André van Rooyen
PayProp
Head of Sales
As a property professional, managing damage deposits effectively is key to maintaining a healthy rental portfolio. But before we get into the how of managing a damage deposit, let’s brush up on what exactly they are:
Damage deposits are a requirement for almost all tenants, and they serve to protect landlords against damage that may be caused by the tenant. Damage deposits are managed by rental agents on behalf of landlords, but legally the money belongs to the tenant, creating strict legal obligations for rental agents. Agents are required to invest the deposit in an interest-bearing account with a financial institution, and at the end of the rental term, any interest so earned must be paid to the tenant after deductions for damage or rent arrears.
André van Rooyen, Head of Sales at PayProp, offers five tips to help rental agents manage damage deposits efficiently, protecting the best interests of both tenants and landlords:
Take stock
It’s important to do a monthly check in on your damage deposit book to ensure that all active tenants have deposits in place, and that deposits are returned promptly when tenants vacate.
Top up deposits at lease renewal
If a lease is renewed and the rental amount increases, it’s important to also adjust the damage deposit. Many professionals overlook this detail, but keeping deposits proportionate to rental increases ensures that rising maintenance costs will still be covered.
Be transparent with tenants and owners
The deposit belongs to the tenant but is managed for the owner’s protection, so both tenant and owner should have easy access to information about it. Tenants should be able to see their balance, including any interest earned, while owners need access to the details of all payments due and disbursed in regard to the property. Transparency fosters trust and keeps everyone informed, reducing the chance of disputes later.
Know the law
There are many laws and regulations that govern damage deposits in South Africa. This includes knowing the timing of inspections, who should be present while they’re conducted, the evidence needed to make a damage deduction, and how to communicate with tenants. These laws can be complex, but understanding them is essential for staying compliant and avoiding costly mistakes.
Ensure safety and security
The management of damage deposits should be secure, with clear permission protocols in place to manage any payments. No single person should be able to pay funds out of a deposit without oversight. Implementing a system of checks and balances will help prevent errors or fraud, giving both tenants and property owners peace of mind.