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My agent lost the deposit, can I cancel the lease?

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Q

If an agency has been the victim of fraud and the tenant deposits have been misappropriated can the landlord cancel the lease agreement and appoint another rental agent? – Tina

A

Hi Tina, it is important to note in the first instance that the lease agreement is a legal agreement between the landlord and the tenant. The letting agency is not party to the agreement. The answer to your question would therefore be no, the landlord cannot cancel the lease agreement.

The landlord may however decide to cancel the mandate, which is the legal agreement between the landlord and the letting agency. The landlord would then be able to appoint another agency to manage the property on their behalf. This would have no effect on the lease agreement or the tenant’s right of occupation.

It is important to further note that although the agency has been a victim of fraud, the landlord remains liable to the tenant for the deposit. The landlord would have a claim for the deposit against the letting agency however. Further to this, if the letting agency is correctly registered with the Estate Agency Affairs Board, and holds a valid Fidelity Fund Certificate, the landlord would have a claim against the Fidelity Fund for the deposit amount.


Got a burning question? Email mariette@hometimes.co.za and we’ll be sure to assist you


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Who is Grant Smee?

Grant Smee, MD and franchisor at Only Realty

Grant Smee, MD and franchisor at Only Realty

Grant Smee, MD and franchisor at Only Realty, has been operating as a property investor since 2005. He has a solid financial foundation gained through tertiary studies in finance and accounting, and experience gained in large international financial institutions. Extensive property investment and rental knowledge has been gained through personal property investments and property business ventures since 2005 in both South Africa and the UK. Smee’s specialties include property investment and rentals in the residential housing market.

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Mariette Steynberg is a qualified economist with a post-graduate diploma in financial planning. She has enjoyed working on holistic financial plans for clients in various stages of life, as well as a development economist assessing the socioeconomic impacts of new developments. When she is not working, Mariette enjoys parenting her quirky, delightful toddler girl. Cloth diapering, Eskimo kisses and the importance of reading to your child are all causes close to her heart. Mariette is passionate about financial education and hopes to use the experience she has gained to share knowledge with HomeTimes’ readership. Her goal is to provide information that is implementable by everyone.

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1 COMMENT
  • Denis 8th August 2017

    Hi Tina

    Let me see if I can assist Mr Smee with correcting a couple inaccurate and in complete statements.

    Let us start with the Rental Housing Act 50 of 1999. Surprisingly many “Estate Agents” do not even take the time to read the RHA or the unfair practices regulation.

    In terms of the RHA, the definition of a “landlord” includes the agent of the landlord. However, the RHA does not define an “agent” so it is reasonable to assume that anybody acting on behalf of the landlord is an agent of the landlord which includes estate agents and lawyers and anyone empowered by the landlord to represent him.

    Coming back to your question.

    I am assuming that the landlord is represented by an “Estate Agent” to facilitate the lease of his property. In short you entered into a lease agreement negotiated by the estate agent and undertook to pay your rent and deposit into the “Trust Account” of the estate agency. The estate agent would then take the deposit retain it in the estate agents trust account and after a deduction of the estate agents commission pay the rent received over to the landlord or property owner.

    In most instances, this is all contained in the lease agreement provided by the estate agent or agency. In other words, in most instances, the estate agent protects their interests and “commission” in the lease agreement. In addition, the lease agreement stipulates the how the rent is to be paid and how the deposit taken is to be dealt with, namely who retains the deposit who benefits from the interest earned on the deposit and upon what event or in what circumstances the deposit is refunded.

    Section 5 of the Rental Housing act deals with this in great detail. In fact section 5(d) of the act clearly stipulates that in the event the agent of the landlord is an Estate Agent and is in possession of a “Valid” fidelity fund certificate the landlord is absolved of all responsibility and or accountability and or risk when dealing with the “deposits taken” as it then falls within the Estate Agents Affairs Act.

    Mr Smee is correct, a lease agreement, ordinarily, is an agreement between lessor and lessee. It is however incomplete and it is my experience that most lease agreements facilitated through estate agents have certain clauses which deals with the mandatory actions and responsibilities of all the parties including the estate agent.

    Mr Smee would have you believe or at lease implies that the landlord is responsible for the illegal actions of the estate agent. In truth, depending on the lease agreement entered into and upon the proof of the estate agent being in possession of a valid Fidelity Fund Certificate the buck stops at the estate agent.

    The test is however, has the tenant and the landlord executed due diligence when transacting through an estate agent. In other words, you as the tenant in addition to the landlord must satisfy yourself that the estate agent is registered with the Estate Agency Affairs Board, and is in possession of a valid Fidelity Fund certificate.

    Having said that it is important to note that an agreement is in place between all parties. To insulate that parties from the fraudulent activities of a unscrupulous estate agent, as what is implied, the only way to do so would be to “cancel” the lease agreement.

    Mr Smee is again incorrect or at least the statement is incomplete.

    Any agreement can be cancelled by any party to the agreement for any reason.

    The caveat is however, there may be consequences for your actions if you elect to cancel the lease agreement without ”Just Cause”.

    As I have indicated above to rid himself of a corrupt, dishonest or unethical estate agent the only way may be to terminate the lease agreement. In circumstances of theft and or fraud, I submit, there may be just cause to unilaterally cancel the lease agreement.

    The argument is simple. The lease agreement may stipulate that the rent must be paid into the estate agents trust account. The same trust account from which money has been stolen. I am sure you can see the resultant complications.

    All is not lost however, you still have certain rights. In terms of Section 4 of the 2001 Gauteng Unfair Practices regulation read in conjunction with the Section 15 of the RHA if you are in occupation of the property and money has changed hands a lease agreement is in place. You are therefore not in Illegal Occupation of the property in terms of the PIE act.

    Finally Mr Smee is once again incorrect. Deposits held by the estate agent belong to the tenant and the landlord has not claim to it. It is therefore incorrect that the landlord has a claim against the fidelity fund for the deposits misappropriated by the agent. The landlord may however have a claim for rent received by the estate agent that has been misappropriated.

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