WHAT HAPPENS TO YOUR RENTAL DEPOSIT?
Most landlords request a deposit from their tenants before they move into the property. According to Section 5 of the Rental Housing Act, No. 50 of 1999, a landlord is legally entitled to request a deposit from their tenants.
How much should you expect to pay?
The amount that the tenant will be required to pay as a deposit is stipulated in the lease agreement. Conventionally the rental deposit amount was equal to one month’s rent; however, in more recent years, landlords have started asking for two or even three months’ rent as a deposit.
Why do you need to pay a deposit?
The deposit exists largely to protect against defaulting tenants and the lengthy, expensive process involved evicting them. Tenants are protected by the Prevention of Illegal Eviction from Unlawful Occupation of Land Act, No. 19 of 1998, also known as the PIE Act. If the correct procedures are followed, it can take at least eight to ten weeks for an eviction order to be granted during which time the landlord is out of pocket. Besides the fact that the landlord is not getting a rental income from the defaulting tenant during that period, they will also have to pay legal costs. An unopposed eviction could cost between R12,000 and R20,000 in legal costs plus disbursements, while the cost of an opposed matter will be substantially more. This is why landlords want a few months rent stored away in case this worst-case scenario were to occur.
Where does this deposit go?
When a tenant pays the deposit, the landlord is required by the Rental Housing Act to place the money in an interest-bearing account, held with a financial institution. The tenant is within their rights to request a statement of the interest earned on the money at any time during their tenancy. Even though the deposit is paid to the landlord, it remains the tenant’s money. The landlord is merely holding the money as a security measure, should the tenant default or breach the rental agreement. If the tenancy runs its normal course, the deposit along with all interest earned on the money must be paid over to the tenant at the end of the lease agreement period.
What deductions are allowed?
The landlord is entitled to deduct from the rental deposit any expenses incurred repairing any damage to the property which occurred during the tenancy. The remainder of the money must then be refunded to the tenant no later than 14 days after the restoration of the property as dictated by the Act. If repairs are done, the tenant can request to see all repair receipts to confirm that the money was spent to repair the damage they did to the property. The landlord cannot use the deposit for general maintenance or upkeep of the property. If there is no damage to the property, the full deposit and interest must be paid to the tenant within seven days of the lease's expiration date.
Where to go for help
Should any disputes arise between the landlord and the tenant regarding the rental deposit, they can turn to your province’s Rental Housing Tribunal. The tribunal assists to mediate and resolve disputes between the parties. Before entering into a rental agreement, tenants should familiarise themselves with their legal rights regarding a tenancy and their rental deposit. Knowledge of the relevant procedures can help prevent unpleasant and costly disputes down the line.
If you would like to get in touch with a rental expert, contact your nearest RE/MAX office.