Rental investments, know the rules around deposits

Investing in a property for the rental market has many benefits for property investors as it means that they can earn rental incomes from the property which can be used to offset costs and generally still turn a profit. Property investments are one of the best ways to accumulate wealth but be mindful that rental property is subject to a number of regulations.

The Rental Housing Act is the primary piece of legislation which governs rental properties. One of the key aspects of a rental, is the matter of deposits. While taking a deposit from prospective tenants, is not a validity requirement, the practise is to take a deposit of up to twice the monthly rental as security.

It is important to note that rental deposits are regulated by the Act in terms of which the landlord is obliged to place the full amount of the deposit received in an interest-bearing account held with a financial institution. The interest rate applicable to the account must be equivalent to the rate which applies to a savings account at a financial institution. The Act further obliges the landlord to provide proof of the investment and a statement of the interest earned on the money at any time during the tenancy upon request from the tenant.

If the deposit is paid to the account of a registered estate agent on behalf of the landlord, it must similarly be invested. The deposit and any interest thereon must then be dealt with in accordance with the provisions of the Estate Agency Affairs Act.

Property owners must note further that the deposit may not be used for anything during the lease period. Once the lease terminates, whether through the lapse of the time period or if cancelled by the tenant in terms of the provisions of the Consumer Protection Act (CPA), the full amount of the deposit together with the interest earned thereon must then be refunded to the tenant within a prescribed time period subject to the provisions of the Rental Housing Act which allows for certain deductions in the event of damage suffered.

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