Advice and Opinion

Buy-to-let investments – be careful of wayward tenants

“Only a very small percentage of the applicants for residential property bonds serviced by Multi Net Mortgages are buying-to-let, but in his view”, said John Smyth, CEO of Multi Net Mortgages, for those wanting a steady monthly income this is still one of the best asset classes on the market.

It would, however, be even more attractive, said Smyth, if landlords and rental agents did not from time to time have to deal with non-paying tenants – and the situation is exacerbated by the fact that South African property law, for sound historic reasons, is slanted in favour of the ‘have nots’ (in this case the tenants) rather than the ‘haves’ (in this case the landlords)”.

“Since the onset of the recession or near-recessionary conditions we are hearing from rental agents that they now have to deal with two or three times as many non-paying tenants as previously,’ said Smyth.

“The problem”, he said, “is that although the law does protect landlords’ from non-compliant tenants and indeed from any breach of the lease agreement, the legal processes to bring this about can be costly and time-consuming. This is especially true when the tenant has on his side a lawyer who knows just how to delay matters”.

“When a tenant cannot pay his rent or starts paying late or only partially, the landlord has the right to cancel the lease forthwith, although in practice he will usually grant the tenant an extra week to rectify the situation. If then tenant does not leave, the landlord’s lawyer can then start the full legal process under the P I E Act (Prevention of illegal Evictions Act). If the tenant is on the standard one month notice arrangement, 30 days will be allowed to vacate the premises”.

“If it then transpires that the tenant has no intention of leaving, the landlord will apply to a magistrate for an ex-parte eviction order. This will set a date for the tenant to appear in court and notice of this will be served on him by a sheriff at least two weeks before the court appearance. With the notice served, the magistrate can then go about issuing a full eviction order”.

“The tenant then may delay his court appearance by claiming he has to be away on business or is sick or has not yet found a lawyer – 101 reasons have been advanced – but in most cases he will eventually have his day in court. Here, by claiming that he is very difficult financial position, e.g. has lost his job or has other serious problems, he may be able to cajole the magistrate into giving a further extension to his occupancy period – in most cases this will be limited to another 30 days”.

“If then he is still in the premises after that period, a sheriff is entitled to evict him by force and put his goods on the pavement or in the sheriff’s store”.

“Fortunately,” Smyth said, “this drastic action happens only in a small minority of cases, but nevertheless the endless delays involved always prove detrimental to the landlord”.

“The whole process can take three months, but with a really slippery tenant it might take as much as six months. This obviously involves considerable loss of income to the landlord and it is particularly worrying if he is using the rent to pay a bond on the property”.

“To avoid the delays and loss of revenue, the landlord must”, said Smyth, “at the outset employ a rental agent fully conversant with the checking process. A credit, previous landlord and employment checks will in 95% of cases will reveal whether the tenant is reliable or not and any landlord who skimps on this necessary process is asking for trouble”.