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A follower on the Scorpion Legal Protection Facebook page recently asked us if his landlord is legally allowed to charge interest on overdue rent. Scorpion takes a look at what the law says.
Yes, it is legally justifiable for a landlord/creditor to charge the tenant/debtor interest on overdue rentals however, the underlying question is what the interest rate should be and when does it start running? This will depend on whether there is a written lease agreement containing an overdue rental interest clause or not.
Check to see if your lease agreement covers the issue of interest on overdue rent. It could be under a section like ‘Additional charges that may be payable by the tenant’. The law does allow for landlords to charge interest on overdue rent according to the rate agreed on in the lease agreement. If there is no lease agreement or if the lease agreement doesn’t mention the interest rate that can be charged, we look at the rate as determined by the Prescribed Rate of Interest Act 55 of 1975 (PROIA), which details how to calculate interest on a debt.
If you have a lease agreement, the interest charged on overdue rent must be reasonable and not contravene the provisions of any applicable legislation. What is considered reasonable? There isn’t a hard and fast answer to this, but because lease agreements are very similar to incidental credit agreements in many respects, we follow the maximum interest rate determined by the National Credit Act 34 of 2005 which is currently capped at 2% per month, calculated daily, added to the deferred amount monthly and compounded up to a maximum of 24% per annum.
If your lease agreement does not cover interest on overdue rent, PROIA applies and says that we should look at what the repo rate was at the time the rental became due and add the prescribed 3.5% per annum. The landlord can only start charging the interest on overdue rental from the date of demand, unless agreed otherwise with the tenant.
Late payment penalties, fines or ‘admin’ fees are illegal. In fact they are specifically prohibited in terms of the Rental Housing Act 50 of 1999, Section 3(c)(i) of the Unfair Practices Regulations:
3 – Leases
(c) A lease agreement must not include any provision which –
(i) imposes a penalty for late payment of rent whether or not the penalty takes the form of administrative charge or any other form other than interest;”
A landlord may charge interest on overdue rent, as described above, but not a set fine/fee, even if they put this in your lease agreement – lease agreements do not go above the prescribed laws of the country. You can demand that your landlord remove such charges from your invoice.
If you find yourself in a situation regarding unfair rental practices, you can go to the Rental Housing Tribunal for help. The RHT is a free service.
You may also be interested in:
What is the Rental Housing Tribunal?
Landlord won’t pay back my deposit!
4 Things to do before signing your lease
If you have a query, follow Scorpion Legal Protection on Facebook and ask your question during our next Live Q&A (every first Thursday of the month).
* This is only basic advice and cannot be relied on solely. The information is correct at the time of publication.
Date added: 19 July 2021
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