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?
“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
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.
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.”
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.”