upheaval in the Gauteng property market, and especially in the rental sector.“The toll fees are going to place an additional strain on household budgets and many people who currently use the freeways to commute long distances to work will want to relocate to avoid them,” says Jan Davel, MD of the RealNet estate agency group.Rental demand is also likely to strengthen, he says, in the increasingly popular areas close to public transport access points like Rea Vaya, Gautrain or Metro stations, as more people try to avoid commuting by car.