Landlords, absconding tenants, lawyers: a chilling tale Investment

Landlords, absconding tenants, lawyers: a chilling tale Chris LouwProperty investor shows how easy it is for grasping lawyers to take landlords, tenants for a nasty ride – at the same time.

Property investment in South Africa can be a risky business. The law favours tenants, not the landlords. Unfortunately this helps the lawyer more than the landlord, says senior journalist Chris Louw, wryly.

When my partner and I bought a smallholding on the bank of the Crocodile River outside the town of Brits, North West, the idea was that we would let the five dwellings until we could interest a developer in exploring the possibilities of a security estate. The world wide economic crisis has sunk that dream, at least for the foreseeable future.

Instead, we soon realized that it was not good enough to only maintain the current buildings - three "real" and two wooden houses - but that we would have to put in money to improve the structures if we wanted tenants to help pay our bond. These improvements have already cost us around R150 000.

We bought the property from an estate agent. By the time transfer was registered, we were confronted with the fact that the seller had let all the dwellings, with himself as letting agent on quite advantageous terms (to himself).

On a Sunday two months after registration, one of the tenants - together with his wife and three kids - did a disappearing act after having failed to pay the last month's rent. I happened to find out where they had moved to and passed on this information to the agent, who promptly instructed a lawyer to take the necessary action to retrieve our rent and his commission.

All my partner and I wanted was the money due to us. Interest rates had sky-rocketed and our monthly repayment to the bank became a much heavier burden than budgeted for. Of course we agreed the lawyer was entitled to her professional fees.

It is now more than seven months since this unhappy incidence. We, as the landlords, have not received one cent. The lawyer, instead, has collected a steady stream of income from the poor sod. And she will for another two months and more.

How did this happen?

The monthly rental for this specific house was R4 900. A further amount of R3 900 was due for an uncollected deposit, which would also count as payment for the notice month. In total, the tenant owed us R8 800.

A month or so after the tenant's disappearance, I received a phone call from the lawyer. The tenant was with her in her office. He had already admitted breach of contract and was willing to make amends. Would I be satisfied with a monthly repayment of R500?

It would hardly help cover the monthly bond amount, but yes, we wanted to act fairly.

Two months went by. No money was paid into our account.

I called the lawyer to enquire about this seeming discrepancy. To say she was annoyed is to put it mildly. She first had to recover her costs, she said. What was so difficult about that?

But when could we - the landlords who had actually suffered the loss and who were central to her legal action - expect to receive repayment of the outstanding money?

To me it seemed a fair question to ask. After all, the lawyer was appointed by the agent to recover our losses.

The lawyer saw things differently. My enquiry precipitated the launch of a series of angry telephone calls and faxes - particularly after I had asked to know what the tenant's "admission of guilt" agreement actually entailed.

If I were not happy with her services, the lawyer wrote in an e-mail, I could settle my account and come and fetch my file.

How legal bills can get ahead of a landlord

Settle my account? I did not even instruct her to do anything. In fact, I wasn't even aware of her existence until her taking up the issue was a fait accompli. The letting agent had instructed her to take action against the defecting tenant. The agent - without either my knowledge or permission, it should be said - had signed the lease contract. My partner and I weren't even mentioned in the contract! We had taken possession of the property with the lease already in existence. And "huur gaat voor koop", as everyone knows.

Now we were responsible for the legal bill. Unless...

OK, then go ahead. But may we kindly please see the agreement reached between the lawyer and the mischievous, and now repentant, former tenant?

It is not "standard procedure", we were informed in writing, for a lawyer to provide a copy of an admission of guilt agreement to the creditor.

And here was I, thinking the lawyer was acting on our behalf (albeit without being instructed by us)!

Fortunately for us, in a gesture so magnanimous that it was heart-rending, the lawyer decided to relent. "You could at any stage have asked for a copy and it would have been provided with pleasure," she wrote.

I thought that was exactly what I did.

The secret was slowly revealed. The absconding tenant had agreed to repay the outstanding R8 800 in full, PLUS annual interests of 15, 5%, PLUS costs in terms of magistrate's court rules, PLUS lawyer/client costs as determined by the Lawyers' Association, PLUS tracking down costs.

Understand why I refer to the delinquent tenant - the guy who cheated me - as a poor sod? I'm no bleeding-heart altruist. But, wow...!

Lawyer's juicy fees

I'm happy to say that the lawyer is now providing us with a monthly statement of her costs. This means we can watch with some envy how she is turning our loss into a steady income for herself.

The breakdown for the first month read:

Instruction fee:    

R  390.00

Summons and income stamp:

R 360.10

Appearance, return of service sheriff

R    25.00

Admission of guilt:

R    75.00

Correspondence (x6) and fax costs (x1)

R    75.00

Telephone (x7)    

R  175.00

Admission of guilt:

R    75.00

Appearances (x2)               

R    50.00

Payment and cost of recovery:

R    50.00

VAT:       

R  189.01

Costs:   

R    42.35

Less payment received:    

R1 581.46

 

R   500.00

AMOUNT DUE:    

R1 081.

That was the first month. In the second month, after having received another R500, the lawyer's bill grew to R1 277.46, in the forth month (after receiving yet another R500) an amount of R950.00 was owed.

In January this year the (now certainly very repentant) tenant did not pay his dues. So, in February after having paid a once-off amount R1 000, he still owed the lawyer R522.46.

I've stopped enquiring about when we - the people at the centre of this saga, the very people who suffered the loss and on whose behalf this lawyer is acting - are going to be compensated. Every call I make, it seems, adds another item to the bill that the delinquent tenant has to settle. (If only he had paid his rent... How much wouldn't he have saved!)

It is already clear that we will not receive any money during March this year, and probably also not during April, by which time his ill-considered absconding will have cost our former tenant close to R4 000 without him having paid back one cent of what he owes us. Then - if everything goes right - begins the arduous task of repaying his original rent plus an added annual interest rate of 15,5%.

Plus the lawyer's further costs to retrieve these.

More property woes

Last month yet another tenant disappeared without paying his rent. (Times are tough.) The new letting agent approached the same lawyer without informing us. I tried to stop him, but it was too late.

"While you're at it, ask the lawyer when we will receive our money for the former tenant," I asked.

The explanation came in writing. (At whose cost?) The debtor had signed an admission of guilt agreement in which he undertook to pay interests and costs, it stated. "Thus all the amounts for fees and expenses reflected on the Tenant's statement are added to the statement. Mr Louw and his partner will therefore not suffer any losses if the debtor continues to pay all the moneys. They will only suffer losses if the debtor does not continue paying and if we cannot succeed in obtaining any more payments from him."

Very reassuring indeed.

And initially I thought my partner and I were the aggrieved party!

* The author, a former political correspondent for the Mail & Guardian and former executive producer of Afrikaans current affairs at SABC radio, is a freelance journalist. In 2005 he won the Mondi Award for a series of articles in Farmer's Weekly.

Article from: www.realestateweb.co.za