By Jennifer Paddock
Buy-to-let investors often choose to invest in sectional title units as opposed to freehold properties first because unit prices are often lower and also they can offer better value for money due to the shared amenities, like swimming pools and gyms, that would be far more costly to maintain on their own in a freehold property.
Once the formalities of legally transferring the property have been attended to, the next logical step is for the Buy-to-let investor to find a tenant to rent the sectional title unit so that he can receive those helpful rental payments to put towards his bond repayments or, if he’s lucky, to fund his new Porsche.
Finding a seemingly suitable tenant to rent the unit may be difficult… credit checks, phone calls to previous landlords and checking for criminal records may show that the potential tenant is ‘clean’ but there can never be an absolute guarantee as to how your tenant will behave. Once you are satisfied that you have found the right tenant, as the landlord all you need to do is sign the lease and provided he pays his rent on time you have nothing to worry about right? If your tenant turns out to be an undercover psycho and causes havoc in the scheme, it’s not your problem… WRONG! The legislation governing sectional titles in South Africa focuses on the direct relationship between bodies corporate and owners in sectional title schemes. But buy‐to‐let investor landlords should know their liability in relation to their tenant’s actions. We deal with the legislation and a few scenarios below.
The Sectional Titles Act 95 of 1986 (“the Act”) provides that a scheme’s rules shall bind the body corporate, owners of sections and any person occupying a section. The prescribed management rules go further by placing a positive obligation on an owner to ensure compliance with the rules by his lessee or occupant, including employees, guests and any member of his family, his lessee or his occupant.
The Rental Housing Act 50 of 1999 requires a landlord of a sectional title unit who has reduced a lease agreement to writing, to attach a copy of the scheme’s rules to the lease agreement. This provision is important in that if a tenant is obliged to obey the scheme’s rules in terms of the Act, he should at least know what rules he is bound by. Unfortunately, in practice rules are often not attached to written lease agreements and the fact that every scheme’s rules are public documents held at the scheme’s local Deeds Registry does not mean that every tenant has seen them. Therefore many tenants are completely unaware of the rules that bind them and the consequences of breaching any of them. We suggest that if you are a buy‐to‐let landlord of a sectional title unit you make sure your tenant has been given a copy of the scheme’s rules and understands that s/he is bound by them.
The Act and rules effectively avoid any direct relationship between the body corporate and the scheme’s tenants. Tenants are not entitled to attend body corporate meetings, unless they have a proxy from the owner, and therefore they are not able to participate in any of the decisions made in relation to the scheme in which they live. Furthermore every owner is directly responsible for his tenant’s behaviour and therefore bodies corporate turn to owners when their tenants misbehave.
If an unruly tenant throws raucous parties regularly causing a nuisance to other occupiers in the scheme, the body corporate’s remedy is to declare a dispute with the owner. Yes, the trustees and managing agent may write letters to the tenant threatening all sorts of terrible sanctions should the nuisance persist, but ultimately if a tenant breaches the provisions of the Act or the scheme’s rules, the body corporate cannot declare a dispute with the tenant because the rules provide that arbitration is a forum for disputes between bodies corporate and owners or between owners and other owners. Therefore ultimately, the owner is the one with his head on the block for his tenant’s behaviour.
If a tenant damages common property, for example he crashes his car into the scheme’s gate, the body corporate could institute a delictual action against the tenant to reclaim the costs of repairing the gate, but the owner is the one with the capital interest in the scheme and the one who is responsible to ensure his tenant abides by the rules, so the body corporate will most likely claim these costs from the owner. The owner who can prove that his tenant caused the damage will then have a claim against him, but in the meantime the owner’s pockets are feeling pretty light. Another interesting scenario to consider is this one: a tenant has taken responsibility in terms of his lease agreement to pay the owner’s levies directly to the body corporate. The tenant defaults in these levy payments. The body corporate now wants to evict him. Can it do so? No! There is no provision in the Act or the common law which authorizes a body corporate to evict a tenant or an owner. So who should the body corporate turn to in this scenario, the tenant or the owner? Again, it turns to the owner. In terms of the Act it is an owner’s responsibility to pay levies to the body corporate and although he can contractually shift the payment responsibility onto another person, the body corporate’s recourse will always be against him as an owner.
Ultimately, as the persons occupying the scheme, tenants should have a direct relationship with bodies corporate. Some foreign jurisdictions, such as British Columbia in Canada, have acknowledged this notion and have legislation which facilitates owners giving ‘long-term tenants’ proxies to attend body corporate meetings to speak and vote because ultimately they are the ones who live in the scheme, whose behaviour affects other occupiers and who are most directly affected by body corporate decisions at ground level. They are also the ones who should be held responsible for their own bad behaviour. Other jurisdictions like England and Wales have leveraged the three‐way relationship between a tenant, owner and the body corporate, by providing that if an owner defaults in his levies payments, the body corporate is entitled to intercept the rent payable by the tenant to the owner and use these funds to cover the out-standing levies due by the owner.
With the South African sectional titles legislation concentrating firmly on the relationship between owners and bodies corporate, as a buy‐to‐let investor you need to be aware of the fact that you may held be responsible for your tenant’s bad behavior and therefore you should put provisions in place to protect yourself and that allow you to cut your losses if necessary. Get your lease agreements drafted by an attorney who knows the consumer protections in the Rental Housing Act and specializes in leases. Make sure that you are able to validly and fairly terminate your lease if your tenant becomes a continuous problem.
Article reference: Paddocks Press: Paddocks Press – January 2010.
This article is published under the Creative Commons Attribution license.