Don’t panic if your landlord goes broke

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

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

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

   Secondly, he says, the financially distressed landlord may well try to sell the property and pay it off before his bond account gets too far into arrears, or list it for sale through one of the banks’ “assisted sale” programmes. “And this also should have no immediate effect on the tenants, except perhaps being asked to co-operate in 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 tenants 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 tenants’ security deposit at the end of the lease term. Alternatively, the new owner may very well approach the tenants 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.”

   Thirdly, even if the distressed landlord waits too long to try to address his problem and the property is then sold at auction or repossessed, it is unlikely that the tenants will just be summarily 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 well expire in the meanwhile, giving the tenants plenty of opportunity to leave and find somewhere else to live.

   “Alternatively, if the property is repossessed, the bank will have to give the tenants notice to move in terms of their existing lease, or allow the lease to run out. Or once again, it might offer the tenants good terms to stay on at least until the property is resold. No bank likes to have vacant properties on its books as these just create management and security headaches.

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

   In short, he says, the 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, “and this is another reason to rent only through an established and reputable agency that will ensure that deposits do not go missing when a landlord gets into trouble, and that everyone stays calm and abides by the terms of the lease”.