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Why your letter of demand didn’t work

With between 10% and 25% of all residential tenants classified as poor payers, according to figures from various rental estate agencies and the Tenant Profile Network (TPN), and an average arrears amount of R7,500 for each of these tenants, it demonstrates two things: times are tough for consumers, and these same consumers are clued up on how the National Credit Act makes blacklisting them for non-payment very difficult. In fact, tenants now need to default on payment for three consecutive months before they can be blacklisted. With this in mind, is the threat in a letter of demand even worth the time taken to draw it up?TPN pie chart

“A debt collector or credit bureau letter’s only real power was the threat of blacklisting a tenant after 20 business days,” says Marlon Shevelew, rental-focused attorney at Marlon Shevelew and Associates based in Cape Town. “Conversely, a legal letter from a law firm can elicit a far more immediate response with the threat of legal action to follow.”

A question of cost

A Summerstrand home on the market for R9,995m. Set to break the previous record of R7,5m.

A Summerstrand home on the market for R9,995m. Set to break the previous record of R7,5m.

Debt collectors and credit bureaus cost a fraction of the price of an attorney for the services of drawing up letters of demand, and this is why many landlords and real estate agencies go this route first.http://hometimes.co.za/advertise-with-hometimes/

PG van der Linde, rentals manager for Seeff Pretoria East, says his company currently outsources its legal claims process to a credit bureau, spending R33.35, excluding bank charges “and our time” for a letter of demand.

Similarly, Gayle Nelson, portfolio manager at Etchells & Young Property Brokers, says her company also uses a credit bureau for day-to-day arrears, and spends R120 for letters from an attorney for more severe cases.

Nelson’s director, Harry Meyburgh, admits that the entire debt collection process is very problematic, especially if amounts owing are less than around R15,000. “Debt collectors are not motivated as they don’t earn enough fees out of this,” he says. “Landlords are reluctant to spend money on legal fees to collect smaller debts (less than R10,000) – throwing good money after bad – when the tenant seems unable to pay anyway and especially if the tenant has already vacated the property.”

The impact of a letter of demand from a credit bureau and debt collector can also lose its shine the more frequently it is sent, according to Nelson.

“It usually takes one to two weeks for the tenant to pay,” she says. “It does, however, have an immediate impact on the tenant’s awareness on paying their rent and they come up with solutions to pay their debts. A letter of demand has less effect the second time a tenant receives it and even less effect further on.”

Solutions please

summercon 2

Cassablanca in Lonehill, Johannesburg, sells from R699,000.

So what’s a landlord to do? Pay for the clout that comes with an attorney or risk a letter of demand being scoffed at by a brazen tenant who understands how the law works?

Shevelew believes he has cracked the code: an attorney-charged letter of demand at a fraction of the cost – R40 to be exact – that can be claimed back from the tenant.

Like Airbnb and Uber, Shevelew believes RentDoc is poised to disrupt the rental landscape. “It’s a platform for landlords and rental property agents to obtain a lawyer’s letter of demand by simply completing an online checklist,” he says, noting the information is incorporated into a lawyer’s letter which is not only cost effective and expedient, but, more importantly, ensures that a defaulting tenant receives a correct, legal and compliant letter of demand for monies owing.

The service is growing by at least 50 real estate branches joining each month, and includes household names like Pam Golding, Seeff, Harcourts, RE/MAX and Rawson, as well as several independent agencies and landlords. “Outstanding rental and utilities is the biggest issue in the rental property arena,” he says, noting that reasons for not paying for services include tenants’ perceptions that they have squatter rights, apathy and more often than not lack of affordability due to a change in financial circumstances. “We settle 95 cases out of 100 just as a result of our letter of demand.”

The market is ripe for the picking if Nelson’s words ring true for the state of the industry: “We have not found one debt collector, attorney or credit bureau to be effective in collection,” she says. “We are still looking for a good one.”

TPN Q3 Rental Monitor

Landlords have enjoyed a lengthy period of stable and predictable tenant payment behaviour where tenants in good standing have remained flat at 84% to 86% for a number of years. And Q3 delivers another stable quarter of performance with a slight improvement of tenants in good standing currently 84.7%. The shift is the result of more tenants in the paid on time category up 2% to 69.4%, 10.4% of tenant who pay late and 5% of tenants who pay in the grace period. Tenant delinquencies shrunk slightly with 9.9% of tenants making partial payments and 5.4% of who did not pay.
Municipal tariff increases occur in Q3 of each year and impact both the landlord’s operating costs, hence the yield on the property, and the tenant as many of the theses costs are passed on. Although rates and taxes increased by a CPI-related 6%, many of the additional charges which are passed on to the tenant rose substantially higher: electricity rose by 12%, water rose by 11% to 17%, both sewerage and refuse removal increased by 17%. An argument could be made that these double-digit municipal operating cost increases crowd out the landlord’s ability to pass on rental increases, possibly accounting for the low rental escalations currently at 5.1%.
According to the National Credit Regulator’s figures, overall consumer credit health remains stubbornly low with 54.9% of consumers in good standing; and credit application rejection rates up to 56%. TransUnion Credit Bureau is also reporting a deterioration of consumers’ confidence in Q3. It is hardly surprising that landlords and rental agents are indicating they too are battling with high tenant application rejections which may also be contributing to the low rental escalations as landlords prefer quality tenant placement to higher rental escalation.

Rental by value

Some 82% of tenants rent for below R7,000 per month (23% below R3,000 per month and 59% in the R3,000 to R7,000 per month range). However these two rental bands perform significantly differently. The rent below R3,000 being one of the most challenging tenants from which to collect rent and the most sensitive to increases in additional operating costs. The tenants in the R3,000 to R7,000 per month category make up the biggest rental population and is one of the better paying categories. Demand is high and rent collection is above average – the “sweet spot” for investors.
As far a pure rent collection is concerned, tenants in the R7,000 to R12,000 per month category continue to lead the way with 88.1% in good standing, and a mere 4.1% in the ‘did not pay’ category.


David A Steynberg, managing editor and director of HomeTimes, has more than 10 years of experience as both a journalist and editor, having headed up Business Day’s HomeFront supplement, SAPOA’s range of four printed titles, digimags Asset in Africa and the South African Planning Institute’s official title, Planning Africa, as well as B2B titles, Building Africa and Water, Sewage & Effluent magazines. He began his career at Farmer’s Weekly magazine before moving on to People Magazine where he was awarded two Excellence Awards for Best Real Life feature as well as Writer of the Year runner-up. He is also a past fellow of the International Women’s Media Foundation.

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