Business, Politics

The great rental debate: Grootes responds, or: Landlords vs. tenants, right vs. rights

By Stephen Grootes 15 November 2011

The fine balance of the rights of landlords versus the rights of tenants is one of the big debates of our time. Or it certainly should be. It relates to how we balance the rights of rich and poor, and that old problem of property: when is a right limited and when is it not. But it must also be about wealth creation, the idea that we cannot just sit where we are now and leave it at that. By STEPHEN GROOTES.

We shouldn’t want to simply cut the pie thinner and thinner; we should want to make the pie bigger. Two weeks ago I wrote a highly opinionated report (as is my job) about a case referred to as Maphango in the Constitutional Court. At issue is a property firm that cancelled the lease of several tenants in an inner city block of flats, so that it could hike the rent. I suggested (again) that it was time to push the balance back towards landlords, partly because if we didn’t, no landlord would ever invest in low-income housing. Kate Tissington, from the Socio-Economic Rights Institute of South Africa took issue with it, as is her right. Maybe it’s just male ego, but I feel the need to respond.

Firstly, some admin. Kate, I’m sorry I suffer from a condition known as “pseudo-sarcasm”. I am very much aware that much of the law, particularly around issues such as this, is dry and technical. Boring. I see it as my duty to make these debates interesting, so that people participate in them. This means that my condition occasionally gets on public display. Sorry.

I must also take issue with your opening salvo that “Maphango is about a discrete act of unlawfulness by one landlord”. This case has gone through the High Court and the Supreme Court of Appeal. It was the tenants appealing in the Constitutional Court, as the SCA had agreed with the landlords. Surely then, as you and I debate this, and until the Constitutional Court rules, your comment is opinion, not fact. The SCA says this act in canceling the lease was legal.

Kate, you are better informed on issues around rental law than I am, you work in this area. But I must still take issue with many of your points.

You refer to what the company actually did, which was to cancel the contracts and tell the tenants if they wanted to stay on, they had to pay nearly three times the rent. As I said in my original piece, it is a heartless thing to do. Particularly when, as you explain, they have “paid their rent religiously”.

But whether someone has paid his or her rent on time for 17 years isn’t the issue. What’s at issue really is the nature of a contract. As was argued by the landlords in the case, when you sign a rental contract, you are already conceding that you will not live in the property for perpetuity. That is the point of it. And when the contract contains a termination clause, then the point is extended.

If this were not the case, landlords would have to simply accept the situation would continue as it is forever and ever. You say the renters don’t expect to stay there forever. Well, on what grounds then is the landlord allowed to do something else with the property? Or is there no way for a landlord to decide that he or she would like to end the contract? Does this mean that every single flat-owner in the country is literally at the mercy of the tenants? If they don’t want to move out, then, on your argument, they cannot be forced to move out. Ever.

The net result of this will be that it will never be in the interests of flat-owners to ever make any kind of improvement. They will do the bare minimum maintenance, if that. The amount of cheap rental accommodation we have now will be the amount of cheap rental accommodation we will have in a hundred years time. And it will look exactly the same. What will happen is that landlords will abandon buildings, leaving them to hijackers. With results that will be even plainer to see in the Joburg CBD than they are now.

There is an even more worrying aspect to this. If it is accepted that the rights of a landlord, as spelt out in a rental contract, are not actually going to be respected – in other words the termination clause of a contract turns out to have no legal force or effect – well then a landlord has lost any protection they might have. The contract will be worth nothing if it is not enforceable. And thus there will be no point in having a contract in the first place. And landlords will leave the housing market in droves, because their investment will suddenly become uncertain. If their investment is uncertain, no bank will lend them money; property will not be worth anything. Can you imagine the implications for the entire banking system? It is not a pretty thought. 

Kate, you accuse of me of  “leaping” from the scenario of wealth creation underpinned by property rights to one where there is the increased development of low-income housing, “It is truly breathtaking that Grootes can peddle such nonsense with a straight face”. There is also a reference to the havoc caused by “unregulated financial markets”. Kate, firstly, I’m sorry capitalism hasn’t crumbled just yet. But secondly, here’s how I see the system working. You’re perfectly allowed to disagree, but let’s get on the same page first:

You have a landlord. They have a property. They don’t need to live in that property. They have several options. They can sell it to someone else to live in. They can sell it to someone who will knock it down and use the land for something else. They can rent it out. If they sell it to someone else to live in, fine, it will be someone who has some means, and everyone will be happy. If they knock it down, fine, the landlord will be happy, they will have their money. But if the landlord rents it out, it will be lived in for some time by a person or a family with limited means. They will be poorer than the person who could buy it for residential purposes. Over time, the family with limited means, the renters, slowly builds up enough capital to buy somewhere else and moves on. Another family with limited means moves in. Over time, the landlord pays back the bond on this property. Now they have more money. They have several options. But the one that would benefit the poor the most, would be to buy another property, and rent it out. There will be another opportunity for poorer people to live in it, for a time, and build up their own capital. And so the cycle repeats.

There is a perfectly legal framework for this. You quote the preamble to the Rental Housing Act. However let’s keep reading it, and go to Chapter Two. It states that government “must promote a stable and growing market than progressively meets the latent demand for affordable rental housing”. It also says government must “improve conditions in the rental housing market”. In other words, government must ensure that the conditions are right for the rental market to grow. Or to come at it another way, it is a responsibility of government to ensure landlords feel comfortable investing money into rental properties.

What’s happening here is that once the landlord allows poorer people to move in to their property, this property is not theirs anymore. They cannot sell it (who would buy it with tenants that refuse to move), they cannot improve it (because they cannot afford to, if the tenant will continue to pay the same rent), they cannot decide to change its use (because the tenant will not leave, and there is no way to compel them to). The landlord will eventually, and at great cost, decide to find a way out of the property. And any money the now former landlord comes across will certainly not go into a rental property.

And that’s before we even start on the landlords who sign a contract with people, only to find on their next visit to the property that was formally theirs, that they don’t recognise any of the tenants who now seem to have exactly the same rights as those who they originally signed the contract with.

Kate, you may feel that all white men are evil. I can see no other reason why you feel the need to identify the directors of the property firm by their race and gender. You may also feel that it is wrong to ever improve a property, to feel that you own something, and thus feel entitled to maximise the value you get from it. Imagine, if you will, buying a car. There is no way you would ever accept a limitation on making improvements to that car, in selling it if you wanted to, in changing it from a sedan to a sports car, whatever. If someone moved in one night and started sleeping in it, and then refused to leave it, you would be outraged. This is how landlords feel. I get that there is a right to “adequate housing”, but why should landlords pay for that right to be enforced? And your answer has to be more than because they are white and male and rich. DM

Disclaimer: Grootes was once a landlord. He has resolved never to be one again.



Photo: REUTERS

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