Generally, Rea says anything less than two months’ security deposit leaves the landlord at risk of financial loss in the event that their tenant defaults on their last month’s rent or leaves the property with extensive and costly repairs.
This is according to Grant Rea, RE/MAX Living Rental Specialist, who works in the Cape Town City Bowl, Atlantic Seaboard and Southern Suburbs.
“Either the landlord or their rental agent needs to ensure that they accurately estimate the level of damage deposit the property requires. Historically, a one-month security damage deposit was the norm and it proved generally sufficient in covering damages left by the tenant and the costs of restoring a property to the condition it was in at commencement of the lease,” says Rea.
“However, in today’s volatile economic times with the average tenant spending a significant portion of their disposable income on rent, there are more defaults than ever.”
Generally, he says anything less than two months’ security deposit leaves the landlord at risk of financial loss in the event that their tenant defaults on their last month’s rent or leaves the property with extensive and costly repairs.
He says a scenario was recently faced by a client, where the tenants had divorced, resulting in the tenants giving notice to vacate, with one spouse moving out prematurely. The consequent financial upheaval meant that they did not pay the last month’s rent. Despite the lease prohibiting this and the tenants receiving notice of the breach of contract with impending legal action, they still did not pay the rent.
As a result, the landlord deducted the last month’s rental from their security deposit, which equated to one and a half months rent.
“Unfortunately, within that last month of their lease, the tenant who remained in the property left it in a less than desirable condition,” says Rea.
“With only half a month’s deposit remaining to restore all the damages, the landlord had to pay towards damages and the consequent legal costs in an effort to recover the funds. This proved a futile waste of time and money. A higher deposit would have remedied this situation.” Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, says ideally, landlords should have money set aside for unforeseen circumstances, such as issues that are not covered by the home insurance, and legal costs should the tenant default.
This way they will not be in financial trouble if they are required to pay certain expenses from their own account. He advises that between 5% and 8% of the monthly rental amount should be set aside each month as a precautionary measure.
According to Rea, it is advisable to make deductions off deposits for damages first, and to take legal action in the recovery of the outstanding rental as a material part of the lease.
“One must always ensure higher deposits, as in the above-mentioned scenario, despite the tenant being exemplary over a two-year period, the demise of their personal relationship resulted in severe delinquency,” says Rea.
“It is important to note that a tenant’s conduct and payment regularity can deteriorate swiftly, with hardly any evidence or warning.” He says it is therefore best to ensure that landlords allow themselves leverage, reduce risk and increase the protection of their property by obtaining a higher security damage deposits.