The thorny question of interest on rental deposits

Thierry Gardeur was unhappy when estate agent Brooks and Michaels (B&M) gave him 1 percent interest on a deposit of R8 250 he paid to secure his Kenilworth flat.

“I gave the deposit plus my rent of R5 500 for a flat we rented in Taglin Court. The contract stipulated that the deposit would be invested in an interest-bearing savings account with the applicable rate. Meanwhile, I bought the flat and when the transfer went through I got my deposit back plus 1 percent interest less the occupational rent that I owed,” Mr Gardeur said.

“The agent, Mandy Nicolay, told me it was the rate they got from the bank. I spoke to the manager who said it was common practice and they used a figure of 1 percent because the banks usually give less than 1 percent. FNB’s website offers 2.75 percent but the manager told me they could not pass on the same interest the banks give them. When I could see this wasn’t going anywhere, I told the manager I would contact you (Off My Trolley). A few minutes after I left I received an email offering me 2.5 percent as a sign of goodwill (later they amended the offer to 2.75 percent). I guess they make a lot of interest on our money and pass on a pittance? Is this legal?,” asked Mr Gardeur.

B&M also charged him an extra day of occupational rent as the conveyancing attorneys charged him from the date of occupation “and the letting agent’s charge included the date of occupation”.

Mr Gardeur asked the agents to rectify the error but they said he should ask the previous owner for the money as it was a CC and there were no funds left.

“I had to send B&M a copy of the sale agreement and proof of transfer date. But they should have seen these documents before they deducted the occupational rent,” Mr Gardeur said.

Gregory Brooks, managing director of B&M in Kenilworth, said the interest rate depended on the bank.

“We comply with the Estate Agency Affairs Act, especially Section 32 which stipulates how a client’s funds may be invested: the critical factor being that the money is covered by the requirements of the act and the Estate Agents Fidelity Fund,” Mr Brooks said.

“The deposit was placed in our care according to the lease signed by Mr Gardeur and the then landlord. The interest of R195.06 was calculated at 1 percent on a straight line basis and we didn’t charge for managing the deposit or its interest.

“When Mr Gardeur voiced his displeasure we suggested that we recalculate his interest at 2.5 percent and later at 2.75 percent. We would be happy to honour this. The total interest would be R536.41. We would also be happy to reimburse him for the occupational rent if we made an error. However, we were not party to the sale agreement, and we had no instructions from the seller.

“When we asked Mr Gardeur to pay his outstanding rent, he told us he was the new owner. The attorneys said they had no instructions from their client, and so we paid in terms of our proposal.

“We asked the attorney to confirm the date of transfer, as the seller wanted his rent for the month. But she had no instructions to deal with the matter,” said Mr Brooks.

“We have acted in the best interests of everyone, and if the seller was unfairly enriched, he should refund Mr Gardeur,” said Mr Brooks who believed it was a private sale between the seller and buyer.

Mr Brooks said they complied with the requirements of the Consumer Protection Act (CPA) as well as the other acts that might apply to the business.

Michelle Dickens, managing director of Tenant Profile Network (TPN), said the going rate depended on the bank that the rental agents or landlords used and it applied to trust and savings accounts.

“Agents do not offer an interest rate lower than the one they get. They cannot benefit unduly, and legislatively, all interest earned on a deposit must be paid over to the EAAB or the tenant depending on the terms agreed between the parties and which is set out in the documentation,” she said.

The CPA does not specifically refer to rental deposits. The two applicable acts are the Rental Housing Act (RHA) 50 of 1999 and the Estate Agency Affairs Act (EAAA) 112 of 1976. The RHA applies to landlords but it does refer back to the EAAA, which applies to rental agents and needs to be read in conjunction with the Code of Conduct for Estate Agents so as to ensure accurate interpretation.

“When a landlord holds a deposit in a savings account, the interest will always accrue to the tenant. When a rental agent holds a deposit in a trust, the interest will automatically accrue to the rental agent and the EAAB, unless the agreement stipulates the interest must accrue to the tenant.

“Many leases, such as the TPN LeasePack Agreement, specifically stipulate whether the interest is to accrue to the tenant or the rental agent and the EAAB,” Ms Dickens said.

“The tenant can demand to see that the money has been deposited into a trust account, or another interest-bearing account and he can also demand to see a statement of the account showing when the money was deposited and the interest generated during the lease.”

B&M paid Mr Gardeur R733. “Thanks for your help,” he said.

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