The real reason why you pay a big deposit when renting a house

It is general practice for landlords to request a deposit from their tenants before they move into a property – but what actually happens to that money?

According to Section 5 of the Rental Housing Act, No. 50 of 1999 a landlord is legally entitled to request a deposit from their tenants. The amount that the tenant will be required to pay as a deposit is stipulated in the lease agreement, which the tenant will need to agree to and sign before they gain access to the rental property.

“Conventionally the rental deposit amount was equal to one month’s rent; however, in more recent years landlords have started asking for two months’ rent as a deposit,” says Adrian Goslett of Remax .

“The increase has come about due to defaulting tenants and the lengthy, expensive process involved evicting them.”

According to Goslett this is to act as a safety net from defaulting renters. In terms of South Africa’s Prevention of Illegal Eviction from Unlawful Occupation (PIE) Act, it can take at least eight to ten weeks for an eviction order to be granted during which time the landlord is out of pocket.

“Besides the fact that the landlord is not getting a rental income from the defaulting tenant during that period, they will also have to pay legal costs. The cost may vary depending on the sheriff’s fees and whether the matter is opposed or not. An unopposed eviction could cost between R12,000 and R20,000 in legal costs plus disbursements, while the cost of an opposed matter will be substantially more,” said Goslett.

After the tenant pays the deposit, the landlord is required to place this money in an interest-bearing account. The tenant is within their rights to request a statement of the interest earned on the money at any time during their tenancy.

During this time the landlord is entitled to deduct from the rental deposit any expenses incurred repairing any damage to the property which occurred during the tenancy. The remainder of the money must then be refunded to the tenant no later than 14 days after the restoration of the property as dictated by the Act.

“Even though the deposit is paid to the landlord, it remains the tenant’s money. The landlord is merely holding the money as a security measure, should the tenant default or breach the rental agreement. If the tenancy runs its normal course, the deposit along with all interest earned on the money must be paid over to the tenant at the end of the lease agreement period,” says Goslett.

“Before entering into a rental agreement, tenants should familiarise themselves with their legal rights regarding a tenancy and their rental deposit. Knowledge of the relevant procedures can help prevent unpleasant and costly disputes down the line,” he concludes.

Read: The average rent in South Africa each month across all provinces

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The real reason why you pay a big deposit when renting a house