According to a recent press release issued by TPN Credit Bureau, landlords should proceed with caution when prospective tenants offer to pay their rent upfront in cash.
“While at first the landlord may be impressed and happy to receive upfront payments for between 6 - 12 months in advance, payments may come to a screeching halt because of a change in the tenant’s financial situation.
At this point however, the landlord has been primed to trust the tenant as upfront payments have a powerful positive impact on the relationship of trust. Because of the history of large upfront payments, the landlord may allow the tenant some leeway - to their own detriment.
While not always the case, a willingness to pay upfront may allude to the fact that money comes and goes for that tenant. While they can feast now, famine may very well follow later.
TPN adds another problem that often arises with upfront rental payments is that landlords and tenants don’t agree upfront on how the payment of utilities will be handled.
“You may have agreed that the tenant will pay the rental upfront but if the utilities are not included in the rental amount, you must ensure that the tenant is aware that they will be required to make a monthly utility payment. This should be clearly set out in the lease agreement.
Landlords should also note that regardless of whether the tenant has paid the lease upfront or not, the tenant is still entitled to cancel their fixed-term lease in terms of section 14 of the Consumer Protection Act by giving 20 business days’ notice and being liable for a cancellation penalty.
A significant problem arises when that penalty is paid and the landlord is required to refund the tenant the balance of the rental for the remainder of the contract period if those funds have already been spent. This is also the case when the tenant cancels early.”
TPN advises that if you are willing to accept upfront rentals despite the risks, you should definitely make use of an estate agent as the intermediary.
“An arrangement can be made for the upfront rental to be paid into the agency’s trust account where it will accrue interest for the tenant’s benefit and where the landlord can be paid out monthly.
Alternatively, the landlord can place the money in a separate account with a monthly withdrawal set up to periodically release the rental amount.”