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What can you charge your tenants and what you cannot

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.

Comments
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Andrea - Miss     | 196.31.45.xxx | 2008-04-11 00:43:36
Hi there guys,

This article was very enlightening.

Please let me know what I should do about my tenant's deposit. Here is the situation:

I bought the property in January and the 1-year lease contract was signed in February.The tenant paid R3000 deposit (one month's rent). But now he called the letting agent last week and told them that he was moving out at the end of this month. So, at the end of this month, do I pay his deposit back (which I would have done at the end of the contract)?

Regards,

Andrea
Done Bann - Mrs     | 198.54.202.xxx | 2008-04-11 00:47:00
How then can you collect costs from tenants for all you admin and phone calls and sms's, ect. to get the rent?

Thanx
David du Plessis - Mnr   | 198.54.202.xxx | 2008-04-11 01:38:34
Hi

Thanks for this info. I did find it very fustrating to split the municipality charges in a residential house so that I (investor) can pay the rates and taxes and the tenant the rest of the services. Could there be some other way to do this.

Thanks
marlies - Municipal charges   | 198.54.202.xxx | 2008-05-09 14:44:36
Easy, just pay your property rates and taxes in advance for the year, then you only receive a municipal bill for the services used. :!:
Karen - Municipal Charges     | 198.54.202.xxx | 2008-05-12 03:22:55
Marlies,

That is a very good idea. However, a lot of investors that own many properties would have to pay in the tens of thousands of rands advanced payments. That is not so cool on cash flow.

The other issue is that some people that may have only one property are subsidizing the mortgage bond and therefore to dish out a large amounts of money in advance is pretty impossible or extremely restrictive on cash flow.

Either way, who can do this.... that is fine. But investors that can't afford this or just won't make cash flow sense to them, they should basically split the bills and maybe get the bookkeeper to do it, it is not that hard, but a bit time consuming.

Hope this helps.
Karen - Investor and Estate Agent Char     | 198.54.202.xxx | 2008-04-11 02:37:04
Hi Done Bann,

Remember when you give an estate agent to manage your property? They charge 10% more or less to manage.... that is the amount they earn to do the job and their costs are in it, they don't and can't charge the tenant more than that to do the job. Unless they are a registered debt collector. Therefore you could also register as a debt collector to charge for other things that this status will legally allow you to do so.

An investor also has to budget for costs of being in business.

I have mentioned many times that letting is a business and it carries costs of being in business.

In the same way that any other business can't charge anything they just wish customers, not even for debt collection, in letting it is no different. It is the same as all businesses. Some things you can charge some not.

That is why we teach efficiency and optimization in letting and the workshop..... so that these costs - which you can't charge - can be reduced to absolute minimum.

In summary like in every business, some costs you can charge and some not. But optimizing you letting business from A to Z will avoid incurring costs in the first place that you can't charge.

Hope this helps.
Jurgens - What can you charge your tenan   | Registered | 2009-04-14 05:17:40
Hi,
In my lease I have a non discounted Rate (for the late payers) and a discounted rate for the tenants that pay in time. Is this legal?
Leisel   | 12.43.115.xxx | 2008-04-12 15:39:25
If you have a pre paid meter and the tenant buys electricity vouchers directly from you is this still permissible.
The pre paid system is not the usual type and I buy from the supplier and then sell the vouchers to my tenants.
Please advise.
Thanks
Leisel
Karen - prepaid meter     | 198.54.202.xxx | 2008-04-13 18:06:55
I can't comment on a meter I do not know. But generally speaking you can't charge more for electricity. Stands to reason that if you sell the card or whatever for more than price, you are selling electricity for more and putting a markup.

Again, I don't know which meter you have and what is that particular system.
Frances Reid - Mrs   | 200.7.33.xxx | 2008-04-22 19:41:15
Another great article, Karen. Thanks! Printing a copy to show to my tenant to help explain why I will no longer be using the management company or their lease, which stipulates a R500 penalty for late payment of rent. So much for the professionals knowing their stuff. I reckon it's more a case of what they know they can get away with, due to our lack of knowledge. PIN Campus is changing that.
Chris Kairuz - Mr   | 41.243.248.xxx | 2009-04-14 05:15:48
I am just starting out inthe property investment market. I have applied to purchase 3 properties off plan & obtained provisional bonds from the banks. In the meantime I find the information & advise on property letting very useful & will be applying this information when my properties are completed & available for letting.
Thanks Chris
Andy Hamilton - prepaid meters   | 198.54.202.xxx | 2009-08-03 17:51:34
Is it legal to install prepaid meters AFTER a tenant has moved in, and without obtaining their permission?

Does the meter HAVE to be located in their abode or can it be situated elsewhere on the property?

TIA
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Having recently completed the above course at home, I enjoyed being able to do the course at one's own pace. The audio and visual impact of the presentation was effective, improving my concentration. Manipulation of the variables entered as lumpsums and additional monthly payments was most insightful. Generally there were many useful tips and facts given by the tutor and this was also enlightening and helpful. Richard Fouracres - Ladysmith KZN





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I attended the Letting workshop down in Durban, as a full time property investor whos business is property I learnt a lot from this workshop. It is full of "meat and potatoes" facts and tools to make our lives as Buy to Let property investors a lot easier whether you manage your tenants yourself or you outsource to a letting agent. Worth its weight in gold! - Brennan Carey

 

I have been on PIN for a while now, and I feel my learning has been put on steroids. Since I joined PIN some 10 months ago my entire perspective about property investing and real estate in general has completely changed. This course in particular has hit home again, one of the main things I have learnt that there is a massive difference between speculating on real estate and investing and the entire system calculations and considerations have to be significantly different when employing these different strategies. I can also say that this is just the beginning for me and the more I learn the more I see my passion for property grow.  Brent Schwalm -  JHB





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I found the rental workshop very informative. I am a registered real estate agent with a franchise group and I was amazed how many legally protective clauses were inserted in your agreement. I have used many rental agreements before and not one of these agreements was adequate in this respect. Karen I find your agreement 100 % complete and your knowledge on the subject is unsurpassable. Your lease agreement is in daily use in my property rental portfolio. Thank you. Alex Nicolaou - Registered Estate agent in Edenvale.

 

Thanks for a great day of learning. I flew up from CT and it was definitely worth the ticket.

I have started using the lease agreement and found my tenants to feel secure in dealing with a proper lease agreement. They can see that I am being fair and totally above board and this puts them at ease and me in a strong position. The detail in the lease covers me from things I did not even know existed or that is relevant to a lease. A big thanks to you and your team for a day well spent in time and money. Luke Wollenschlaeger – Cape Town



 




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