Tuesday, April 23, 2013

The burden of rising electricity cost on rent


Nersa have approved an 8% increase in electricity costs, agreeably  not the 16% requested by Eskom never-the-less still above inflation; but when viewed against the previous 25% per annum increases, is this lower increase a little bit too late for most consumers.

TPN’s research indicates residential tenants are already over-exposed to the high cost of electricity.

By way of example, a tenant in a two bedroom townhouse over a 5 year period provides tangible evidence of the rising cost of electricity. In June 2009 Joe’s average monthly cost of electricity was R192.40, this rose year on year to a monthly cost of R202.14 in 2010, R351.07 in 2011, R626.33 in 2012 and R814.70 in 2013.

Joe’s case is not isolated and most consumers would relate personally with this increase pattern.

In fact the cost of electricity has increased so disproportionality with the cost of living that Joe’s electricity cost now makes up 19% of his overall rent and electricity bill compared to only 5% in 2009.

A broader sample of TPN’s Rentbook tenants indicates a similar trend with some noteworthy key findings:

The average cost of a tenant’s electricity in 2011 was R763.39 or 17% of the rent and electricity bill.

In 2012 the average of electricity was R884.06 or 19% of the rent and electricity bill.

Further analysis revealed tenants in the below R3000 rent per month category have been most severely impacted: in 2011 23% of their total rental account was attributed to electricity while in 2012 this pushed up to 30% - effectively the average cost of R622.72 for electricity on an average basic rental of R2250.42.

Both tenants and landlords have already suffered financial consequences and will continue to do so. Tenant’s pockets are directly impacted with the lower end of the renal market suffering the most. The extraordinarily high annual increase of electricity over the last 4 years has directly impacted the landlords ability to increase rent with overall basic rent escalation remain fairly flat. More alarmingly, the landlord remains liable for the cost of electricity on his property; if the tenant defaults on electricity payments, the landlord will have to settle this account prior to obtaining a clearance certificate on any future sale of the property.

The cost of a tenant’s non-payment of electricity is now significant, especially when calculated over the average 12 month term of a lease; it is inevitable that landlords will start demanding higher deposits to cover this risk.

Tenants are responsible to make full and timeous payments for their rent and additional charges such as electricity, it is increasingly important that landlords or their agent perform full TPN credit reports and thorough affordability assessments.

3 comments:

  1. I really like how your class timings of your blog. I enjoyed reading your blog and it is both instructional and interesting.Thanks!
    Offices to Rent

    ReplyDelete
  2. Please could you urgently assist with the following questions regarding EXISTING TENANTS and now having to charge separately for water and lights:
    1) How does this now affect a landlord as far as having to now charge for WATER as well, due to escalating costs?
    2) What percentage of the rent should a landlord factor into the rent for WATER if you don't have a separate meter?
    3) Once fitting separate water meters that we read ourselves, how much notice does a landlord need to give to an existing tenant when an addendum to their lease now needs to be signed stating that the water will now be separately charged?
    4) In this case for an EXISTING tenant, can you as a landlord, still put in a 10% rent increase on their rent increase anniversary and then add the separate costs to that for their W/L usage per month if they have signed the addendum? Is that unconstitutional?
    5) Can you ask for an electricity & water deposit now with an existing tenant? How do you go about this, does it also have to be added to the addendum of the lease?

    I hope you can assist me urgently? Many thanks

    ReplyDelete
    Replies
    1. 1. All additional charges allocated for the tenant's account need to be included in the lease. This includes electricity, water, sewerage, refuse removal or parking.

      2. If there is no separate water meter the following calculation can be used: pro-rata the total water account using the same ratio as that of the monthly electricity percentage each unit uses as a percentage of the total electricity - this calculation works nicely as it helps cater for number of occupants per unit - the higher the electricity consumption the higher the water consumption. Alternatively, the other calculation is based on participation quota of each unit (square meter of each unit to the total), this calculation can be unfair if a 3 bedroom only has one occupant and a 1 bedroom has 3 occupants.

      3. Material changes (like additional cost for water) need to be agreed in an addendum to the lease, if the tenant refuses to agree to the material change midway through the lease, then the landlord will only be able to implement on renewal.

      4. Yes, this is neither unfair nor unconstitutional.

      5. Same answer as 3 above

      Delete