Stephen Grootes’ article, “Landlord's rights, the final frontier”, is riddled with misconceptions. His comments about the Maphango case, heard by the Constitutional Court last week, bear little relation to what that case is about.
Despite Grootes’ attempts to turn the case into a hobby-horse for a misguided market fundamentalism, the case isn’t about the operation of a free market in the provision of housing. The Maphango case is also not about whether or not “the rich have rights”, or about “filthy capitalists” being “incredibly heartless” to the poor. This pseudo-sarcastic approach is in fact incredibly unhelpful.
Maphango is about a discrete act of unlawfulness by one landlord, Aengus Lifestyle Properties (a special purpose vehicle company formed by Aengus Property Holdings) in contravention of an existing statutory framework designed to regulate the rental housing market in the interests of both landlords and tenants. If the case was about the application of market principles to rental housing, this may be the place to point out that unconstrained markets have never resulted in sufficient housing for the poor and simply allowing landlords to screw over tenants more easily isn’t going to change this.
The main issue before the Constitutional Court is whether Aengus was entitled to terminate the tenants’ leases for the sole purpose of at least doubling the rent, in circumstances where:
The Rental Housing Act states in its Preamble that there is a need to “balance the rights of tenants and landlords and to create mechanisms to protect both tenants and landlords against unfair practices and exploitation.” It further states that there is a need to “introduce mechanisms through which conflicts between tenants and landlords can be resolved speedily at minimum cost to the parties.” The provincial Rental Housing Tribunals provide these mechanisms, and are mandated in section 13(5) of the Act to make rental determinations “in a manner that is just and equitable to both tenant and landlord”.
In the Maphango case, each of the 15 tenants’ leases contains express or implied terms which limit the increases in rent that can be imposed annually. Twelve of the tenants’ leases contain a provision which requires the landlord to approach the Gauteng Rental Housing Tribunal for permission to increase the rent payable beyond the margins set out in the escalation clauses contained in the lease. Rent increases in excess of the margins permitted by these clauses can only be imposed after the Tribunal has approved the increases, and only to the extent of any approved increases.
Why are these explicit provisions in the lease? One reason is that the building, called Lowliebenhof, was refurbished prior to it being purchased by Aengus, using government subsidies. Aengus actually benefitted from this subsidised arrangement when it bought the property.
However, it did not approach the Tribunal for permission to charge a higher rent (it is common knowledge that the free-of-charge dispute resolution mechanism actually favours owners and landlords, in terms of accessibility, rulings and enforcement thereof. There really was no excuse), but simply purported to terminate the tenants’ leases, and then invited them to enter into new agreements in terms of the escalated rent. If they did not do so, they would be evicted. The main applicant’s rent was increased overnight from R1,300 per month to R3,400 per month (an additional 161%). The fifth applicant was earning R3,660 per month at the time and was required to pay an increased rent of R3,800 per month, up from a rent of R1,661 per month. Clearly, these tenants could not afford the rent escalation, and one can assume that Aengus hoped they’d simply leave. They did not.
Another problematic assertion by Grootes is around his interpretation of Justice Cameron and Deputy Chief Justice Moseneke’s questions relating to who should bear the “social cost” of keeping “these people” (Grootes’ repeated phrase for the tenants – rather unfortunate in my opinion) in the accommodation. Grootes seems to confuse the social costs, as raised by the judges, with rent. They are not the same.
Not only have the tenants of the building religiously paid their rent over the years, they are willing to pay an escalated rent – but a rent as escalated in terms of their lease or as decided by the Rental Housing Tribunal. “Social costs” refer to something different, possibly the costs of landlords approaching the Tribunal (it is free, but they may choose to bring along a lawyer – most landlords do) or the costs of not being able to increase rent as they deem appropriate e.g. insufficient profit.
Importantly, the court found that there was no information on these “social costs” before it, and that this lack of information could not be put at the feet of the tenants, as it is not their case to make and does not fall within their knowledge. The burden of proof in this regard lies with the landlord, Aengus, and it simply did not show that the “social costs” occurred by itself were disproportionately higher than those of the tenants. It could not.
Aengus had bought the property in 2008 with bond finance, and alleged that after it acquired the property it realised that the costs of bond finance on the property exceeded the income which could be derived from the tenants in terms of their current leases. Aengus alleged that it was making a loss on the property, however an income and expenditure statement it filed actually demonstrated an annual profit of R600,000 on its investment in Lowliebenhof. This was never addressed by the High Court or Supreme Court of Appeal (SCA).
In any event, Aengus owns a large number of residential buildings in the inner city of Johannesburg, and its leases with the 15 tenants in this case represent a tiny fraction of this business. Aengus remains free to terminate its thousands of other leases on legitimate grounds stipulated in the leases, or to approach the Rental Housing Tribunal to negotiate rent escalations.
The Lowliebenhof tenants do not contend for leases in perpetuity. They argue that, having concluded leases which gave effect to their constitutional right of access to adequate housing (including their right to security of tenure), the termination of their leases inevitably affects these rights. Therefore, their leasehold rights should only be terminated in a manner that does not result in an unfair or unreasonable infringement of their right of access to adequate housing. If it does, the termination is contrary to public policy. Whether the infringement is fair and reasonable depends on the circumstances of the case.
In the Maphango case, the infringement was blatantly not fair and reasonable.
In his article, Grootes argues vociferously for the creation of capital and wealth, underpinned by property rights, and seems to leap from this scenario to one where there is increased development of low-income housing. There is simply no evidence for this proposition. In light of the havoc wreaked by unregulated financial markets on the world economic order over the last three years, it is truly breathtaking that Grootes can peddle such nonsense with a straight face.
Interestingly, Aengus Property Holdings has four directors, all of whom are white and male. This is not an individual, or a small consortium of black entrepreneurs trying to “become less poor than they are now”. This is a large, white-owned company making considerable profit from the gentrification of inner city Johannesburg, subsided by the state through the Urban Development Zone (UDZ) tax incentive (a tax allowance that covers an accelerated depreciation of investment made in either the refurbishment of an existing property or the creation of new developments within the inner city of Johannesburg).
Aengus could have argued that it was renovating Lowliebenhof to generate capital in order to develop low-income housing in the inner city (the building is in a prime location – right next to the new Gautrain station!). But it was not. Aengus provides high-end housing for the wealthy. Its tenant stats show that 68% of tenants earn R10,000 per month, 28% earn between R10,000 and R19,000, and 4% earn over R20,000. It is not a low-cost housing provider.
Grootes needs to re-examine his hypothesis that hardship for some tenants equals development in inner city Johannesburg and that capital accumulation equals creation of low-income housing. This does not hold true in practice. And even if it did, it would not justify making people worse off in the interim, contrary to constitutional law. His “collateral damage” theory is symptomatic of the kind of fool-hardy adventurism that damages rather than enhances economic welfare, and generates massive profits for a few at the expense of untold suffering for the many. Again, one is left to wonder where Grootes has been living for the past three years while the world economy has reaped the whirlwind of its failure to regulate capital (or indeed for the forty years before 1994 where capital and apartheid fed off each other while the poor black majority suffered).
That debate can be left for another day. The tenants of Lowliebenhof are not up against Grootes’ theories. Hopefully the Constitutional Court will judge this case on its facts. DM
Tissington is a researcher at the Socio-Economic Rights Institute of South Africa (SERI).
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