The role of the security deposit in rental property


Deposits protect landlords and tenants alike

Rental or security deposits are standard practice in tenancy agreements in South Africa. Standard practice…and good practice. But for tenants the deposit can often be a source of financial stress. In this article we look at the benefits of the deposit system for both landlord and tenant, and the rules governing rental deposits.

Not legally required – but legally permitted

Under the terms of the Rental Housing Act 50 of 1999, a tenant is not legally obliged to pay a deposit, but the landlord is legally allowed to ask for one. And most landlords do. There are sound reasons for this. The deposit provides security over a number of possible eventualities. The tenant may scarper, neglecting to pay the final month’s rent. Or there may be damage to the property. A deposit is no guarantee that a property owner can cover all costs, but it certainly helps limit the liability.

The deposit must be specified in the lease agreement, with the amount stipulated. Both parties must agree on it. It is generally paid either with the first month’s rent or when the lease is signed, prior to occupancy.

Treatment of the deposit

Whether the landlord asks for a deposit worth one, two or even three months’ rent is a private matter, but once the deposit is received the treatment of it is regulated. The deposit must be held in an interest-bearing account. The interest rate paid on the account holding the deposit must be equivalent to the bank’s main savings account rate. But what happens if the landlord is unscrupulous – or just has a cash emergency – and spends the deposit amount? Is the tenant protected? In short, yes, through a proviso known as “deemed provisions”. In other words, if the landlord fails to invest the deposit in an interest-bearing account with a bank or other financial institution, it is deemed to have been invested. At the end of the tenancy, the landlord is still liable to repay the deposit (less any legitimate deductions) plus interest. Neither the tenant nor the landlord can waive their rights to deemed provisions.

Furthermore, when the deposit is paid the landlord should issue the tenant with a written receipt showing the tenant’s name, date, amount of deposit and the address for the property the deposit relates to. On request, the tenant must be provided with proof of accrued interest.

Types of deposit

In South Africa we don’t make a distinction between a security deposit and a rent deposit. In some jurisdictions, a landlord may ask for “last month’s rent”. This is financial insurance against the tenant doing a flit and not paying their final rental instalment. It can only be used for that purpose, and may not be applied towards repairs or cleaning. A security deposit, however, can be used to cover whatever costs the tenant might incur or leave unpaid. A landlord who asks for two months’ rent up front may indeed be thinking in terms of part security and part rent insurance. But from the tenant’s perspective there is no distinction under South African law.

At the end of the lease

Hopefully, the tenancy runs smoothly. Landlord and tenant communicate about maintenance and breakages, and the tenant cleans the property before moving out. In that case, the tenant can look forward to a full refund of the deposit. If they are moving to another rented property, this is probably a welcome windfall, as a further deposit may need to be paid. 

But if things have not gone to plan and there is damage (beyond normal wear and tear) or unpaid bills, the landlord is entitled to deduct any costs associated with repairs incurred during the lease (not just on final inspection). Expenses that can be covered include replacement of lost keys or remotes, and any outstanding utility bills, as well as repairs. The tenant is entitled to the receipts for any repairs carried out by the landlord or items purchased (replacement keys, etc.). General maintenance is not a permitted deductible expense by the landlord.

The importance of inspection

An often overlooked point is the requirement for a joint final inspection. Landlord and tenant should walk through the property together and note any issues. These can be compared to the initial inspection report to ascertain the degree of tenant liability. If a tenant has held the lease for some years, it can be difficult to remember what state the property was in at the beginning of the tenancy. Was that stain on the carpet always there? The moving-in report is a useful reminder.

Both parties are responsible for carrying out the joint inspection. The Rental Housing Act stipulates that “the landlord and tenant must arrange a joint inspection of the dwelling at a mutually convenient time to take place within a period of three days prior to such expiration [of the lease]” but it does not specify who must make the arrangements. Ultimately the landlord is responsible for the property, the lease agreement and the deposit. It is in their interests to ensure the inspection complies with regulation, as no deductions may be made otherwise. If the landlord fails to carry out the inspection together with the tenant, by default the property is considered to be in a good state of repair and no deductions may be made. However, it is also in the tenant’s interest to make sure the inspection happens, to ensure the landlord doesn’t ignore the Act and claim for damages the tenant isn’t present to deny! Even though the landlord would be in the wrong, there is no point inviting a legal battle.

Contact us today

SD Law is a firm of Cape Town and Johannesburg eviction attorneys with deep expertise in rental property. We can help you draw up your lease agreement and manage the deposit process. We can  screen tenants and support you if any disputes arise during or at the end of the tenancy. Contact Simon on 086 099 5146 or email sdippenaar@sdlaw.co.za to discuss your property-related matters today.

Disclaimer

Disclaimer The information on this website is provided to assist the reader with a general understanding of the law. While we believe the information to be factually accurate, and have taken care in our preparation of these pages, these articles cannot and do not take individual circumstances into account and are not a substitute for personal legal advice. If you have a legal matter that concerns you, please consult a qualified attorney. Simon Dippenaar & Associates takes no responsibility for any action you may take as a result of reading the information contained herein (or the consequences thereof), in the absence of professional legal advice.