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Selling Power

Selling Power to Your Tenants or Not?
 
In reference to the article Selling power: Joburg landlord gets a shock on ruling (published on iol Property news on the 21st of June 2013), we thought that for the purpose of understanding the bigger picture related to the sub-metering industry we felt the need to write a more detailed article explaining the ins and outs of such matters.
 
We see that some clarity is needed as the article written can be very misleading. The case related to this article does not debate the issue in all its aspects. Landlords can be misled into believing that they do not have the right to pass correct charges related to municipal services; which at time of writing is not the case.
 
The rental housing Act states that: A landlord rights against a tenant include his/her right to prompt payment and regular payment of rental or any charges that may be payable in terms of a lease. Also; The Gauteng Unfair Practices Regulations state that "a landlord who is obliged by law... to provide water, electricity or gas services to a tenant, must - (d) charge the tenant the exact amount for services consumed... if such dwelling is separately metered; and (f) in a multi-tenanted building not recover collectively, from the tenants for services provided in excess of the amounts totally charged by the utility service provider." We will look at the above statement now in relation to sub-metering.
 
In clause d) it clearly states that correct charges must be charged for services consumed. This means that in fact the landlord can charge for service, but the charges must be accurate. In simple words, the landlord can recover, but not make profit.
 
In clause f) it also clearly states that it MAY recover from tenants for services provided but NOT IN EXCESS of the total amounts charged by the utility provider. Again it is very clear that the landlord my RECOVER but not make profit and recover in EXCESS.
 
The tribunal unanimously rejected the arguments that the tenants' lease agreements superseded the Gauteng Unfair Practices Regulations, and that the "service charge" was valid because it covered maintenance of the water and electricity reticulation system. This on its own is very confusing in the sense that the contract may not be legal and may constitute unfair practice but the service charge was still valid as it covers maintenance of the systems.
 
Graeme Jay, MD of CPMD (The College of People Management and Development) and Lecturer in Property Studies at WITS (The University of the Witwatersrand), says: “This ruling highlights the importance for landlords to keep abreast of current legislation. It is clear that landlords cannot profit from the sale of utilities if this would be in conflict with legislation such as the Rental Housing Act. This would also be the case even if the tenant agreed in the lease agreement to pay an inflated rate for utilities to the landlord. In this case we are merely going back to the basics of our law, which is one of the elementary aspects we teach on CPMD’s property management programmes.” According to Jay, a contract, such as a lease agreement cannot be valid if it contravenes legislation.
 
Furthermore, Jay indicates that like all other laws in our country, the landlord cannot plead ignorance in respect of the legislation regarding this inflated service charge.
 
Even in this confusion if we read again the regulations as above quoted, we noticed that the issue is not the lease but the pure profit making on services provided by the municipality, which is clearly prohibited by the regulations.
 
Teboho Mosikili, SERI director of litigation, said the charge was not for electricity consumed at the property. "It is rather for the 'service' the landlord claims he provides in delivering the electricity from the building's connection with City Power to each of the tenants' units. City Power charges the landlord this service charge and the landlord, in essence, was claiming he has the right to pass that charge on to each of the individual tenants," he said.
 
The paragraph above can also be very misleading without through understanding on the subject matter. The landlord claimed to charge more because of various reasons, however, again, going back to the regulations, the landlord is entitled to recover the charges, not add more to them under any other premise. Should the landlord need more money for the maintenance of the electrical system of anything else for that matter related to services supplied or otherwise, this has to be part of the rental charged which should leave the landlord with profit and maintenance funds. Adding to a municipal charge is not the way to claim any funds for any reason. Clearly, the issue again is based on over charging, not charging exact amounts back-on-back to municipal charges.
 
Taking the above statement into account, if each unit within the building has its own electricity supply from a SUB METER the bulk supply would come from City Power to one point in the building. How the landlord distributes it has nothing to do with City Power. The landlord MUST however charge the tenants the exact amount for electricity used. He is not allowed to increase the Rand per kilowatt, Sub-meters are by law set to the municipal rate. City Power sends one bulk account to the landlord which he has to pay.
 
We hope so far we shed more light on the matter as it stands.
 
Additional services charged by City Power for the provision of electricity or any other charges such as DSM (Demand Site Management) must be divided equally amongst residents (tenants or owners).
 
Lets look at a simplified example:
 
A building has 100 residents and one municipal account. On the municipal account the Demand Site Management of City Power is R1,000. For the landlord to recover this correctly the charge of R1,000 must be divided by 100 residents. This means that each resident must paid a sum of R10 per month for this municipal charge. This would be the exact and correct amount charged for the recovery of services rendered by the municipality and according to the municipal charge; not more or less.
 
In the case presented in the article the understanding is that the amount charged by the municipality was passed on to the tenants indiscriminately. This in our case above would mean that each tenant would have paid an amount of R1,000 per month (instead of R10) and therefore the landlord would have made a profit of R99,000. This would be contravening the regulations, which clearly state that the landlord cannot charge amounts in EXCESS.
 
In the article quoted: “flats in Hillbrow called Plettenberg who were being charged R385 each for the electricity service fee”. This makes it very clear that the amount of R385 was not divided equally amongst all flats and hence the regulations were contravened.
 
To go one step forward a landlord reading this article may ask themselves: “What happens if a flat is vacant and there is no one to charge, how does the amount get divided?”
 
The answer to that would be simple, the landlord has to carry operational costs of being in business, this means, the same as having to pay for a telephone line for a business even if the business is closed in the December holiday period. With a property business this concept is the same and it means that the landlord must carry the cost as part of his operations business cost for the empty flats.
 
In our example above this would mean that the landlord will have to carry a cost of R10 per each flat that is empty for as long as the flat is empty and the rest of the residents will pay the quota correctly each month.
 
We hope that this article has shed more light on this often complicated issue of sub-metering.
 
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