Is it lawful for landlords and tenants to use the rental deposit in place of rent, during the Covid-19 lockdown?
The novel coronavirus (COVID-19) has created unprecedented instability across the world. Although our concern over its effect on our people, our clients and our fellow South Africans remains high, we are hopeful that through our inimitable South African resilience that we will not only overcome this but will thrive through the lessons learnt.
The legal implications of this calamity are unfolding before our very eyes, covering every area of our law such as commercial, employment, tax and, of course, property.
Not too long ago TPN Credit Bureau and SSLR Inc. released a Rental Recovery Pack. The Pack was promoted as a tool to govern the relationship between tenant and landlord in these uncertain times and received a worthy reception. I, for one, support the need for intervention, transparency and communication between the landlord and the tenant in these trying times. Notably, similar solutions have gained traction over the last couple of weeks.
A point of contention that subsequently arose, however, was whether it is lawful to utilise the deposit in place of rent under these circumstances. I have been asked to consider this.
The lawfulness being questioned arises from the interpretation of Section 5 of the Rental Housing Act, no. 50 of 1999, which, for our purposes, provides that a landlord may require a tenant to pay a deposit (a choice that the landlord has) but must hold such a deposit in an interest-bearing account until the end of the lease without utilising it (an obligation that the landlord has). The section is by no means short and sets out a number of requirements.
In interpreting the Act, the wider context of this provision (its ambit and purpose) is pertinent, particularly the purpose of the Act, namely, there being a need to promote the provision of rental housing and to provide for the facilitation of sound relations between tenants and landlords and for this purpose to lay down general requirements relating to leases.
During my years as a legal practitioner, as much as there exist complaints of the legislation being tenant-centric, I have also witnessed some gross abuses by landlords and estate agents in appropriating deposits, unilaterally utilising these at will and arbitrarily refusing to refund these. I may not agree with certain portions of the Act, but I understand it’s purpose.
With that in mind, if the purpose is to avoid such unfair practices, would the release of the deposit to the tenant before the expiry of the lease be considered a contravention of the Act? In the current circumstances, there is a risk that the tenant will default, resulting in a breach of the lease. If the tenant and the landlord were to engage each other and amend the lease so that the deposit will be ‘paid’ at the election of the tenant in order to cover the rent and avoid a breach, does this not favour the tenant, in whose favour the provision presumably exists? Would it make a difference, although superfluous, if the deposit were paid directly to the tenant first and then returned to the landlord?
...a different interpretation of the provision would lead to an absurdity in law and that the utilisation of the deposit as suggested was in all probability, entirely lawful.
I am by no means promoting that this is the only and wisest commercial decision. Naturally, the tenant and circumstances in each case would differ and there may be room for a different interpretation by a Court under other circumstances, but if the tenant seeks this relief, expressly agrees, and the deposit is utilised as stated, I cannot see how the landlord would be acting in contravention of the Act.
This view appears to be supported by other role players in the industry. Aside from myself and, of course, Cilna Steyn of SSLR Inc., and Greg Vermaak of VMW Inc., a renowned attorney experienced in property rights and evictions, reached the same conclusion, concurring that a different interpretation of the provision would lead to an absurdity in law and that the utilisation of the deposit as suggested was in all probability, entirely lawful.
This may very well be the ‘win-win’ that landlords and tenants need right now.
Written by Bruno Simão, Bruno Simão Attorneys.
The information and material published herein is provided for general purposes only and does not constitute legal advice. Please consult an attorney on any specific legal problem or matter.