Rent control no longer exists, but tenants are still protected
If you are a tenant, you know that South Africa’s rental housing market is in crisis. Anyone who has tried to find a property to rent in Cape Town recently will tell you they’ve been one of a dozen prospective tenants to view a property in one afternoon, often trailing around multiple properties with the same group of contenders. When they finally find a place they like, they are one of three or four candidates (or more!) to submit an application to rent. Landlords have their pick of tenants, and tenants often wind up bidding for a property – offering more than the advertised rental – just to secure a desirable property. Those with limited budgets struggle to find suitable accommodation, or wind up moving far from friends and family to secure affordable lodgings. It’s not easy for landlords either. Despite the competition for tenancies in Cape Town, in other parts of South Africa it can take months to find tenants.
The economy is in crisis, and rental arrears are common. Landlord–tenant disputes often wind up in the eviction courts. Rental housing legislation and the Consumer Protection Act give tenants indisputable rights, but rental housing is still a minefield. Landlords also have rights, along with responsibilities. Do they have the right to put up rents, and to what extent? What does the law say about rent control? We look at the rules and regulations governing rent and rent increases in South African law.
What is rent control?
Rent control is a law placing a maximum price, or a “rent ceiling,” on what landlords can charge tenants. Rent controls may sound desirable, from a tenant’s perspective at least, because the ceiling is usually set below market level. But economists agree (a rare occurrence!) that rent controls are destructive. They generally reduce the amount of housing available, even in uncontrolled zones. There is rarely enough supply of rent-controlled properties to meet demand, and excess demand must then be met by noncontrolled properties. This demand pushes rents up in noncontrolled areas, and the average price of rental housing winds up being higher than it would be with no rent controls. The other effect of rent controls is to reduce supply, because landlords unaffected by controls fear the controls might eventually reach them, and don’t put their properties on the rental market. New investment into rental housing is often diverted to other ventures, leading to a deterioration in housing stock. Therefore, while rent control might sound like a good strategy for tenants, it does not result in a healthy rental housing market.
Rent control in South Africa
The place most famous for rent control is New York City. But South Africa also had rent controls in the past. When and why was rent control implemented – and abolished?
Historically, South Africa passed rent control legislation to protect tenants from exorbitant rent increases and evictions which were a result of the acute housing shortage that existed around the time of the Second World War. Initially, the aim was to provide some security of tenure for existing tenants, along with a limited number of grounds for eviction. Property owners did not appreciate these restrictions and viewed the legislation as an infringement of their common law rights. For example, common law allowed landowners to terminate a month-to-month lease by giving one month’s notice. However, the courts declared that the one-month notice period was to be interpreted as “not later than the first day of the month to be effective for that month”, which meant the actual notice period could be longer than 30 days. Another example was the restriction placed on landowners by the Rent Control Act 80 of 1976 regarding notice to vacate, i.e.:
- Three months’ notice if the dwelling was required for personal occupation
- Six months’ notice if required for renovation, giving the tenant the first right to re-occupy the dwelling
- 12 months’ notice if the landowner intended to demolish the dwelling
Landowners also had to satisfy the High Court that the demolition or reconstruction was in the public interest and the Minister of Housing had granted permission.
As a result, landlords campaigned to overturn rent control and these restrictions. Their efforts were broadly successful and rent controls were subsequently limited to dwellings built and first occupied on or before October 20, 1949. Any tenant, regardless of income, who occupied this category of dwelling was “protected” by the provisions of the Rent Control Act. Tenants whose dwelling did not fall into this category, but who were occupants at the time the dwelling was de-controlled, still enjoyed the “protection” of the rent control legislation if their income was within a specific income band.
Eventually, rent control ceased to apply to any dwelling built after 1978-1980 and all dwellings in “white” residential areas were eventually phased out of rent control by the early 1990s.
How is rent governed now?
Residential leaseholders are no longer “protected” under Rent Control legislation. The Rental Housing Act of 1999 provided a “cooling off” period of three years for tenants who were living in rent-controlled dwellings. On July 31 2003, rent control ceased to exist, enabling landlords to increase rentals without restriction and removing the requirement to apply to a statutory body (the now-defunct Rent Boards) for an increase.
The Rental Housing Act does not dictate the rate by which a landlord may increase the rent each year. However, the amount of increase and the frequency with which the increase can occur should be clearly set out in the lease agreement. It is usually one year, and corresponds to the date of lease renewal. The landlord may not attempt to increase the rent during the lease period unless the lease contains a clause permitting it. Furthermore, the landlord may not increase the rent excessively, i.e., above market rates (the rate one can expect to pay for a similar property in the same area). The market has been left to govern itself.
Rents are generally increased by 8-10% per annum. Rental income is not pure profit for a landlord. Property owners bear the operating costs of municipal rates, insurance, maintenance and repairs, and interest rate movements if the property is mortgaged. In the current inflationary environment, landlords have to ensure their annual recalculation maintains their rental at a viable level, while also remaining cognisant of the cost pressures their tenants are facing.
A balancing act
The abolishment of rent control was welcomed by landlords, but removed an element of financial protection from low-income, previously disadvantaged tenants. The Constitution ensures a right of access to adequate housing and a right to occupy land with legally secure tenure. However, the lack of legislative restrictions on property rents means that some tenants struggle to find suitable affordable rental housing options. As a result, they have been forced to occupy properties that are outside their budget, thus increasing the likelihood of defaulting on their rental payments and, by extension, increasing the chance of eviction. Where there is limited supply of housing stock and excess demand, as in Cape Town, the market tends to push prices up. Most experts agree that rent control is not the solution. But the current housing crisis in South Africa demonstrates there is a severe need for more affordable housing to be available.
Meanwhile, if you need help
At SD Law, we are a law firm of specialist eviction lawyers in Cape Town, Johannesburg and Durban. We can’t change legislation or influence market forces, but we can help both landlords and tenants with rental housing matters, including reaching mutually acceptable agreements regarding rent and other conditions of occupancy. If you need assistance with a dispute or want advice on any aspect of rental housing or landlord–tenant relations, contact one of our eviction attorneys on 086 099 5146 or email@example.com.