Rental deposits demystified – what, when, how and why?

The deposit is one of the most crucial components of your lease agreement – it provides you with additional security if your tenant decides to put you in a difficult position through property damages, arrear rentals or early cancellation. Luckily, you can recover the losses you suffer from the deposit, so you won’t be left high and dry. But, the legislation behind deposits needs to be clearly understood to avoid unwanted legal issues with your property investments.

What amount makes up the deposit and where should it be kept?

First things first, deposits and the regulations around them are governed by the Rental Housing Act so make sure you read and understand the Act, specifically section 5 that deals with the relevant provisions of a lease.

The Act states that a landlord may request a tenant to pay a deposit before taking occupation of a property, and such deposit must be placed in an interest-bearing account with a financial institution.

The amount of the deposit will be determined in your lease agreement and is normally an amount between one- and two-months rental, however, each case is unique, and the deposit amount is unique to each lease agreement.

Should the tenant at any point during the lease period request proof in respect of the interest accrued, the landlord is obliged to provide such proof. A letter from the relevant financial institution confirming the interest accrued will suffice.

When and how should the deposit be returned to the tenant?

At the expiration of the lease agreement, be it early termination or the normal expiration date in terms of your agreement, a joint inspection of the premises must be organised at a mutually convenient time within three days prior to such expiration. TPN always suggest that the inspection is performed as close to the last day as possible, as the emptier the premises, the more likely you are to notice defects to the property.

Take a look at our webinar on Property Inspections to get a better understanding on the do’s and don’ts of property inspections, here: https://www.youtube.com/watch?v=YH07b9aKpoc

What can the rental deposit be used for?

The landlord is entitled to apply the deposit to the following costs and in the following order:

• The reasonable costs of repairing property damages;
• The costs of replacing lost keys;
• Any outstanding arrear rental and utilities owed by the tenant;
• Any advertising costs incurred in the event of early termination;
• Any commission due to the Property Practitioner in the event of early termination; and
• The reasonable early cancellation penalty.

Now that you have applied the deposit, when does it need to be paid back? Well, there are three possible scenarios that govern when the deposit should be paid back:

1. In the event that there are no damages to repair or amounts owing by the tenant, the deposit must be refunded to the tenant within 7 days of expiration of the lease agreement.
2. Should there be damages to repair and outstanding amounts to be paid, the landlord must refund the deposit not later than 14 days after the property has been repaired.
3. If the tenant fails to be present for the exit inspection, the landlord must inspect the premises within 7 days of expiration of the lease agreement and then refund the deposit, regardless of whether there are repairs or not, within 21 days after expiration of the lease agreement.

Deposit disputes

Receipts of the repair costs incurred need to be kept by the landlord and made available to the tenant for inspection if requested. Receipts in this case would be the actual paid invoices for the costs incurred to repair the property. Should any dispute regarding the deposit arise between yourself and your tenant, then it can be referred to the Rental Housing Tribunal to be resolved.

Interest on the deposit

An important note to make is that the Property Practitioners Act (PPA) has replaced the Estate Agency Affairs Act (EAAA), which previously stated that the interest accrued on the deposit must be split between the tenant and the EAAB, but now that the PPA has replaced the EAAA, the Rental Housing Act states that all the interest must accrue to the tenant directly.

The TPN LeasePack includes all the relevant clauses, time periods and regulations relating to your deposit. Avoid ambiguity and confusion by purchasing your LeasePack today!

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Click here to download the ‘TPN Deposits Demystified Chart’ for your office.