P2. Rental Contracts

What is the rental mandate?

Is the formal agreement between the principal and the rental agent.

A management mandate can only be a sole mandate so must be in writing.

  1. Section 3.3 of the Code of Conduct.
  2. Section 22 CPT – Plain language.

It provides that the agent must fulfil the terms of the mandate, after which the agent is entitled to his/her commission.

Terms of the mandate

Agents offer a range of services.

Landlords to decide which services he wants to retain, delegate to his agent or have shared between his agent and tenant.

The mandate must be drafted according to the Landlord’s requirement.

  • e., collection of rentals, dealing with arrears etc. – by the agent.
  • pool maintenance or gardening – by the tenant.

Trying to fit the property into the mandate is when issues arise!

Procurement / finders / marketing mandate

The agents are only responsible for finding a tenant, nothing further. Duties to the landlord end here.

Mandate complete upon proper procurement (i.e. when complete due diligence in placing tenant is done).

Problems occur when the agents either retain the tenant deposit in trust or does ad hoc work for the landlord – Tacit contract.

Management of the mandate

The agent will take care of virtually everything (apart from what the landlord excludes)

Remuneration is usually higher.

Mandate ends when:

  • lease ends by a termination (legally or illegally)
  • end of a fixed period of the lease
  • end of a 24-month period
  • if the agent’s mandate is terminated; or
  • the agent terminates his mandate

Section 14 CPA – the ramifications for the rental agent

  1. Concern 1 Section 14 (2) (d) – CPA IMPLICATIONS FOR MANDATE MANAGEMENT

Section 14 (2)(d)

Applies to the automatic renewal of fixed-term agreements and applies equally to management mandates concluded between landlords and agents for a fixed term.

The automatic renewal of a mandate, for a further fixed term, is NO LONGER POSSIBLE under the CPA

In short, the consumer (Landlord) must expressly agree to a renewal of the agent’s mandate agreement for a further fixed period.

Therefore, a clause in a mandate, which states that the agreement will automatically renew for a further fixed term unless the consumer notifies the agent otherwise, is impermissible, even though express provision may be contained in the mandate agreement itself.

Section 51(1), particularly Section 51(1)(1)(i) provides that any agreement may not be subject to any term if its effect is to defeat the purposes and policies of the CPA. One cannot contract out of the CPA.

So, if an agreement is nearing the expiry of the fixed term, the supplier (i.e. the rental agent) should notify the consumer (Landlord) within not less than 40 and not more than 80 business days before the expiry date, and inform the consumer (landlord) that he/she could elect to renew or terminate the agreement, as well as any material changes that may apply in the event of renewal.

If a consumer (Landlord) does not act upon such notification and makes no election, the agreement will automatically renew on a month-to-month basis (but not for a further fixed term), and continue to renew until the consumer (landlord) exercise an election to cancel i.e. you continue to manage the landlords’ property on a month to month basis, until you receive express notice of his/her intention to cancel.

  1. Concern 2 – Section 14(3) and Regulation 5(2) of CPA – Termination of mandates and entitlement to impose a reasonable cancellation penalty.

A mandate to manage a property of a natural person constitutes a fixed-term consumer agreement falling with the purview of Section 14 of the CPA.

Thus, the landlord, as a consumer of your services, is entitled to terminate your mandate to manage his/her property at any time before its expiry. The entitlement to cancel your mandate is conditional provided that he/she has given you 20 business days’ notice of his/her intention to do so (see section 14(2)(b)(ii).

As a result of section 14 of the CPA finding application, the landlord’s election to cancel your mandate will be subject to your right to impose a reasonable cancellation penalty (see: section 14(3) of the CPA)

In calculating the reasonable cancellation penalty to be imposed, the factors provide for in the regulations to the CPA (see: regulation 5(2)) must be considered, particularly:

  • the value of the transaction up to the date of cancellation (see: regulation 5(2)(b)). This includes the value that can be ascribed to the performance of the services and compensation that you would have received in terms of the mandate (had it run its course).
  • the prospects of mitigating your losses.
  • the nature of the services that were performed (see: regulation 5(2)(g)) and,
  • the general practice in the industry (see: regulation 5(2)(j)).

Practically, the cancellation penalty may not have the effect of negating the landlord’s decision to cancel your mandate (see: regulation 5(3)).

Inspections

Inspecting a rental property is crucial. It is important to not only do a detailed written inspection but to do detailed photographs as well. Note all defects, fixtures and fittings, condition of the garden and outbuildings, etc. the more detailed your inspection the less frustration you have should a dispute arise, and they always do.

Remember, your job is to look after your landlord and to ensure that you protect him by having a detailed inspection sheet that both the landlord and tenant have signed. Make sure both parties get a copy of the inspection sheet and that you have explained the terms of maintenance in the lease agreement to both parties.

Landlord and tenant statements

Landlord statements are usually sent out between the 7th and the 15th of the month to account for rental income received and expenses paid.

Tenant statements are sent between the 20th to the 25th of the month to give the tenant ample time to prepare his rental payment on time.

Tenant deposit

The tenants’ deposit is usually held on behalf of the landlord in the estate agents trust account or an interest-bearing account, depending on the terms of the lease agreement. This interest is either refundable to the tenant upon vacating the premises if there are no outstanding costs payable to the landlord or the agent.

Should the interest not accrue to the tenant then the full interest earned is payable by the agency to the EAAB. Bank charges are not allowed to be deducted from the interest as an expense.

On occasion, the deposits are held by the landlord and it could be agreed that the interest will accrue to the landlord. However, this is not recommended as there is no protection towards the tenant should he vacate the premises and the landlord is not able to refund him his deposit.

Notices and Letters of demand

Notices need to be sent out no later than the 1st of the month to provide for a full calendar months’ notice. If the 1st should fall on a weekend or public holiday, then notice should be given the last working day of the previous month to avoid any problems.

Notices must be sent per the terms and conditions of the lease agreement to the addresses stipulated.

It is especially important to make sure that any letter of demand for non-payment of rent is not sent out later than the 1st of the month or the 1st working day of the month. Any leniency given sets a president in favour of the tenant and the court will hold in favour of the tenant and not the landlord should a matter go to court.

Insurance

It is advisable that the landlord speaks to his insurance broker and negotiate insurance cover in the event of a loss of rent due to damage or non-payment of rent. He should make sure he has homeowner’s insurance and cover for any moveable items he may have left as part of the lease agreement for the tenants use.

There is an insurance product, called Landlord Legal, which offers the landlord protection against the cost of having to evict his tenant. Evictions are expensive. Should the landlord not want this cover then he needs to sign an indemnity confirming to the agent that he is not interested in taking out this sort of cover. This policy is only available through real estate agents.

The tenant is responsible to have insurance cover for his household contents as the landlord is not responsible should the tenant suffer loss through theft or damage.

Compliance certificates

A landlord is required by law to have the following certificates on file. These certificates will cover him and protect him from any damage, loss, harm or death caused to anyone utilising his property.

  • Electrical certificate of compliance.

This certificate does not need to be renewed provided that the landlord does not make any changes to the electrical installation after the issue of the certificate.

  • Gas certificate – if applicable.
  • Electric fence certificate – if applicable.
  • Plumbing certificate – City of Cape Town only.

Tenant Application

The tenant application form should be comprehensively completed and the consent form for a credit check must be signed. No credit checks may be done against anyone’s name without written consent.

FICA documents should be in place before completing any lease agreement. This applies to both the landlord and the tenant.

Qualifying a tenant

Before proceeding with any lease agreement, you must qualify the tenant financially first. Tenants are qualified the same as buyers in that you do not want the rental to be more than 25/30% of the tenant’s net income and then also taking into account other expenses he may have that may become burdensome and cause him to default on his rental payments.

A credit check through TPN (Tenant Profile Network) will give a clear indication as to whether the tenant qualifies or not.

Do not put unqualified tenants into a property without the landlord’s consent. Advise the landlord of ALL risks involved and get written acknowledgement from him should he decide to accept the tenant.

NEVER PLACE A TENANT BECAUSE YOU FEEL SORRY FOR THEM!!!!

Documents that will be required

Landlord

  • Mandate to let (either management or procurement).
  • FICA documents – ID and proof of residence.
  • Levy statements.
  • Full contact details.

Tenant

  • FICA documents – ID and proof of residence.
  • Application form and cost breakdown.
  • Bank statements and payslips.
  • Authorisation to do a credit check.
  • Full contact details.

Rental Management Summary

Landlord

  • Inspection and rental valuation.
  • Tenant interview and pre-qualification (affordability, creditworthiness, assessment of previous rental history.
  • Preparation of all legal documents (lease agreement).
  • Collection of deposit, key deposit, electricity deposit.
  • Transfer of deposit into the trust account.
  • Perform ongoing and outgoing inspections as well as regular inspections during the rental period.
  • Collection of rental monies.
  • Provide monthly statements showing income and expenditure.
  • Maintenance reports/quotes etc.
  • Annual reviews per market conditions.
  • Assistance with any legal aspects that may arise through non-payment of rentals.

Tenant

  • Monthly invoicing.
  • Ensure rental is paid on time.
  • Address maintenance issues.
  • Negotiation lease extensions and rental increases.

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