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Tenants need not panic when landlords go broke

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Tenants should not be financially disadvantaged no matter what happens, although dealing with the disruption of a forced sale or a repossession can be unpleasant, says Greg Harris, CEO of Chas Everitt Property Rentals.

Landlords and homeowners could find themselves in financial trouble in the next few months as a result of South Africa’s worsening economic picture, and tenants need to know what their positions would be in such circumstances.

“There are three things they need to note in particular. The first is that the state of the landlord’s finances has nothing to do with the obligation of tenants to keep paying their rent in full and on time,” says Greg Harris, CEO of Chas Everitt Property Rentals. 

“The landlord might be in arrears with bond repayments to the bank, for example, but even if the tenants find out, they can’t stop paying rent or move out without giving the proper amount of notice set out in the lease.”

Second, the financially distressed landlord may try to sell the property and pay it off before his bond account moves too far into arrears, or list it for sale through a bank “assisted sale” programme. 

“This also should have no immediate effect on the tenant, except perhaps being asked to co-operate with arranging viewings by potential buyers.

“In terms of South African law, anyone buying the property would have to do so subject to the terms of the existing lease, and at the end of the transfer process the only change for the tenant would be to make payments to and interact with a new owner or new rental management agent.

“The new owner will not be able to terminate the existing lease without good cause and sufficient notice, and will also become responsible for the return of the tenant’s security deposit at the end of the lease term. Alternatively, the new owner may approach the tenant at this point to ask them to stay on and sign a new lease, especially if they are reliable payers and have looked after the property.”

Third, even if the distressed landlord waits too long to try to address his problem and the property is sold at auction or repossessed, it is unlikely the tenants will be thrown out without notice, says Harris.

“The bank will first have to go to court to get a debt judgment against the landlord who is in default, and only after that is granted will the property be attached by the sheriff of the court and then either sold at auction or repossessed by the bank. This is a long process and the term of the lease may expire in the meanwhile, giving the tenant plenty of opportunity to find somewhere else to live.

“Alternatively, if the property is repossessed, the bank will have to give the tenant notice to move in terms of their existing lease, or allow the lease to run out. Or it might offer the tenant good terms to stay on, at least until the property is resold.

“However, the tenant will be entitled to refuse to sign another lease at this point, and to look to the lender to repay their security deposit.”

He says tenants should not be financially disadvantaged no matter what happens, although dealing with the disruption of a forced sale or a repossession can be unpleasant. 

“This is another reason to rent only through an established and reputable agency. That will ensure deposits do not go missing when a landlord gets into trouble, and that everyone abides by the lease,” says Harris.

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