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Rentals: Landlord vs. tenant costs

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14 Feb 2011

Lease agreements are by no means standard and cost recovery arrangements by landlords vary from property to property.  

It is important to define upfront the operating costs of a rental property, and the rental agreement should clearly state which costs the landlord and tenant are responsible for.

So says, Michael Bauer, general manager of IHFM, who adds that a key to a satisfactory landlord-tenant relationship is to define in the agreement, upfront, the direct and indirect operating costs of the property, stating clearly the costs for which the landlord and tenant are responsible. 

“The landlord must ensure that the tenant initials the relevant clauses in the lease and understands his responsibilities,” says Bauer. 

Although leases can be verbal, Bauer says it is advisable for the landlord to have a written lease and South African law in fact makes this obligatory. 

In most lease agreements, he says, the direct costs charged to the tenant will include the water, sewerage, electricity and refuse collection charges, many of which today are monitored through individual and prepaid meters installed on the premises. 

Bauer warns that landlords should insist that all municipal accounts are posted to them rather than the tenant. Tenants who in theory are paying these accounts to the municipalities without intervention from the landlord, in practice sometimes do not do so – with the result that when the tenant leaves, the landlord ends up with unpaid municipal accounts dating back several months, or even years.

Had the accounts been sent to the landlord for forwarding to the tenant, the defaults on payments would have been reflected on the monthly statements and would have been immediately picked up by the landlord. 

The indirect operating costs of a property include the building insurance, rates, taxes and levies. The landlord, says Bauer, is not able to charge these to the tenant as they are for his account. However, he says, any year on year increases, it is almost invariably stipulated can be recovered from the tenant.

However, this situation says Bauer, has caused problems. In Cape Town, since the 2006 re-evaluation which drastically increased the property rates payable, especially in the more expensive areas (Clifton, saw property rates go sky high), many landlords had to compromise on charging the full increases for fear of losing good tenants. 

Annual increases in the insurance premium can also be recovered from the tenant. For example, if a tenant is storing inflammable material in his garage, the insurance company must be notified by the owner and an additional insurance premium must be charged.  

In general, says Bauer, the fewer extra charges passed on to the tenant, the better, but landlords must guard against those tenants who habitually use excessive amounts of water or electricity or who damage or neglect their properties. 

“If on the other hand, a landlord finds he has a good tenant, it is worth his while to be as generous as possible in order to keep him,” says Bauer. 

Readers' Comments Have a comment about this article? Email us now

Firstly readers should differentiate between residential leases and commercial/retail /industrial leases. My comments below only pertain to commercial/retail/industrial leases. Commercial/retail/industrial leases are not required by any Act in terms of the South Africa Law to be in writing. It is obviously in the tenant and landlord’s best interest to have a lease reduced to writing. Contrary to what is stated in the article, rates and taxes, levies and insurance premiums can be recovered from the tenant, not only the increases thereon. If the lease agreement states that the tenant is liable to contribute pro rata towards rates and taxes, levies and insurance premiums it is legally enforceable. The landlord remains ultimately responsible, in that the insurance provider / municipality in case of default will not recover the outstanding monies from the tenant, but from the landlord, but this does not prohibit the landlord to recover these charges from the tenant. You can basically agree to “anything” in a lease, as long as it is not in conflict with any Act, or against “good morals” / contra bonos mores. - Jeanette

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