Rent shocker for landlords: bombshell court finding

Landlords with mortgage bonds registered over their rental properties may have unwittingly surrendered their right to sue defaulting tenants for unpaid rent without even knowing it!

This was the warning from Ian Slot, Managing Director of Seeff Properties Atlantic Seaboard, City Bowl and V&A, this week after a Durban court upheld a tenant's appeal.

Slot urged landlords to carefully check loan agreements on both commercial and residential properties. In a statement released on Monday, Slot - an attorney - said the tenant claimed that, because his landlord had ceded his rental income to a bank as security for a loan, only the bank had the right to take action against him. 

In Picardi Hotels Limited versus Thekweni Properties (680/7) (2008) ZASCA 128, the Supreme Court of Appeal overturned the Durban High Court's decision that a landlord could sue his tenant for unpaid arrear rentals, noted Slot.

Instead, the court ruled that unless otherwise agreed, the landlord had given up his right to sue for unpaid rent by ceding this income to the bank when concluding a mortgage agreement.

The court also ruled that this stood even when a loan agreement stipulated that the bank would suspend its right to act unless the landlord contravened his loan agreement.

Slot suggested property owners look into this possible loophole as a matter of urgency because, given the current economic climate, unpaid rentals could become more common with tenants battling to make ends meet.

"Landlords with mortgage bonds registered over the leased property and contemplating legal action to recover arrear rentals would be well advised to check the wording of their loan agreements and, if they contain such a cession, obtain the banks' written revision of the cession before issuing summons," he said.

He added that a landlord could even ask for a written agreement from a bank stating that the bank would re-cede rentals to the landlord on request if he needed to take legal action against a defaulter.

Slot pointed out that, up until now, it was thought that this problem applied to commercial property owners only.

"The logical application of a cession of rental income as security for a loan is on commercial mortgage loans as a bank would have considered the projected rental income when assessing a borrowers' ability to service the loan. When it comes to residential mortgage loans, the projected rental income is generally excluded when assessing serviceability." 

Slot quoted James Phillipson of Smith Tabata Buchanan Boyes saying that "such a cession is included as a term of many residential mortgage loan agreements!"

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responses to this article

Take the doors off. Cause it belongs to you and it needs repairs by Bok on April 20 2009, 19:32 Find this comment inappropriate? Report it

ANOTHER BLOW TO THE BUY TO RENT MARKET THIS JUST ADDS MORE MISERY TO LONG SUFFERING LANDLORDS,THE TENANTS ENJOY PLAYING GAMES .IS PIE LEGISLATION STILL APPLICABLE? by vic 1 on April 20 2009, 19:53 Find this comment inappropriate? Report it

U Saty u Pay Tecnicallity of the Law, always seems to help the Criminal in SA....? Why is it when a decent man tries to do the right thing the Law wuold first protect the criminal...? Then on top of that, you have to proof you correct or is that incorrect by . .more getting what's right fully yours. It's a simple scenario is'nt it.....you Stay u Pay.......Uh...dont' tell the judge! . .less by G on April 20 2009, 21:21 Find this comment inappropriate? Report it

It's not that big a deal All you need to do is get a letter from the bank authorising you to sue. Just a little bit of paperwork. It's not like you can't sue at all. Banks may even amend the cession in the bond slightly in view of this judgement to allow you the opportunity to . .more sue. . .less by sunny on April 21 2009, 08:07 Find this comment inappropriate? Report it

What a joke! The court is assisting a defaulter. You have no right to sue a defaulting tenant on a property where you are the person responsible for mortgage payments ... have we lost all common sense by SA LAW on April 21 2009, 09:22 Find this comment inappropriate? Report it

Arrogant South Africans are becoming like the Yanks. Its the banks property, let them fight the fight. by Nortic on April 21 2009, 09:48 Find this comment inappropriate? Report it

Sensationalist drivel Sometimes I wonder if the Moneyweb team moonlights at the Daily Sun. There is a fine line between your headline and - Horror: Tokoloshe ate Gogo with Chakalaka. by Hackster on April 21 2009, 09:55 Find this comment inappropriate? Report it

SENSATIONAL AND IRRELEVANT ARTICLE LIKE THIS IS NOT NEEDED This case is a once off whereby the tenant, a company, somehow found out that the landlord, also a company, ceded his rental income to the bank. No private tenant would go to all the hassle to go to a court and argue this point for a couple of thousands . .more of rand in outstanding rental. Landlords need not worry as this is a isolated case that has been sensationalised for the sake of attracting more people to this crummy website. . .less by Frank furta on April 21 2009, 10:12 Find this comment inappropriate? Report it

Who is that fool? That judge is a stupid bloody fool. Maybe Zuma has a point concerning the judiciary. Maybe this judge is getting something under the table... The judges' reasoning always astounds me when it comes to landlords and tennants. What has happened to reason and . .more logic. Something else, the scum of our society will always find a way to rip off others, in this case with the help of a mindless judge!!! . .less by giggles on April 21 2009, 10:38 Find this comment inappropriate? Report it

SA Bank Zombies I agree with Greta Steyn's (news24) question : "Are our banks turning into zombies" The zombies are going through the motions saying "screw-the-client", "screw-the-client". This is just another way they have screwed their clients, be it unwittingly so . .more or not. I'm fed up with the ineptitude and indifference shown by banks at a time where they should be coming to the party by lowering rate margins - they're doing the opposite - increasing bond margins ! The market is wide open to new private funding less intent on screwing their customers. Sentiment towards the big four banks are cooling I say... . .less by Fed up on April 21 2009, 10:44 Find this comment inappropriate? Report it

Competition Commission - where are you? Speaking to a Private Banking consultant at two of the big four banks this week, they agreed independantly that people should now be happy to get 1.5% below prime, whereas 6 months ago the benchmark for Private Bank clients was -2% below. The competition . .more commission should look into this collusion by the big banks, they are price-fixing bond margins. . .less by FED UP 2 on April 21 2009, 10:56 Find this comment inappropriate? Report it

No big deal at all The banks will immediately sne dout a one-sided cession of their right to sue. Trust me, they would rather you sue the tenant than them sue the tenant! Their new mortgage bond docs will be amended to allow an election of who may sue defaulting tenants. . .more Giggles - you are the fool buddy. . .less by Charl on April 21 2009, 11:14 Find this comment inappropriate? Report it

PIE Yes -it is still applicable law.The SCA also made the PIE decision giving squatters rights to defaultin tenants and mortgagors.How stupid can you get.Both are PC decisions instead of good sensible law.It is actually scary that the higest lawcourt in the . .more land can make decisions like this. Land issues have been politizised ? and made subject to emotional politics-like Zim.That is the reason why i sold my BTL 2years ago and now get riskfree interest from the bank. . .less by Krazy on April 21 2009, 11:32 Find this comment inappropriate? Report it

This article is worthless sensationalist drivel, as usual, but ... should not be allowed to detract from the fact that the property bubble is bursting - we don't know what they are yet, but many such developments will come along to help the burst bubble on its way out of town by Munch on April 21 2009, 11:39 Find this comment inappropriate? Report it

SA law only benifits LAWYERS our legal system has been hijacked by GungetsTuft on April 21 2009, 11:49 Find this comment inappropriate? Report it

Great News Now I can buy off plan .. two three or even ten town houses with no solid income and rent out ....WOW time could not be better.....I love this country.... I will become the envy of my friends and estate agents will date me ....cant . .more wait... . .less by Zoro on April 21 2009, 11:55 Find this comment inappropriate? Report it

Weird SA Law - Promotes tenant invasions So in effect one could say that the the landlord ends up being surety for the tenant. I see more Hillbrows on the horizon. But then all world class African cities are slums anyway! by Peter on April 21 2009, 12:34 Find this comment inappropriate? Report it

Interesting article Thanks Ian for the clarity on what looks like an important legal case. Just goes to show that estate agents do more than hold show dayd and can be relied on to give valuable advice and insights. by Fred on April 21 2009, 13:52 Find this comment inappropriate? Report it

Renters the losers The net result will be to increase the risk of letting a house and thus drive up the required returns. This means higher rentals. Renters lose. If the situation becomes untenable then landlords move their capital elsewhere. Less houses to let means lower . .more supply and higher prices. Renters lose. . .less by Lord Max on April 21 2009, 13:52 Find this comment inappropriate? Report it

"Leases " Sommer iets om ingedagte te hou. Iets vir julle nuusbrief. Louis by paul@avenant.co.za on April 21 2009, 16:27 Find this comment inappropriate? Report it

only relevant if you've ceded your rental payments to a mortgage bank not terribly likely in retail space maybe relevant for commercial properties by charlie on April 21 2009, 19:27 Find this comment inappropriate? Report it

Point Of View Interesting article and it opens a debate and different points of view among the bloggers ! by Ti-chi on April 22 2009, 10:37 Find this comment inappropriate? Report it

Relax The judge was right. It makes perfect sense. And it isn't a loophole in the system. Cessions are good and this ruling just showed how accurate the law is interpreted. If anything, one should feel very confident and optimistic. And the SA judicial system . .more is not going to the dogs. And lawyers are not lining up to exploit you. And the banks are not indifferent. Relax. Cessions are a great bonus to the investor who must provide security and the banks are generous to accept them as such security. Especially with credit in short supply. The banks will extend the right to you, for the purpose of collecting rental arrears by litigation, without any fuss. Relax. . .less by Etienne on April 23 2009, 13:36 Find this comment inappropriate? Report it

Not a sansational article, but Reality When this has not happenned to you. Finding a tenant that use the law to their full advantage then you will realise why it is important to understand THAT CONTRACT FULLY. by Tazambane on April 27 2009, 20:32 Find this comment inappropriate? Report it

Judge Wonder what judgement this judge would make if it was his property in question? by Bull dust on April 27 2009, 20:52 Find this comment inappropriate? Report it

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