Is your tenant an illegal occupant?

There’s a thorny issue in renting and that is when your tenant is an illegal occupant of your apartment.

Let’s consider the issue in this blog.

If a rental contract is breached by a tenant and, after receiving notice, he does not undertake the necessary rectifying actions in the specified time, then the landlord may cancel the contract. The tenant is then considered an illegal occupant.

If the occupant refuses to perform his duties in terms of the rental agreement, then he will be found to be in breach of his contract. As an example, the tenant refuses to pay his rent on time. The landlord must inform the tenant in writing that he has decided to cancel the rental agreement so that the tenant, within a reasonable time or a time agreed between the parties, can vacate the premises.

If the tenant chooses to ignore the cancellation notice, and continues to occupy the premises, he will be seen as an illegal occupant. The same principle applies when the tenant continues to occupy the premises after the termination of the rental agreement. An illegal occupant may be evicted from the premises by the landlord. This process will occur in a magistrate or high court so the services of an attorney will need to be retained.

There is no longer a common law right to evict a tenant. All landlords and tenants have to follow the processes and procedures of the PIE Act [Prevention of Illegal Evictions Act, 19 of 1998]. According to PIE, before an eviction may occur, the tenant must be informed about the pending action against him. At least 14 days’ notice must be given of the trial and its date and location. This notice must also be sent to the respective municipality.

On the date of the hearing, the court will consider various factors, such as, if the tenant is an illegal occupier, if the landlord has reasonable cause for eviction and the question of alternate accommodation will be considered. All of these factors will be considered before the court makes a decision to issue an eviction order or not. It is currently a criminal act to evict a tenant without a court order. In turn, constructive eviction, such as disconnecting the electricity or water, is also illegal and considered a criminal act.

The type of action or application that a legal advisor will propose will depend on the facts and circumstances of the case. These actions or applications will be heard in the magistrate or high court. If the legal process is successful, the eviction notice will be issued after which the landlord may proceed to evict the tenant.

There are certain clauses that must always be in a rental contract in order to protect both parties against lack of payment or breach. These clauses include: time limits, court jurisdiction and responsibility for costs if the parties decide to go to court.

The PIE Act clearly sets out the steps and procedures that should be followed to obtain an eviction order. Various definitions and interpretations of other terms are set out and clarified as they apply to the landlord and the tenant. These should be clearly documented in the rental agreement that the parties sign.

The moral of the story is simple: If you wish to protect your investment in the face of an errant tenant, you need to obtain professional help early in the process. The PIE Act is not against landlords but it certainly does protect the rights of tenants; but not without holding them accountable for proven, unacceptable breaches of a well-compiled rental contract.

Yours in Property.

2015 Property Market Trends

Economics, or The Study of Graphs or e-Comics, if you prefer.

For some, as confusing as a dassie’s run, as unpredictable as the weather forecast and as boring as watching washing rotate. But for those of us who love e-Comics and follow the trends, always fascinating. Beware though, ignore it at your peril especially if you are taking on debt. On the other hand, don’t allow it to be the source of your motivation or else, your effort will undulate like an interest rate graph.

Be informed, be motivated.

So let’s unpack where we believe we stand at the moment and for the next year or two in simple language. Allow, as I broad-brush the issues, for some “averaging” that may not align with your favourite economist’s views.

Affordability: This aspect is really vital when considering buying a house. For the last 2 years, house prices have been rising. House prices alone contribute to affordability issues for buyers: not enough deposit and not enough disposable income to pay for the required bond. Interest rates have also risen and simply raise the bond’s payment per month. And finally, the National Credit Regulator [NCR] has been vigilant as regards affordability calculations that Lenders allow for their clients so it is increasingly more difficult to get a bond in the first place. Lets just take these three factors together and compare what can be afforded:

R40000 per month equated to R12000 [30%] per month and a bond of R1357910 at Prime of 8.75% over 20 years. [situation 2 years ago]

R40000 per month equated to R12000 [30%] per month and a bond of R1310234 at Prime of 9.25% over 20 years. [with 0.5% rate rise]

R40000 per month equated to R10000 [25%] per month and a bond of R1091861 at Prime of 9.25% over 20 years. [with tightened affordability]

These are rough figures but the net effect on the bond is R266000 less can be borrowed assuming you did not receive an increase. You probably did, but with it came increased “everything” that squeezed your affordability in any case.

Not sure what you can afford, Have a look at our online Affordability Calculator

House prices: Depending on who you read and the segment, house prices have been rising at a real rate of about 2% so make that about 8% per annum. Given that the same house is therefore getting more expensive, let’s see what impact the increases have on our affordable bond size, based on the above examples:

R40000 per month equated to R12000 [30%] per month and a bond of R1357910 at Prime of 8.75% over 20 years. At R10000/m2 and no deposit required, you could buy a house of 136m2.

If we just raise the price of the house by 8% per annum for 2 years, then your house area reduces to 115m2 which is much smaller. Put another way, at a 30% affordability factor, you would need to earn R46915 per month in order to afford the 136m2 house.

If we factor in the increased affordability criteria of 25% and the raised interest rate, your house size reduces to 109m2 and your salary per month needs to increase to R58393.

Once again, rough figures that show the effect on affordable house size and required salary as house prices rise at 8% per annum.

Confidence: We have written about this factor before but it bears repeating. The courage that it takes to sign for a 20-30 year bond with a bank cannot just be measured in numbers. The confidence that a buyer has in their ability to repay the bond and watch their house value grow year by year is critical to the Buy decision. We consider, our job’s security, the state of the economy and politics, the timing of children, the holidays, marriages and so on. We remain cautious and only go ahead when we are confident that we can afford our house in the foreseeable future. Nothing beats having confidence when we are buying and selling houses. Similarly, the area we live in needs to give us a sense of confidence that it will retain its value and not decline as a suburb. If there is a general sense that this is the case, prices will rise and, if not, then prices will drop. The movement will be driven by confidence in the area.

So in reading property economics articles, see what’s happening to interest rates, house prices and the general level of salaries. Then step back and think about the level of confidence in the country or a particular area. The intersection of these factors is what drives property economics and you can be guided quite clearly by their trends.

So what about now? Well, house prices have been rising generally and steadily since interest rates declined a few years ago and we came out of the shock of the sub-prime crisis in 2010/11. Now it seems that interest rates are going to rise off the back of the USA’s decisions. The amount varies between 0.5% and 1% from now to the end of next year. My view is on the lower side as our Reserve Bank tries to rein in inflation, retain the strength of the Rand whilst helping jobs growth. I also don’t think the USA will do anything too dramatic both in amount and per period. The net result for our property is that price rises will reduce their trend and sales will remain lacklustre for a about 2 years. Then we can look again.

In our last blog, Homeloan Hunction went from this story into motivation. If it all sounds too un-impressing, go back to the previous blog and Look Up and mix with Motivators.