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What happens to your deposit if Agent is declared insolvent?

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A tenant has asked the Property Poser expert what he should do about reclaiming his deposit when the rental agent has been declared insolvent.

The reader writes that he has rented a property for the past five years and is now vacating the property. An agency acted on behalf of the landlord in managing the rental process and the reader would now like his deposit returned.

However, the reader complains that the landlord refuses to return his deposit as the agent is under sequestration and he would like to know what his rights are.

According to Sean Radue of Radue Attorneys in Port Elizabeth, a deposit is typically lodged at the inception of the lease to provide the landlord with security in the event that the tenant damages the property.

“It ensures there are funds available for the landlord to make the necessary repairs to the property, restoring it to the condition it was in at the beginning of the lease – fair wear and tear excepted.”

Radue says the Rental Housing Act lays down the requirements for the holding of a deposit by a landlord.

“In brief, the amount should be agreed upon and should be deposited in an interest-bearing account for the benefit of the tenant.”

The deposit, together with accumulated interest but less any permitted deductions, should be returned to the tenant within 14 days of the rented property having been returned to the landlord, he says.

“The matter is regulated differently where an agency is involved, as the agent is required to hold the deposit under the provisions of the Estate Agent Affairs Act.”

Radue says the agent is regulated and required to administer funds held on behalf of others in a similar manner to that in which an attorney is required to.

“That is, it must be held in trust and with accounting and auditing mechanisms being adhered to, without which, the agent may not be issued with a fidelity fund certificate.”

To help the reader determine the possible way forward, he says it may be useful to consider the definition of “landlord” under the Act.

“It means the owner of a dwelling which is leased and includes his or her duly authorised agent or a person who is in lawful possession of a dwelling and has the right to lease or sub-lease it.”

The duty to return the deposit, in the manner mentioned, therefore falls on the landlord, says Radue.

“The agent, in this instance, appears to be the duly appointed agent of the landlord and held the tenant’s deposit, presumably in accordance with the provisions of the legislation concerned.”

For his or her services, a certain fee or percentage of the monthly rental, at least for a certain period of the lease, would have been paid to the agent, he says.

“As the agent ‘is’ in effect the landlord, the duty to return the deposit would fall on him or her.”

Where the agent is insolvent, assuming no fraud or theft has been perpetrated on the agent’s trust account, the funds should still be in place, says Radue.

“It should now be under the authority of an appointed trustee or liquidator and the tenant will have to institute a claim against the insolvent estate.”

If the appointment has not yet been finalised, it will probably take place in due course, he says.

“However, until then, no person will have the authority to deal with the funds, including those of the reader.”

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Fullstop

Full Stop Communications is a public relations consultancy in Port Elizabeth in the Eastern Cape of South Africa focusing on media relations and copywriting. We drive regional and national media campaigns in a number of fields, most notably in the property, legal and sports arenas. We also specialise in media monitoring, ghostwriting, editing, translation and advertising. See more articles by Full Stop.