Estate agents see increase in illegal sub-letting

25 July 2018

Some tenants rent multiple properties then let rooms in each to families and make cash

The desire to make a quick buck is leading to an increase in illegal sub-letting, in which tenants rent rooms in their homes to other parties and pocket the difference in rent. Some tenants also illegally sublet to others to help them pay the rent.
Even though rental agencies strictly vet prospective tenants, such cases are definitely occurring, says Graham Ross, general manager of five Just Property franchises in the Western Cape. "There has been a slight increase and it is of concern," he says.
Cases are being seen where tenants rent properties with the undeclared intention of sub-letting them to two or more families and then keeping the 'profit'. "This seems to be happening more in apartments where the rent is less than for a house. This gives the tenant a better chance of making more money with less risk."

Ross says such tenants usually rent multiple properties in the R3500 to R7 000 bracket from various agencies in different areas, and then sub-let them to multiple families. The practices are usually discovered when agencies inspect the properties.
"It is also often picked up with irregular payments and high usage of water." Ross says the agency "eventually always finds out" thanks to regular inspections. But when owners manage their rental properties themselves and fail to inspect the property, they can fall victim to such practices. Other ways tenants make money from illegal sub-letting is by converting garages to rooms, letting space in Wendy houses and garden sheds and turning living rooms into bedrooms.

"Our leases do not permit sub-letting and should a tenant be found to do so, they are in breach and we will issue notice to vacate."
In Joburg, Brian van Wijk, principal of Just Property franchises in Centurion East, Centurion South, Midrand, and Moreleta Park, says there are occasional cases where tenants who want to move out let out their properties to avoid having to pay penalties for breach of contract.
"A tenant may want to move on without breaking the contract and being held liable for certain additional costs, so they find another tenant who continues to pay the rent and occupy the premises"

This this has happened occasionally over the years and continues to be a problem, although we are not seeing an increase in occurrence "The most prevalent form of sub-letting, Van Wijk says, is bringing in room-mates to help pay the rent.

"But, because we have improved systems and communication with tenants, even prospective ones, we include them on the lease as occupants or joint tenants which helps them qualify for the affordability assessment we do when screening tenants."

These tenants are then held jointly liable for the rent. He adds: "Now and again, these relationships fall apart and disputes arise. But if we are not informed and no new lease is concluded, the co-tenant who moves out is still liable for part of the rent. Van Wijk has seen cases where garages are sub-let as living units, and says this practice could be more prevalent than owners or agents realise.
"Unfortunately, we have no data on this, but where we have caught tenants, it has been the two-bedroom, two-bathroom units where the rent is between R6000 and R7000 a month."

Although the company makes inspections of every property where it has been mandated to do so, this does incur additional charges to property owners. "So we rely on the signs to alert us to the possibility. Even where inspections are made, the inspector would need a copy of the lease and must ask to see the occupant's identity document at the time of inspection to verify the occupant is there with permission.

"However, with the strict credit vetting of potential tenants, we believe we are eliminating the criminal element and we deal only with situations where tenants do this out of fear of penalties or purely out of not knowing what the correct procedure is," Van Wijk says.

"Should we discover a tenant profiting from illegal sub-letting or defrauding the owner of income, steps would be taken to evict the occupants and to recover whatever is due to the owner.
"In cases where tenants have sub-let to avoid costs, we would do the necessary checks on the occupant and if they are successful, we would sign a lease agreement with them. Often they would pay less rent than in a sub-letting arrangement."

According to TPN managing director Michelle Dickens, another type of sub-letting seen is where someone fronts for an unqualified tenant. But this is 'highly risky' as they could see potential delinquencies on their own credit profiles or personal liability if there is damage to the property.
Unless the lease agreement specifically covers sub-letting, a landlord or agent cannot regulate it in any way. Rawson Property Group's national rentals manager, Jacqui Savage, says the agency also carries out interim inspections on behalf of landlords, so if illegal sub-letting is occurring, they will be able to pick it up and take the necessary steps to curb it.

She says Rawson's leases clearly state that sub-letting is not allowed. Echoing Ross's comments, Dickens says the majority of illegal sub-letting cases become known to landlords or agents following non-payment of rent which leads to further investigation into the tenants" circumstances.
"In other instances over-crowding alerts an owner by way of increased water usage and complaints from the body corporate in this regard." She adds that it is 'interesting' that there is no legislation or municipal by-law that governs maximum occupancy, so a landlord has to provide for it in the lease agreement.

Regarding tenants who sub-let illegally to avoid breaching rental contracts or incurring penalties, Dickens says the Consumer Protection Act affords a tenant who can no longer pay the rent the right to cancel their lease agreement by giving 20 business days' notice.
Therefore, as a tenant can get out of a lease 'relatively easily', one imagines that those who choose to sub-let do so either because they are not able to cover the rent on their own, or the occupier who sub-lets from a tenant is unable to qualify for a rental property themselves.
"This would occur most frequently in the affordable housing market," Dickens says.

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