Owning a property and earning a rental income is a lifetime investment and a great retirement income. Having the property work for you by the tenant servicing your bond is a great pleasure to most investors. But what loopholes and dark monsters can be lurking? Risking your income and keeping your investment safe? The big monster raising it’s ugly head lately is unpaid and arrear municipal charges.
The most important aspect of an investment property is having a tenant that keeps up with their monthly rental payment. Unfortunately most landlords when receiving regular payments neglect to insure that the tenant is keeping up with their municipal usage accounts.
The owner in good faith, believe that his tenants municipal account is paid. Once a tenant gives notice to vacate, and a new tenant is placed in the property.
A new tenant account is opened at the municipality, even if an old account is in arrears. So it goes on, year in and out and the owner still only receives his rates and taxes and basic availability charges, which he pays diligently. Not thinking that a disaster is brewing.
Should a property owner decide to sell his investment property, one of the documents needed to lodge at the deeds office is a municipal clearance certificate indicating a zero balance on all usage and availability charges.
The municipality issues the rates figures that is enormous and everyone is surprised once they realized its actually a ridiculously high amount.
We had scenarios were sellers got municipal figures between R 114 000 and R 380 000 on arrear tenant accounts that accrued over years of having tenants.
Now the sad news is that the municipality won’t issue a certificate unless these amounts are paid up. Suddenly the seller is caught between a rock and a hard place, because these amounts where not budgeted for when placing the property up for sale. So where to start?
The problem is that a property might have changed tenants so often that tracing tenants to catch up on arrear payments becomes physically impossible. Should a tenant be traced, they most of the times have arrogant attitudes because the time that lapsed, since the depth accurred, is simply too long back.
Sadly these amounts still remain the seller’s responsibility. Remember, without a zero account and a municipal issued certificate, indicating that all outstanding amounts have been paid, a transfer cannot proceed. Sorting out these issues can cause months or even years of delays on transactions creating a lot of animosity between a buyer and a seller. So how can this be avoided?
There are three options. Firstly, a landlord can apply at the municipality for a prepaid meter whereby his tenant can buy their monthly usage and an electricity bill cannot accumulate. Which makes it the safest and most affordable option.
Secondly a landlord can request the tenant to provide him with with a monthly municipal statement that reflects a paid up amount.
Thirdly a landlord can decide not to let the tenant open an account at the municipality, receiving the statements and then charge the usage together with the rental to the tenant. This option however creates a bit more administrative issues for the landlord.
To protect your investment and be sure to avoid any unpleasant surprises we would suggest that landlords check up with their local municipalities on all accounts registered on their properties and make sure that their tenants are keeping up to their monthly charges. This will spare you, our seller a lot of frustration once selling your property.