Unscrupulous letting agents to be dealt with

The letting industry in South Africa has traditionally been somewhat of a stepchild within the larger real estate business. This status has led to lapses in regulation and has allowed maverick operators to exploit both landlords and tenants. It appears that a number of letting agents are either wittingly or unwittingly committing fraud by using tenant deposits to aid the cash flow of their businesses. To stop these and other abusive practices, concerned letting agents have established The Association of Letting Agents in South Africa (TALASA), a non-profit, self-regulatory body, which aims to improve the regulatory structure within the letting industry.

Raal Nordin, former founder/owner of Just Letting and now the owner of the Only Rentals franchise, is spearheading TALASA. "We want to introduce a more streamlined and ethical way to do business in the letting industry. Right now it is extremely haphazard. There's no general conformity in processes or service levels."

Although membership of TALASA won't be compulsory, its aim is to bolster the function of the Estate Agency Affairs Board (EAAB). Currently the EAAB is responsible for investigating complaints of misconduct against letting agents, but due to a lack of manpower the EAAB doesn't always follow up on individual matters. Unless a letting agency is repeatedly reported to the EAAB by different landlords or tenants, it is unlikely that it will be thoroughly investigated.

Letting agents are required to be registered with the EAAB and display their certificate of registration at their premises. In practice however, not all letting agents are registered and the problem is compounded by landlords who choose to let their properties privately. Many of these landlords approach letting agents to find tenants and verify tenants' credit histories. Once the process is complete the landlords pay the letting agents a finder's fee and continue to manage the leases on their own.

"So we find the tenant, we place the tenant," says Nordin. "We sign the lease up on our documentation, because that's part of our service and then we hand over the file to the landlord. But sometimes when it comes to the end of the lease the landlord says ‘I don't have your deposit, the agency has it.' You get a lot of landlords who just don't want to refund deposits."

One of the most commonly flouted rules in the letting industry is the timeframe in which tenants receive refunds of their deposits. If there is no property damage this should happen within seven days, but these timeframes are often stretched. In many cases tenants also don't receive the interest on their deposits.

The Rental Housing and Estate Agency Affairs acts determine that deposits have to be paid into an interest bearing trust account. When the lease agreement is terminated and the permitted agency fees are deducted, the lessee is supposed be refunded the remainder of the deposit plus the interest. Trust funds may not be used to improve the cash flow of the business, as it constitutes fraud.

Other issues include a lack of transparency and conformity in agency fees. Sometimes agencies fail to disclose all their fees to landlords and tenants. A common fee that can vary greatly is the cleaning fee charged at the conclusion of the lease agreement. This fee is deducted from the deposit.

Another problematic practice is the delay in transfer of rental monies to landlords. Rent may be received on the 25th of a month and only paid to the landlord on the 7th or the 10th of the next month; according to Nordin this is usually an indication of an agency that has cash flow concerns.

Nordin warns landlords to be vigilant when selecting letting agencies. He suggests landlords confirm that letting agents are registered with the EAAB and that landlords thoroughly study lease agreements and conditions set by agencies. Landlords need to ensure that letting agents collect all necessary supporting documentation from tenants, such as proof of ID, previous proof of residence, reference letters and a copy of the tenant's pay slip. Agencies also need to do joint inspections of the property at the start and end of lease agreements and insist that tenants sign documents acknowledging the state of the property at the time of the inspections.

Tenants need to insist that all fees be disclosed in writing and also policies regarding deposits and early cancellations of lease agreements. Further they need to ensure that they retain copies of documentation for all effects handed to them, such as keys, remotes, etc.

TALASA is in the process of setting up a formal code of conduct and hopes to formally launch in September this year. All letting agents who are committed to doing ethical business have been invited to join TALASA.

Article by: Leoni Kok - www.realestateweb.co.za