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I will keep this one very short, but I have been asked by a few
property investors what can one charge the tenant in defaults, fees etc.
In my time as a property investor and real estate agent, I have
asked many attorneys this question to find the ways that are legal to
charge when necessary. So here is what I found to be legal and what not.
But before I go into a few points I would like to say that two commonly charged things are NOT legal:
1. It is not legal to charge late payment fees. Yes, some do, but this does not make it legal at all. And most of those that do are also aware that this is not legal. Getting investors involved in such practices is even worse as they don’t know about it. Agents are supposed to do the right things because it is their profession, but unfortunately that doesn’t always happen. As an investor I suggest you make sure you service providers do the legal things to make sure you have a “leg to stand on” if disputes arise.
2. You can’t sell electricity. In other words you can’t so and put a markup on electricity to sell it to someone else unless you are a provider of course, which is a totally different story.
Legal to charge tenants:
1. You can charge municipal services that are provided to the property (swage, bin removal etc). This of course does not include taxes and rates, but the monthly services that are related to the property. When municipality charges these, they are related to the use of the tenant/s.
2. You can charge 2% per month for late payments. That is all. Not penalty fees, those are not legal. 2% per month for incidental credit is ok and legal and is detailed in national credit act section 42 table A.
3. You can charge interest incurred for late utilities payments if the tenant did not pay in time the utilities as asked to do. But only those that you have been charged from the utilities company not your own charges.
As a side note, if you are a registered credit collector, you can charge for other things, but real estate agents and investors that are not registered as collector, can’t charge for those items that the credit collection act provides for credit collectors.
This is the general framework of course if you go into legal fees and court cases, this is another story all together, but for general defaults these are the basics.
If you are looking to avoid arrears in electricity, instead of having to charge for the penalties you pay and lose money, I always advise investors to buy pre-paid meters. A pre-paid meter costs only 700, arrears and legal costs can exceed that time over and again. It is a worthwhile investment for any property investor and you can look at a pre-paid meter as a cost saving on any problems that may arise from arrears and non-payment of utilities, now that electricity prices will increase even more so.
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