Landlords costs usually payable by the tenant

Lease agreements are by no means standard and cost recovery arrangements by landlords vary from property to property. 

Pointing this out recently, Michael Bauer, general manager of IHFM, said that a key to a satisfactory landlord-tenant relationship is to define in the agreement upfront (before the lease is concluded) the direct and indirect operating costs of the property, stating clearly the costs for which the landlord and tenant are responsible.  The landlord must ensure that the tenant initials the relevant clauses in the lease and understands his responsibilities.

Although, leases can be verbal, it is, added Bauer, advisable for the landlord to have a written lease.  SA law in fact makes this obligatory.

In most lease agreements, he said, the direct costs charged to the tenant will include the water, sewerage, electricity and refuse collection charges, many of which today are monitored through individual and prepaid meters installed in the premises.

Landlords, warned Bauer, should insist that all municipal accounts are posted to themselves rather than the tenant.  Tenants who in theory are paying these accounts to the municipalities without intervention from the landlord, in practice sometimes do not do so – with the result that when the tenant leaves, the landlord ends up with unpaid municipal accounts dating back several months, or even years.

“In one case of which I am aware”, says Bauer, “R26 000 was outstanding on the electricity and R32 000 owed on the water account when the tenant absconded from the property.”

Had the accounts been sent to the landlord for forwarding to the tenant, the defaults on payments would have been reflected on the monthly statements and would have been immediately picked up by the landlord.

The indirect operating costs of a property include the building insurance, rates, taxes and levies.  The landlord, said Bauer, is not able to charge these to the tenant as they are for his account.  In particular, he said, the rates payable at the time the tenant takes occupation will usually be paid by the owner.  However, any year on year increases, it is almost invariably stipulated can be recovered from the tenant.

This situation, said Bauer, has caused problems.  In Cape Town, since the 2006 re-evaluation which drastically increased the property rates payable, especially in the more expensive areas (Clifton, saw property rates go sky high), many landlords had to compromise on charging the full increases for fear of losing good tenants.

Annual increases in the insurance premium can also recovered from the tenant and can be high.  For example, if a tenant is storing inflammable material in his garage, the insurance company must be notified by the owner and an additional insurance premium must be charged. 

In general, said Bauer, the fewer extra charges passed on to the tenant, the better, but landlords must be guarded against those tenants who habitually use excessive amounts of water or electricity or who damage or neglect their properties.

 “If on the other hand, a landlord finds he has a good tenant”, he said, “it is worth his while to be as generous as possible in order to keep him.”