PAYPROP DEPOSITGUARANTEE FREQUENTLY ASKED QUESTIONS

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1 PAYPROP DEPOSITGUARANTEE FREQUENTLY ASKED QUESTIONS OFFICE FAX WHAT IS PAYPROP DEPOSITGUARANTEE? PayProp DepositGuarantee is an insurance alternative to the damage deposit arrangement. HOW DOES IT WORK? DepositGuarantee covers the same risks as a damage deposit, but instead of accepting an initial payment as security under a damage deposit agreement, the landlord enjoys comprehensive protection under a DepositGuarantee insurance policy, paid for by the tenant in more affordable premiums. If any of the tenant s obligations remain outstanding at the end of the lease, the landlord claims the outstanding amount from the insurer, as opposed to deducting it from a damage deposit. WHAT RISKS ARE COVERED UNDER THE DEPOSITGUARANTEE? DepositGuarantee covers any amount for which the tenant is liable under the lease agreement, such as unpaid rent, the reasonable cost of repairing damage caused by the tenant, and utility and legal costs. As with the damage deposit arrangement, the landlord cannot claim for losses that are not stipulated in the lease agreement as a tenant liability, for example wear and tear. Furthermore, DepositGuarantee does not cover the tenant but the landlord. The insurer will therefore recover from the tenant any claim amounts that it has to pay to the landlord. However, if the tenant does not owe the landlord anything at the end of the lease, the insurer will pay a cash bonus and issue a good tenant certificate to the tenant. HOW DOES THE DEPOSITGUARANTEE BENEFIT LANDLORDS? DepositGuarantee offers the following benefits to landlords, at no cost: Comprehensive cover against tenant losses of 2.5 times the monthly rent, including a month s unpaid rent more than double the protection of most damage deposits No administrative hassle with recouping small amounts on termination of the lease Quick and easy claims and pay-out process HOW DOES THE DEPOSITGUARANTEE BENEFIT TENANTS? Paying affordable premiums under the DepositGuarantee has the following benefits for tenants: Improved cash flow tenants have access to more of their money than under a damage deposit No risk of theft unlike a damage deposit, no-one will make off with the tenant s money Less unnecessary cost, e.g. to borrow money for a damage deposit Reward for good tenancy DepositGuarantee awards tenants with a cash bonus and a certificate endorsing their reputation as a good tenant 1

2 WHO IS A SUITABLE CLIENT FOR THE DEPOSITGUARANTEE? DepositGuarantee is aimed at all landlords, particularly ones whose tenants cannot afford a damage deposit of at least 2 times the monthly rent to provide adequate protection against losses. The policy further suits tenants who handle their financial affairs responsibly and do not want or cannot afford to tie up a substantial amount of cash in a damage deposit. It rewards good tenancy while not indemnifying a tenant against unmet obligations. Because of the underwriting risks that the insurer carries, potential tenants with poor financial and credit records (e.g. those with financial judgements and adverse orders against them) cannot be accepted under DepositGuarantee. WHAT AMOUNTS MUST THE TENANT PAY UNDER THE POLICY? Tenants are required to make an initial payment that consists of an initial premium and a once-off administration fee: the initial premium is fixed at 35% of one month s rental amount and the once-off administration fee is fixed at R175 Thereafter, a premium of 1.25% of one month s rental is payable monthly. How does this play out practically? Let s assume a 12-month rental and a monthly rental amount of R The tenant pays: a once-off admin fee of R175, plus the first premium of R3 500 (35% of ), plus monthly premiums of R125 (1.25% of ) For the first year, the total amount payable to DepositGuarantee therefore works out to R5 050 (R3 675 initial payment plus R1 375 in premiums over 11 months). The above amounts include VAT at 14%. Please refer to the product brochure for information about the minimum and maximum premiums for rentals below R4 000 and above R WILL THE INITIAL PREMIUM BE PRO-RATED IF THE LEASE CONTRACT IS FOR A SHORT PERIOD? DepositGuarantee does not require a minimum duration (of say 12 months) for the lease, and offers the same terms and conditions irrespective of the length of the lease. As a result, the initial premium and the amount of cover will not be pro-rated for short leases. However, the monthly premiums will only be payable for the duration of the lease, however short that may be. WHAT HAPPENS TO THE LANDLORD S COVER IF THE TENANT SKIPS A MONTHLY PREMIUM? The landlord s cover does not lapse if the tenant skips a premium landlords remain fully protected for 2.5 times the monthly rent. Even if the tenant skips up to three monthly premiums in a row, the landlord remains fully covered during that period. Landlords who want to retain the defaulting tenant in the property after this 3-month cut-off period can continue with the monthly premiums thereafter, and will remain fully covered. WHAT IF A LEASE IS FOR 12 MONTHS AND THE TENANT LEAVES AFTER 2 MONTHS? WILL THE POLICY STILL COVER THE LANDLORD EVEN THOUGH THE PREMIUMS WERE ONLY PAID FOR 2 MONTHS? The policy does not require a minimum number of monthly payments, so full cover remains in effect. The lease has to terminate and the landlord will claim any amounts that the tenant owes him or her in terms of the lease agreement from the insurer. 2

3 IS THE POLICY UNDERWRITTEN BY A FINANCIALLY SECURE INSURER? The policy is underwritten by Santam Structured Insurance Limited. Santam Structured Insurance was assigned a financial strength rating by S&P Global of zaa on a South African National scale. WILL THE INSURER LOOK FOR REASONS NOT TO PAY OUT A CLAIM? Santam Structured Insurance Limited is a reputable insurer in the Rand Merchant Insurance Holdings Limited and will not refuse a legitimate claim. Both Santam Structured Insurance Limited and PayProp Capital are committed to treating their customers fairly and understand that the success of the DepositGuarantee is directly linked to landlords having the assurance and first-hand experience that their protection is robust and that valid claims are promptly paid. WHAT IF THERE IS A DISPUTE BETWEEN THE LANDLORD AND TENANT ABOUT THE TENANT S OUTSTANDING OBLIGATIONS AT THE END OF THE LEASE? Similar to the damage deposit arrangement where the onus is on landlords to show that they are entitled to an amount out of the deposit, landlords must provide information to Santam Structured Insurance Limited about the amounts that the tenants owe them. In practice, the information is captured by the agent on the outgoing inspection report, together with the supporting invoices and documentation, and loaded onto PayProp. In the event of a dispute, Santam Structured Insurance Limited, together with PayProp Capital, will consider the details of the case and, if necessary, request additional information from one or more of the agent, landlord and tenant, in order to make a fair and equitable assessment of the amount owed to the landlord. In some cases, it may even be necessary to get a claims assessor and adjudicator involved. WILL A CLAIM STILL BE PAID IF THE TENANT REFUSES OR IS UNAVAILABLE TO SIGN THE OUTGOING INSPECTION REPORT? Yes, similar to a damage deposit, the policy will pay the legitimate claims of the landlord even if the tenant does not sign the report. WHAT WILL HAPPEN TO THE COVER OF THE LANDLORD IF PAYPROP OR PAYPROP CAPITAL CLOSES ITS BUSINESS? The cover will remain in place because Santam Structured Insurance Limited is the underwriter of the policies and legally obliged to honour all active policies. Even if Santam Structured Insurance Limited decides to close its business, it will have to follow specific legal procedures to protect existing policyholders. CAN THE LANDLORD CLAIM UNDER THE DEPOSITGUARANTEE DURING THE TERM OF THE LEASE? No similar to a damage deposit, the policy benefits only become payable when the lease terminates and is not renewed for a further term. CAN THE LANDLORD CLAIM UNDER THE DEPOSITGUARANTEE FOR EVENTUALITIES LIKE A BURST GEYSER? No similar to a damage deposit, the landlord is only covered for outstanding obligations of the tenant that are stipulated in the lease agreement. It is unlikely that a lease will stipulate that a tenant is responsible for the cost of a burst geyser. CAN AN AGENCY CLAIM FOR LOST COMMISSIONS AND FEES? Yes, as long as it was stipulated in the lease agreement as amounts that the landlord has to pay the agency where a tenant breaches the agreement. WHO SUBMITS A CLAIM UNDER THE POLICY? The agent will typically inform PayProp Capital via the PayProp system about the termination of the lease and provide the required information about the tenant s outstanding obligations, which will enable PayProp Capital to prepare and submit the claim. Alternatively, 3

4 the landlord can make the claim by to or fax to HOW LONG DO CONTRACTORS HAVE TO WAIT FOR PAYMENT FOR SERVICES RENDERED, E.G. CLEANING OF CARPETS? Payments to contractors may take slightly longer than with a damage deposit, but should as a rule be made within 21 days of termination of the lease. Tenants have the opportunity to pay all their outstanding obligations, including the invoices of contractors, within 14 days of termination of the lease (in order to earn the cash bonus), failing which the insurer will pay the claim amount without delay into the agent s PayProp account, from where the contractors will be paid. DOES THE POLICY COVER THE TENANT S OBLIGATIONS? DepositGuarantee does not cover the tenant but the landlord. The insurer will therefore recover from the tenant any amount it has to pay the landlord on the tenant s behalf, including administrative and legal costs. WHAT CONDITIONS ARE ATTACHED TO PAYING THE CASH BONUS TO THE TENANT? Provided the tenant owes the landlord nothing when the lease expires, he or she will receive the cash bonus. For this purpose, the tenant has 14 days from the date that the lease expires to settle all outstanding obligations, including the invoices of contractors. HOW IS THE CASH BONUS DETERMINED? The cash bonus amounts to 40% of the initial and monthly premiums (excl. VAT) that the tenant had paid under the DepositGuarantee. Please note that the calculation of the cash bonus excludes the once-off admin fee of R175 and VAT on the premium amounts. HOW DOES THE GOOD TENANT CERTIFICATE BENEFIT THE TENANT? The certificate is an endorsement of the tenant s reputation as a good tenant and may make qualifying for subsequent rentals easier. CAN THE POLICY BE RENEWED, AND WHAT WILL HAPPEN TO THE MONTHLY PREMIUM AND COVER? Yes the policy will continue without interruption on renewal of the lease. Where there is escalation of the rental, the tenant will pay 1.25% of the new monthly rental amount as the new premium, and cover will increase to 2.5 times the new monthly rental amount. CAN THE POLICY BE TRANSFERRED TO ANOTHER PROPERTY IF THE TENANT MOVES? No. The policy is linked to the lease agreement when a tenant moves to another property, the lease agreement terminates and so does the policy. WHAT HAPPENS TO THE POLICY IF THE LANDLORD CHANGES BUT THE LEASE CONTINUES WITH THE TENANT REMAINING IN THE PREMISES? Since the policy is linked to the lease agreement and the lease continues albeit with a new landlord the policy remains in place and the new landlord benefits from the policy protection. WHAT HAPPENS IN THE EVENT OF THE TENANT S DEATH? A number of scenarios are possible in such a case. The key question is what happens with the lease agreement? Some contracts specify that the lease carries over to the deceased tenant s spouse without interruption, in which case the policy will also continue uninterruptedly. In other circumstances the lease terms may stipulate its termination upon the tenant s death, in which case the policy will also terminate and the executor of the deceased tenant s estate will become involved. WHAT PROCESS SHOULD AGENTS FOLLOW TO INTRODUCE AND ACTIVATE THE DEPOSITGUARANTEE? 1. Explain the benefits of DepositGuarantee to the landlord and obtain a mandate to offer it to the tenant as an alternative to the damage deposit. 4

5 2. Explain the benefits of DepositGuarantee to the tenant, making sure they understand that if they do not meet the policy s eligibility requirements they will be required to pay a damage deposit. 3. After the tenant has been accepted for the tenancy, log on to the PayProp system and link the tenant and owner to the property as you normally would by creating an invoice and a payment. 4. Go to the Tenant screen, click on the drop-down menu linked to Deposit next to the property name, and initiate the Add DepositGuarantee function by following the screen prompts and capturing the required information (such as a copy of the tenant s ID and bank details). 5. When you reach the screen with the link to the deposit replacement agreement, download the document and hand it to the tenant for signature, where after you can sign it on behalf of the landlord. 6. Once you re back on the PayProp system and have uploaded and submitted the signed deposit replacement agreement, you ll see within 15 seconds whether the tenant qualifies for the DepositGuarantee or not. 7. If the tenant qualifies, hand the invoice for the DepositGuarantee to the tenant for payment by EFT or bank deposit. Once payment is made, the cover is in place and the tenant can move into the property. 8. If the tenant has been declined, add the damage deposit in the normal way on PayProp and inform the tenant that the damage deposit is payable. WHERE DO WE GET AN APPLICATION FORM? Good news no-one has to complete an application form! DepositGuarantee is activated in a few easy steps on the PayProp system. Once the agent has the landlord s mandate and the tenant s go-ahead, follow the activation process as explained in the Activation document on the Resources page in your PayProp account environment. HOW WILL WE KNOW IF THE TENANT HAS SKIPPED A MONTHLY PREMIUM? PayProp Capital monitors monthly payments and will immediately inform the agent and landlord when a tenant has defaulted. We will also liaise with the defaulting tenant to ensure that payment of the premiums resumes, and will keep the agent and landlord informed of the payment status. DO WE NEED TO NOTIFY PAYPROP CAPITAL OF A RENEWAL OR CHANGE IN THE RENTAL AMOUNT? A formal notice of renewal is not required the policy will continue for as long as the lease is not terminated. However, we do have to be notified when the monthly rental amount changes to ensure that the levels of the cover and premiums remain up-to-date. CAN WE USE THIS POLICY FOR A PROPERTY WITH MULTIPLE LANDLORDS OR TENANTS? No. WHEN WILL THE AGENCY FEE OF R155 (OR R EXCL. VAT) BE PAID? The agency fee will be paid after PayProp Capital has received the initial payment for the policy and the agent has completed the activation process including uploading the signed incoming inspection report and a copy of the lease agreement to PayProp. Payment will be made to the agency s bank account once the above requirements are met. Please note that the agency does not issue a tax invoice for the services rendered as PayProp Capital has obtained approval from SARS to issue a recipient-created tax invoice for the services that the agency has rendered. DO AGENTS HAVE TO CREATE INVOICES FOR THE DEPOSITGUARANTEE ON PAYPROP? No, PayProp Capital creates invoices for the initial payment and monthly debit orders on the PayProp system. DO AGENTS HAVE TO CREATE DEBIT ORDERS FOR THE DEPOSITGUARANTEE ON PAYPROP? 5

6 No, PayProp Capital creates and manages debit orders for monthly premiums against the tenant s bank account. WHERE CAN I GET MORE INFORMATION? There is a lot of useful information on the Resources page (on the Dashboard menu) in the PayProp account environment. Simply log into your PayProp account and select the Resources-link from the Dashboard-menu. Agents can also refer tenants and landlords to for information relevant to them. Otherwise, contact PayProp Capital via on support@paypropcapital.com or phone