A BRIEF DISCUSSION ON PRO-ACTIVE STEPS BY LANDLORDS IN ORDER TO MITIGATE LOSS
Author
Janie Venter| Associate
The current economic situation has left many people, including tenants in poverty, therefore its of paramount importance for a landlord to act proactively to avoid unnecessary and lengthy legal action against a non-paying tenant.
Non-paying tenants can cause a landlord immense damage by either not paying rent or not paying utilities or defaulting on both.
In circumstances where the tenant is occupying leased premises, whether commercial or residential, without paying the monthly rental, the landlord will have no other option but to institute legal action against the tenant – firstly to lawfully evict the tenant, and secondly to recover the outstanding rent and damages.
This can be prevented by the landlord taking precautionary steps,
The landlord should take steps to recruit a dependable tenant. Screening a potential tenant can eradicate admin and costs in the future. It is advisable to do a credit- and criminal check on the prospective tenant. This can be done by a property practitioner (estate agent), or an attorney. The landlord can also enquire if the tenant has any judgments against his/ her name or reported defaults with prior landlords. The landlord should request copies of the prospective tenant’s bank- or financial statements (and salary slips in the case of residential lease). The landlord will be able to see whether the tenant will be able to afford the monthly rent. The rule-of-thumb is that the tenant must earn at least three times the rental amount.
Never allow a tenant to take occupation of the leased property without paying a deposit in full, and without signing a well-drafted lease agreement with the necessary clauses. It is advisable never to commit to anything verbally. The lease agreement forms the basis for the relationship between the landlord and the tenant, and it is therefore of paramount importance that all terms agreed to between the parties are properly captured therein. The landlord must ensure that the lease agreement at the very least makes provision for a Deed of Suretyship, as well as Holding Over- and a Maintenance-clauses.
Unfortunately, landlords are sometimes under the wrong impression that he/she can disconnect the tenant’s water and electricity if it defaults on payment of the utilities account. What the landlord usually does not realise, is that the tenant can in such event go to Court on an urgent basis for a spoliation order against the landlord, to reconnect the power and water supply. The Court will normally grant such an order (irrespective of the fact that the tenant may be in arrears with the rentals- and/or utility bills). In addition, the Court will order the landlord to pay the legal costs of the tenant, and due to its urgency, the legal fees are usually quite high.
It is advisable that landlords take pro-active steps and approach an experienced commercial attorney to review the lease agreement and to institute eviction proceedings if necessary. The sooner the eviction process is started, the sooner the landlord can cut his/her losses and acquire a new tenant.
Article by Janie Venter (Associate) and Johan du Toit (Senior Associate)
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