Control Tenants' Electricity Bills

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13 Sep 2007

It is no secret that the legal system, by far, favours tenant over landlord rights.

Though this is a heated debate, one thing is certain, when it comes to utility consumption the case in favour of tenants has repeatedly been proved to be true. Time and again, tenants come up trumps and landlords remain liable for their electricity bills.

Landlords and investors all over the country continually run the risk that a tenant will run up high electricity bills and leave them with a hefty sum to pay at the end of the lease. After non-payment of rent, non-payment of utilities is the next major risk landlords face. The problem is compounded with tenants who also do not pay their rent.

The legal costs attached to evicting a tenant are high enough, trying to also recover amounts for an unpaid utility bill just makes the matter worse.

Yet, when the utility bill is registered in the property owner's name, the liability to pay sits squarely with the property owner who will be held responsible for arrears despite being able to show that the arrears were created by a tenant.

Landlords are left with two choices. Refuse to pay arrears created by a tenant and invariably be taken to court or sue the tenant in the hope of recovery. Both options are less than desirable and carry hefty costs, both in terms of time and money.

Very often, landlords may never recover the arrears from the tenant and resent settlement with the municipality to avoid incurring further losses. It is sad to conclude that this may not be fair or just, but it just is the way it is right now.

However, technological advancements have lead to the cost-effective development of pre-paid electricity meters. Property owners can install these devices as secondary meters to their existing municipal meters.

The secondary meter is privately owned by the property owner and has proven to be an excellent method of avoiding the risk of having to foot the bills of tenants. Yet, the number of privately owned, secondary pre-paid electricity meters is low when compared with the number of rental units available countrywide. We asked ourselves why. We found some very interesting answers and some disturbing misconceptions.

First, many landlords see the pre-paid meter as an equivalent risk to cutting the electricity themselves. In other words, many believe that despite the presence of a prepaid electricity meter, they will be held liable for switching off electricity, which can legally land them in jail.

However, while inquiring into this matter and asking sources of authority that supply thousands of such meters for municipality and private persons, they clarified that this is not true. It is only illegal for the landlord to cut electricity at their own accord and yes, they can go to jail for that, but if the power is cut due to a non-payment of electrical pre-paid meter, the landlord is not responsible and therefore not liable.

The nuance here is that the property owner has not denied the tenant electricity, nor made it impossible for the tenant to receive electricity services. If the tenant pays for electricity credit, then the meter will work and electricity will be supplied. If the tenant does not pay for electricity, then the meter will not function.

The responsibility for receiving electricity or continuity in the supply of electricity therefore sits squarely with the tenant. Hence, a prepaid meter is safer for the landlord and also cheaper to install than to take the risk and liability of arrears or to take the action of disconnecting power to the tenant.

The second finding was related to cost. Property owners saw this as a costly exercise. While there are expensive solutions on the market, a regular single-phase meter is priced as low as R699 including VAT and the installation is so simple that a handy man can install it quite quickly and safely. Even assuming that an electrician installs the meter, and the cost rises to R2k, this can still save months of arrears and thousands in legal costs, therefore the perception of high cost is not justified to value.

The third issue found was the concern of theft. Landlords and investors are often concerned that the investment of R1k or more can be stolen and they will have to keep installing new meters.

Though this concern is valid and justified, one has to look at the facts. First of all, a landlord can ask for R1k (or whatever the cost was) as a refundable deposit for the meter. If anything happens to the device in the period of the rental, the repair or replacement come out of that deposit. This should easily solve that problem, even if they have to install new meters it won't be from their budgets.

Second, if a tenant leaves the premises and removes the meter it is theft and the property owner can open a case at the local police station. The stolen meter can then be reclaimed from insurance and the tenant that committed the crime is left with an even bigger problem than just non-payment of some arrears.

However, it is to be noted that certain meters are theft and tamper safe. If tampered with, they immediately alert the owner and cease to function, making them worthless for future use or resale.

Though the concern of theft is logical and understandable it is not based on the full reality of the solutions provided today, and it seems that it arises from lack of technical understanding. In other words, it is not true and there are ways to protect the asset if it is stolen.

The last concern found was related to non-payment of rent while electricity is still in supply. Landlords and investors expressed concern that a tenant who does not pay rent can continue living in a premise while paying for electricity using the prepaid system. In this case, there is no way for the landlord to enforce payment of rent because the tenant continues to enjoy the comforts of the property as supplied with electricity so long as they keep buying electricity credit.

While it is not legal for a property owner to discontinue electrical service to a tenant based on non-payment of rent, many do take the risk of disconnecting electricity supply knowing full well that they may not do so. So a property owner faced with mounting arrears for electricity is willing to perform an illegal action in order to avert more costs.

In reality, a secondary prepaid meter is under the control of the private owner. As such the owner has a number of choices. If a tenant who moved into a prepaid premise does not pay the rent but does pay the electricity, the property owner can hold the payment of electricity credit in lieu of unpaid rent until such time as the outstanding rental amount is paid.

If the tenant continues not to pay rent, then at least the landlord will only have to carry only the legal cost of the eviction and personal losses for rent not paid, not the additional cost of the electricity bill.

Therefore, unless a landlord is employing unlawful means, a pre-paid electricity meter will still cut risk when problems do arise and legal costs are incurred for eviction.

For more information click here to visit the website.

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