What is the purpose of a deposit?

When renting out a property, landlords or their managing agent, request a deposit. This is a sum of money that the prospective tenant must pay at the time of signing the lease, to secure the rental property and demonstrate that he or she is committed to renting the property for an agreed-to period of time. The deposit has different meanings for the landlord and the tenant:

• The landlord can use this deposit as security in the future against the tenant defaulting on the monthly rental after the lease expires, or for damages that the tenant incurs. It gives landlords peace-of-mind that they have a safety net if anything untoward happens, like a tenant secretly moving out and not fulfilling their financial commitment as per the tenancy agreement.

• The tenant is motivated to look after the property and meet their obligations. If they remain in residence and abide by the renters contract, they are assured that their deposit will be returned to them when it comes time to move. Tenants should prepare to budget for a deposit.

For Landlords: How to invest rental deposits

• Invest the tenant's rental deposit in an interest-bearing account at a recognized financial institution.

• Ensure the interest rate is comparable to a standard savings account.

• Upon request, disclose the bank details and the applicable interest rate to the tenant.

• Keep transparent records of the deposit, interest accrued, and any potential deductions.

• Conduct a joint inspection of the property at the beginning and end of the lease to document any damages.

• Refund the deposit, along with interest, within 7 days of lease termination if no damages or unpaid rent exist.

• If there are deductions (unpaid rent, damage), provide a detailed breakdown and return the balance within 14 days.

For Tenants: What to expect with your rental deposit

• Your deposit must be held in an interest-bearing account, earning interest comparable to a savings account.

• You are entitled to know where your deposit is invested and the applicable interest rate.

• Request periodic updates on your deposit and interest accrued from the landlord.

• After lease termination, expect the deposit plus interest refunded within 7 days if there are no damages or unpaid rent.

• If deductions are necessary, you should receive the remaining balance, with a breakdown, within 14 days.

What tenants can do if their deposit is not returned

If a landlord fails to return your deposit with interest within the legal timeframes, you can take the following actions in South Africa:

1. Send a formal written request to the landlord, reminding them of their obligation under the Rental Housing Act.

2. If unresolved, lodge a complaint with the Rental Housing Tribunal. This government body resolves disputes between landlords and tenants at no cost.

3. Seek assistance from a lawyer if needed, or escalate the issue to a small claims court if the deposit is under a certain threshold.

These steps help ensure that tenants are legally protected and can recover their deposit, including the accrued interest.

How are tenancy deposits governed?

The Rental Housing Act of 1999 governs tenancy deposits in South Africa and outlines key regulations for both landlords and tenants. While the Act allows landlords to request a security deposit, there are no specific legal limits on the amount based on whether the property is furnished or unfurnished. Typically, landlords may request a deposit equivalent to one or two months' rent, depending on the agreement. However, the law does not impose a cap on the deposit for furnished or unfurnished properties.

Overcharging

If the landlord does request a higher deposit than the Act mandates, tenants have the right to walk away and select a new property to rent, or negotiate with the landlord for a lower monthly rental.

What happens to the deposit?

The law states that a landlord must invest the rental deposit in an interest-bearing account. If, at the end of the tenancy, interest has been earned on that deposit, it must be paid over to the tenant, along with the deposit within 14 days after the tenancy agreement ends. The tenant has the right to request official documentation on how the interest was earned.

However, if the tenant has damaged the property, the landlord can deduct the cost of repair from the deposit, but this requires an inspection and proof of damage.

Inspections and deposit receipts

• Tenants must ensure the following:

  • They receive a receipt for the deposit payment, clearly indicating the amount, the date paid, and what it is for.

  • The tenant, along with the owner/landlord/managing agent should inspect the property before moving in, and it is recommended that photographs be taken as evidence of problems and/or the condition of the property, even if it is in good shape. This may serve as evidence in the future if there are disputes. Both the landlord and the tenant should sign this evidence sheet, and date it.

• Landlords must ensure the following:

  • They supply a receipt for the deposit payment to the tenant, indicating the amount, the date paid, and what it is for. The landlord should provide photographic evidence of the property condition, which the tenant should sign. his may serve as evidence in the future if there are disputes. Both the landlord and the tenant should sign this evidence sheet, and date it.

  • When the lease terminates, the landlord has 21 days to inspect the property and determine if there are repairs required. This inspection must include the tenant. If this does not happen, the assumption is that the property is in good condition and the landlord must return the deposit (with any interest) to the departing tenant.

What may be deducted from the deposit?

The landlord cannot use the deposit to undertake general maintenance of the property. He or she may, however, deduct any cost of repairing damages the tenant may have caused during the tenancy. Repair receipts have to be submitted to prove the cost.

The landlord can use the deposit as rent but only after the lease agreement comes to an end. Landlords cannot use the deposit as rent during the active period of the lease. If the landlord evicts a tenant, however, they can use the deposit to pay for the legal eviction.