Bringing Clarity to the principle of Deposit Utilisation
during the COVID-19 State of National Disaster
The law is made up of a number of different parts.
- Common Law is that part of our law that is based on Roman-Dutch Law and is mostly unwritten. An example in Property Law is ‘huur gaat voor koop’ or the principle of ‘voetstoots’. These are well established principles but there is no legislation that specifically deals with these principles. Legislation does however exist on how to deal with the application of such principles. For instance, the Consumer Protection Act indirectly deals with the ‘voetstoots’ principle – it states that a supplier may not provide a consumer with anything with defects unless such defect is disclosed. So, legislation does not confirm Common Law but it can impact on the application of it.
- Legislation includes the Acts and the Regulations to the Acts that are drafted and accepted by the Parliament, this is the part of the law that is a non-negotiable. If an Act states that you must do something – if you do not do it, you are acting illegally. By the same token, if an Act states that you must do something specific or do it in a specific way – not doing so, is illegal. An example is the Prevention of Illegal Evictions from and Unlawful Occupation of Land Act (PIE) where an eviction order will not be granted unless you follow the very specific rules set out in PIE.
- The precedent system exists to allow the decisions that are made by judges in our courts on a daily basis to shape and interpret the law. It gives us clear direction on how the Common Law and Legislation must be applied. Unprecedented times call for unprecedented measures.
Where we are dealing with situations in law that have never occurred before, we will simply not have any previous court cases or interpretations regarding that particular subject matter. This leaves us in a position where the Law will have to be interpreted and applied before a court has even had an opportunity to give direction on how to deal with the specific situation.
“There has never before been a situation such as the COVID-19 pandemic that has left both landlords and tenants with an income that has suddenly been reduced or entirely disappeared! This means that a number of tenants will be in a position where they cannot pay their rent and at the same time, it leaves a landlord in a position where he cannot honour the commitments he has in terms of the property.
Since this has never happened before, lawyers all over the world are doing their best to find answers to legal questions where we do not have the courts to direct us in any way. As much as our courts are operating, they are only operating on essential matters or matters that are extremely urgent in nature. Property Law does not fall within the sphere of law that is deemed essential to be heard in our courts and so, we find ourselves in a position where we are compelled by crises to apply the Law to the best of our abilities without directive from the courts.
Finding a solution
An example of this is the Rental Recovery Pack that we compiled in conjunction with TPN and Fullard Mayer Morrison Inc. One of the agreements in this pack allows the tenant to pay a reduced rental in the instance that the landlord is able to offer the tenant this. In another agreement, the provision is made for both parties to agree to utilise the deposit for payment of rent during the State of Disaster.
The Rental Housing Act and the deposit
The Rental Housing Act deals with how the deposit must be handled and how it may be utilised at the end of the lease agreement. However, section 5(3)(c) of the Rental Housing Act specifically states that the landlord may request the tenant to pay a deposit to be held by the landlord in an interest bearing account and that this deposit may be used at the end of the agreement for any damages that the landlord might have suffered during the subsistence of the lease agreement. The interpretation of the word “may” is simple – the Act does not compel a landlord to hold the deposit, the Act simply directs how the deposit should be dealt with, should the landlord require the tenant to pay a deposit.
Most lease agreements contain a non-variation clause which means that no amendment or change to the terms of the agreement will be effective unless the amended agreement between the parties is reduced to writing and signed by both parties. In this unprecedented time, we have to apply the Law in a logical and effective way to give landlords and tenants the best possible solution.
Deposit utilisation during the State of Disaster
The parties may without a doubt agree that the landlord will no longer hold a deposit. This must be done by actively amending the terms of the original lease agreement which is done in an addendum to the agreement or by signing another agreement that changes the original terms of the lease agreement.
If drafted correctly, the deposit can effectively then be paid back to the tenant and the tenant can use the deposit to pay his rent should that be the agreement. In the TPN Rental Recovery Pack, the Deposit Utilisation Agreement is drafted based on this exact principle – the parties agree that the landlord will no longer hold the deposit. The Deposit Utilisation Agreement is drafted in such a way that the landlord keeps the deposit (because paying it back to the tenant and receiving it again is just not practical) and utilises it for the payment of rent or a portion of the rent. This is allowed in law as the parties have come to an agreement to vary the terms of the original lease agreement.
Our courts are not just based on the law alone. The broader principles of justice and equity, as well as Ubuntu are always considered.
Reinstatement of the deposit
The parties further agree that when the State of Disaster is lifted, the tenant will be required to re-instate the deposit. In understanding
that the tenant is in a situation that is forced on him by a global health crisis, the landlord can allow the tenant to pay the deposit
off over a period of time. There is no limitation on this created by the Rental Housing Act.
Once the courts are able to hear matters of this nature again, we will have clarity on how the courts will apply the terms of this particular agreement. Our courts are not just based on the law alone, the broader principles of justice and equity, as well as Ubuntu are always considered.
The effect that this will have is that the court will most certainly interpret these agreements as extraordinary measures which were drafted and utilised in extraneous circumstances. As the drafting attorneys of this particular agreement, we are confident that the court will interpret the agreements accordingly.
As part of the amazing team that provided this solution to an industry in this crisis, we are offering all users of the TPN Rental Recovery Pack the opportunity to contact SSLR to talk to one of our attorneys at no charge, should there be anything that is unclear or that you might have uncertainty about.
Once the National State of Disaster is lifted, we will offer a service at a very affordable, all-inclusive fee for landlords with tenants who do not adhere to the terms of the agreements, to obtain judgment against these tenants. These judgments will be obtained quickly because the agreements were reduced to writing, making it very easy to prove what the parties agreed to during the State of Disaster. As a result, we envisage that lengthy trials will be avoided and valuable time and money saved.
Please feel free to contact our offices at any stage, even though we are working remotely, we are all available to assist with any questions you might have.