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On 15 March 2020, the Minister of Corporate Governance and Traditional Affairs, declared a National State of Disaster in terms of section 27(2) of the Disaster Management Act in response to the COVID-19 pandemic.
The state of disaster lapses after 3 months on 15 June 2020, or it may be terminated earlier or extended further by the Minister.
There is no doubt that the collection of rent in the next few months will be challenging. Many businesses and individuals face the prospect of zero or reduced income in the coming months.
Compounding non-payment of rent
Compounding the non-payment of rent is a very real scenario for tenants who are in self-quarantine and therefore unable to vacate, and with courts closed to issuing new processes or allocating new hearing dates, landlords are further prejudiced from enforcing their rights.
TPN Credit Bureau, SSLR Inc. and Fullard Mayer Morrison Inc. have created a State of Disaster – Rental Recovery Pack for landlords and property managers to use free of charge.
Importantly, tenants whose income has not been affected by the State of Disaster are expected to continue to pay their rent in the ordinary course of business.
Rental Recovery Pack
Tenants whose income has been lost or limited due to retrenchment; have been placed on temporary unpaid leave; and commission earners who are unable to work but who have all previously exhibited a trend of paying their rent in full are candidates for the Deposit Utilisation or Rent Deferment Agreements.
The Rental Recovery Pack allows for four scenarios:
- Tenant Income Declaration Document
This Declaration Document should be completed by all tenants who would like to apply to the landlord or property manager for their deposit to be used as rent or a deferment of rental.
The purpose of this document is for the tenant to declare the reason for their loss of earnings and to allow the landlord or property manager to confirm this with the employer as well as request the necessary supporting documentation.
- Deposit Utilisation Document
Ordinarily, a tenant’s deposit is held in trust until the lease has ended and the tenant has vacated but these are extraordinary times. The Deposit Utilisation Document is an agreement between the landlord and the tenant that the deposit can be used to pay the rent.
It’s important to note that this document includes a repayment plan so that the deposit will be reinstated over instalments for the remaining period of the lease term once the State of Disaster has been lifted.
This option is suitable to tenants who acknowledge liability. Where the tenant defaults on the repayment of the reinstatement of the deposit, the landlord will be in a position to easily take further legal action.
- Rental Deferment (Payment Holiday) Document – Residential Tenant
This Rental Deferment Document takes into consideration that the residential tenant’s obligation to make full rental payment is suspended for the period of the State of Disaster or a shorter period should the lease be validly cancelled by either party.
Importantly, this option includes a repayment plan for the rental to be reinstated over instalments for the remaining period of the lease term once the State of Disaster has been lifted and also provides for the landlord to withdraw from the indulgence under specific circumstances.
This is to be utilised where the tenant acknowledges liability, if the tenant defaults on the repayment of the reinstatement of the rental, the landlord can take further legal action on the basis of this document.
- Rental Deferment (Payment Holiday) Document – Commercial Tenant
This Rental Deferment Document takes into consideration that the commercial tenant’s obligation to make full rental payment is suspended for an agreed period which could be the period of the State of Disaster, or some shorter or longer period.
Importantly, the Document provides, as an option, for the tenant to make a minimum monthly payment during the period that its normal payments are suspended. The document also provides for the landlord to withdraw from the indulgence, in specified circumstances.
This document is to be used where the tenant acknowledges liability, should the tenant default on the repayment plan, the landlord can easily take further legal action. Where the tenant is not a natural person, the person signing the agreement binds himself as surety and co-principal debtor in order to secure the repayment of the deferred amounts.
Tenants who have already displayed a trend of non-payment
The question that remains is, how should you deal with tenants who have displayed a trend of non-payment and would have defaulted on rent regardless of the State of Disaster?
We suggest that landlords and property managers continue with their collection process of uploading their tenant data to TPN and initiating Credit Bureau update notifications to the tenant, sending TPN Letter of Demands and Lease Cancellation notifications. Should the tenant fail to vacate after cancellation, make sure that the file is ready now to hand over to your attorney as soon as the State of Disaster is lifted and the Courts begin to operate as normal.
The TPN Letter of Demand is discounted at 50% while we are in this disaster period.
Another situation that might arise where the lease agreement has ended or is about to end but the tenant is no longer able to vacate due to the need to be quarantined or remain in isolation. TPN has included an Addendum to the Lease Agreement in the Rental Recovery Pack which extends the existing terms of the lease agreement on a month-to-month basis.
As part of our strategy to support the property industry TPN, SSLR Inc. and Fullard Mayer Morrison Inc. are happy to make the State of Disaster – Rental Recovery Pack available to all landlords and property managers free of charge.
Please feel free to reach out to us!
MD of TPN Credit Bureau