South Africa is facing a deep and prolonged economic downturn amidst the Covid-19 outbreak. Many tenants who were formerly in good standing are struggling or unable to pay their rent.
In our latest podcast, we discuss how your credit score can impact your rental application, how the eviction process works - your rental rights under lockdown.
Plus some fantastic insider tips on how to negotiate with your landlord.
In This Episode
About Michelle Dickens
Michelle Dickens. Michelle is the managing director and co-founder of Tenant Profile Network (TPN Credit Bureau).
TPN is the largest credit bureau that tracks tenant payment behaviour in SA. They have created a rental payment profile system - which gives tenants the opportunity to improve their credit score whilst renting premises.
Rental Recovery Pack - https://www.tpn.co.za/property
Contact Number: 0861 876 000
Speaker 1 (00:00): Welcome to the official podcast from mycreditstatus.co.za. We will be introducing you to credit experts who will be providing valuable insight and advice from your financial health to improving your credit status and score. Your host for the show is Laura Palmieri.
Laura (00:20): Hello and welcome to My Credit Status podcast . In today's show, we interview Michelle Dickens. Michelle is the managing director and co-founder of tenant profile network. Also known as TPN Credit Bureau. Now TPN is the largest credit Bureau that tracks tenant payment behavior in South Africa. They have created a rental payment profile system, which gives tenants the opportunity to improve their credit score whilst renting their premises. Hi Michelle and once again, thank you for joining our podcast.
Michelle (00:52): So divine, thanks for having me.
Laura (00:53): Not a problem. Before we start off, can you briefly explain what TPN Credit Bureau is all about?
Michelle (00:59): So TPN is a registered Credit Bureau and we established in 2000, so we're 20 years old. And what we do is we are specialists so what we collect data on is tenant behavior information. Where tenants rent, how much they pay per month and importantly how they pay their rent every month so on time, pay late, paid partially or not paid. That then helps us build a profile of tenants. The majority of tenants are quality tenants, and that helps them to access better credit or properties and markets, but it also gives us a wonderful base of analytical data to look at as well.
Laura (01:34): Before we sort of, I just want to establish, the payment profile behavior is inputted it's through the agencies that have signed up with TPA?
Michelle (01:45): So TPN looks after probably about 90% of the real estate estate, estate agent market. The residential estate agent market . We look after about 70 or 80% of the commercial property market so your listed finds and your and your wheats. And then we look after private landlords as well. So individual landlords, micro landlords, they might have one property in their portfolio. Some of our institutional landlords have 10, 15,000 properties in their portfolio and we look after everyone in between. So five properties, ten properties, some of our landlords, 800 properties.
Laura (02:23): So is the tenant informed when they, sign with the landlord that signed up to TPN that their payment profile will be recorded?
Michelle (02:33): Such an important question because TPN believes in transparency and actually we encourage the tenants to make timely payments. So how does it work? The first thing is, before you can do a credit check on a consumer, including a tenant, you need the consent of the consumer/tenant to perform a credit check on their profile. The TPN consent clause that we provide our estate agents and landlords is twofold. One that the tenant consents that the credit check will be done and two that the tenant consents that information can be shared back with the Credit Bureau. That information then is shared with us on a monthly basis, so we collect from our estate agents and landlords, their portfolio of tenants with the tenants information, but here's where it's so important. TPN is the only Credit Bureau in the country that then shares that information back to the tenant at no cost to the tenant and at no cost to the estate agent or landlord, we then advise the tenant that their data has been loaded onto the TPN Credit Bureau and thanks them for making a timely and in full payment and therefore their credit profile has been positively updated, or alert them to the fact that that information is loaded as a late payer partial payer or a non payer and you create a profile has been adversely affected. And that then gives the tenant the ability to rehabilitate in the middle of the lease. So month one, if I know my data is being updated, I know that TPN is recording it. I get my notification from the Credit Bureau, next month, I have the opportunity to straightaway to rehabilitate and change my payment behavior so that I start to get those positive smss from the Bureau.
Laura (04:11): On a personal note, to me, that is a fantastic service. I actually think that most, landlords should actually sign up to TPN because it really helps then the tenant then they know what they are doing. On a general lease when no ones signed up with TPN and it's a late payer, some people assume we've discussed this before, that you can pay up until the seventh, for example, that's a general belief. Now with TPN, having your profile updated every month, they can track it and they know exactly what's going on it's not after two years of the lease, you get a poor score because you've been paying late, assuming that you've been paying on time, because it's up until the seventh.
Michelle (04:45): Absolutely transparency of information and accuracy of information is absolutely key critical to us at TPN. To the extent that if there are disputes on the data and actually, if there are disputes on the data, TPN must load the dispute and we must record it. We must mask the information from the tenants, credit profile whilst we go through that process to determine the accuracy of that information,
Laura (05:12): Because you're actually creating a win-win both for the tenant and for the landlord.
Michelle (05:16): Absolutely.
Laura (05:17): That's amazing. Okay. So we go back to the popular questions we always get asked is what are the requirements for a successful rental application.
Michelle (05:26): So for a successful rental application, there's some legal requirements that the landlord or estate agent needs to go through. So the first is that they're going to want an application form for you, filling In your personal information, your address information, where you're currently renting ,contact information about you and importantly, the consent, because the tenant must give consent. Now that consent actually doesn't need to be writing, but should the tenant then dispute with the Credit Bureau that that person didn't have the right to do a check on them, the bureau is going to come back to the landlord at that point in time and say, share with us your consent. So the application form is important because it's got the consent clause. Then in terms of supporting documentation, estate agents are registered accountable institutions with the Financial Intelligence Centre. So they're regulated in terms of the FICA Act what does that mean?
(06:18): Well, that means that they have to know the client, both the landlord and the tenant. And I repeat that both the landlord and the tenant wouldn't be required to submit the FICA application to the estate agent and that would include their identity, obviously who they are but importantly supporting documentation to support that information. So the ID number, the proof of address, the proof of tax number, proof of banking details. You know, during COVID one of the biggest issues that we faced was an increase in fraud in identity theft. And so estate agents and landlords want to protect both their interests and their client's interests by ensuring that they know who their clients are. So you're going to need an application form, you're going to need your supporting documentation. It is a tenant market at the moment, let's not pretend, it absolutely is a tenant market at the moment.
(07:14): But that doesn't detract from the fact that the landlord is going to want to take on a quality tenant. So the better, you can keep your credit profile and your credit score, the higher you can get it, the more opportunity you have of being placed because when you have a low credit score, it's not necessarily that you're not going to be placed It just means that it might be more onerous. For example, the landlord might want to have a double deposit, the landlord might want someone to sign surety on your behalf to protect his interests. The landlord might say I would rather have a month to month lease than a fixed term lease, that way if you default, we can give notice quicker than having to wait out the full term of the lease agreement. So it's not to say that because you have a poor score you're not going to get a rental, it just means that there could be complications or maybe extra steps or hoops you would have to jump through.
Laura (08:03): Well, I'm glad to hear that especially in our present economic climate, that there are some solutions with people who are suffering with poor credit scores at the moment.
Michelle (08:13): It's been an absolute challenge. We can see just on our rental data, that where normally, I mean, we go back into 2013, 2014, 86% of tenants were in good standing 86. These are quality tenants. You know, the stories of " Ah tenant from hell, they detract from a property investment." The reality is that the majority of tenants are good quality tenants and become delinquent tenants when they fall into hard times like this pandemic that we've experienced now. So, the pandemic result, the point that I'm getting to is the pandemic result has resulted in the tenants, good standing deteriorating in one quarter. From quarter one of 2020 to quarter two from 81.5% to 73.5%. 8% of tenants took an enormous knock on their ability to be able to pay their rent and immediately turned into delinquent tenants. And that's not through a fault of their own. It's because the effect of COVID resulted in so many people, either losing the incomes fully or partially, either temporarily or permanently and not only that, but also not being able to move out. So where there was that restriction of movement and non-paying tenants who had lost their income who wanted to move and were forced to stay in properties that they were currently in- that's going to cause an impact.
Laura (09:38): Absolutely. In fact, that was my next question. So as you mentioned, a lot of tenants are struggling now due to the COVID impact, pandemic, et cetera, et cetera. Now I know there's an interesting thing I've picked up on what TPN is offering at the moment and I saw it's called a rental recovery pack. Now how does this assist the tenant?
Michelle (10:00): So the rental recovery pack, we put out in March as we went into lock down. And as I mentioned it was because of the fact that there was this restriction on movement. So, tenants weren't able to move. Landlords, even if they wanted to cancel the lease and demand the tenant vacate, that couldn't happen and tenants even if they wanted to move in with friends and family, they weren't able to, because they were prevented from moving by law. Also, there was this loss of income, I mean we went into it and so many people, restaurants, commision earners, people who legitimately had the ability to work and just weren't able to. So we suggested to the market two types of recovery. The first was a deposit utilization. And I'm going to be very clear that this was caused as a result of the pandemic. This is not a solution that you use in the ordinary course of business. If we are in the ordinary course of business, people have work, they have the ability to go to work and they are retrenched, they must move out of the property in the ordinary course of business.
(10:57): But whilst we were in the pandemic, we said let's use deposit utilization. Let's create liquidity in the market, pull that deposit out of the savings account, out of the trust accounts and get it into the market and get the economy going again. That deposit utilization came with the agreement by both the tenant and landlord. In other words, the tenant couldn't say to the landlord please use it and the landlord say "No" and the landlord wouldn't say to the tenant "I'm going to use it." And the tenant says " No you cant. " It had to come with agreement by both parties. Therefore we put it in a document and we said as a landlord and tenant, you must sign this jointly and agree to how this is going to be used, and importantly how it is going to be repaid. And the second one, if they didn't want to use the deposit utilization, we said rent deferment. In other words, do a rent deferment for a month or two, while we are in lockdown and then the tenant will recover it and repay it over a period of time. But one requirement, we are going to do these agreements with tenants who are in good standing. So not with tenants who are already in arrears.
Laura (11:51): Prior to the pandemic.
Michelle (11:51): Absolutely, if you were in arrears prior to the pandemic, you have already painted your spots right? These are for tenants who legitimately have now- circumstances far beyond any of our control fallen on [ 12:08 ] And it wasn't just TPN. If you look back, remember the banks gave payment holidays, storecards. There were many, many people who gave payment holidays to their consumers and their clients. We are kind of post that period at the moment. Businesses are going back to work. We go back into, alert level one in a week or two and so the rent deferment agreements and the deposit utilization agreements are past their usage. The one agreement that's still on there that we've left on there is the agreement to terminate. This is where tenants and landlords can agree to say, " we are going to agree that we are going to enter into a termination agreement. These are the terms of the termination agreement. For example, there is an amount that's outstanding. This is how that amount is going to be repaid regardless of the fact that we move out. Or we could agree that we're not going to claim the full amount and we're only going to claim part of and that's because right now it's all about conversations. It's about negotiation. Right now is not the time to take a hard stance. If you have a delinquency who is unable to pay, who has no income, why forced them to stay on the property? Why force them to enter into an agreement where you're not going to get value out of him. He's legitimately not earning an income, but if you can enter into a negotiation for future payments and certainly to get vacant occupation of your property. That then allows you to re let it and get a performing tenant into the property.
Laura (13:42): And did you notice quite a huge intake on your rental recovery package?
Michelle (13:49): Insane. When we put it out there and put it out there for free. We immediately said, this is not, something that you go and put to market and you sell. This is something that you put to market and you make it freely available. To a tenant, to a landlord to an estate agent, regardless of whether you are a TPN member or not, regardless of whether your data as a tenant is being shared with TPN is available to all the industry. So we had tenants calling us, who weren't part of our database, nothing to do with us. And then using it, asking us how to use it and asking us how they approach their landlord to use it. So that is about creating opportunity within the market to find solutions. So there was an enormous uptake on that.
Laura (14:30): That's really positive. I'm glad to hear that, actually. Okay. Now let's go back to these famous questions. Can landlords evict and execute eviction orders, especially now cause now the change is that we're go into level one and if a tenant does get evicted, how does this affect their credit score? And how does the eviction process work? The famous million dollar question.
Michelle (14:52): The famous question everyone wants to know. So when we were in alert level five, complete prohibition on [ 00:14:57] no one can move, cant even get an eviction order. Don't even go to court, the courts aren't open, the Sheriff's aren't open nothing's open. So alert level five,no evictions. Drop down to alert level three, and landlords are now allowed to go to court. The courts may grant the eviction orders. So many landlords went court and they got their eviction orders in alert level three. The only [15:20 ] was that the court wasn't allowed to give an execution date until the end of the end of alert level three. So during that period, during alert level three, the courts were saying, we granted you your eviction orders and we're staying the execution of that eviction order, for between 5 and 90 days after the end of alert level 3 and as we know that happened in the middle of August. So in the middle of August landlords were now able to start executing and evicting their tenant, depending on what that court order said five to 90 days after and days in between. thirty days, sixty days, ninety days.
Michelle (15:53): So landlords have already started executing on those eviction orders. The last date of those execution orders will be on the 17th of November. Because as I said, it was 90 days in some instances after the end of alert level three. So some landlords got their eviction orders in alert level three and are only allowed to execute on those ones on the 17th of November. We are now in alert level two. The regulations changed in alert level two and said while we are in alert level two, the court may grant an eviction order. Same things, so you can go to court, you can get your eviction order but those eviction orders are now stayed until the end of the state of national disaster. That's where the change is on this one. So it's not until the end of alert level 2, its at the end of the state of national disaster. And that date is set down for a the middle of October. So what do you want to do at the moment is you absolutely want to go about getting your eviction orders. You don't want to delay going to court until we are out of the national state of disaster, because an eviction order is going to take you two three months in any event.
Michelle (16:55): So go through the process of getting it. And right now, if you start that process, by the time you're ready to execute, we're probably going to be out of this, please, God, we pray. So Ii think the message at the moment is it's not that you cant get your eviction order, you absolutely can get your eviction order, it's just about the delay of executing on it. I just want to touch on the last question, you said how does it affect your credit profile. In terms of rental payment profile, payment profile is collected every month based on the invoice of what you have received. So while you are going through an eviction order, you will not be invoiced for rent. So whilst you are in that legal process, and the lease been canceled. So in order to go through the legal process of getting an eviction order, your tenant was in the property, they had a lease agreement, they stopped paying, you sent them a letter of demand, because it was a fixed term lease agreement for 12 months, you had to give them 20 business days to remedy their beach. You're gave them 20 businesses. They still didn't remedy the breach.
Michelle (17:59): On day 21 business days, you then cancelled the lease and demanded immediately that the tenant vacate, because you are entitled to in law. The tenant still didn't vacate immediately and so you hand the file over to the attorney and you started the eviction process. As soon as you cancel the lease, you don't invoice for rent anymore. It's not to say that you're not entitled to what you would have received in lieu of rent, but you dont invoice for rent. You invoice for damages, holding over damages. And so that invoice for holding over damages, will reflect as a non payment on their credit profile, on their rental payment profile for the period they stayed on the property. So if they stayed on the property for four months without paying, they will have four months of did not pay on their profile and TPN will record the value of what that non payment is. So if the rent is, I'm going to make this easy for myself in terms of maths, R10,000 a month, the value outstanding on their credit profile would be 40,000 rand.
Laura (18:58): And this going forward will have a negative effect when they apply for future rentals because it will be recorded?
Michelle (19:05): A hundred percent. absolutely. So in terms of kind of rehabilitate your credit a profile there are different categories of data. So if there is a judgment, so we go to court, we get a judgement on your credit profile, the judgment just for the rand value of R40,000 Rand in terms of that eviction order. In order to have that judgment, and it stays on your credit profile for a period of five years and the landlord can execute on that for a period of 30 years, so it only prescribes after 30 years in terms of collection. If you rehabilitate yourself, it means you paid your landlord. So you paid the landlord the R40 000 you owed them, maybe you paid them in a year when you get reemployed or what have you, to collect the funds. As soon as it's repaid, it has to be removed from your credit profile. So that's what rehabilitation is about. It's about saying, we're not going to retain it for five years, if you settle it earlier, the bureaus must remove it.
(19:58): The second type is an adverse listing. An adverse listing is what many landlords choose. Instead of going to court which is quite expensive, they just load an adverse on the, credit bureaus R40,000 outstanding. That sits on your profile for 12 months. It is removed, t is deleted automatically after the 12 month period. But if you want to rehabilitate yourself earlier, you simply pay the amount and the bureaus must delete any information that is paid up or settled. Here's the catch though. Payment profile is a factual record of how you pay your account on a monthly basis. So if you do not pay your rent for four months, that did not pay for April, did not pay for March, did not pay for June, did not pay for July, that sits on your credit profile. How do you improve on it? You pay up all the other accounts. So those four months of did not pay are weighted smaller, less than all your other payments that you have, because all those other accounts are paid up.
Laura (20:56): So someone who's looking at a prospective tenant, and they can see that, they can say it's a one off thing that happened. But overall, so obviously that person might have gone through a bad time, et cetera. But overall with all the other payments, it doesn't look as bad. Like you say, it's a small part of it.
Michelle (21:13): Exactly and TPN retains your rental payment profile for five years. So if you had a three year history in that property and you paid your rent on time in full for two and half of those years and the last four months, because of the pandemic you got into trouble, you have two and a half years of paid on time and only four months of non payments. If you have five different leases for five different years, each one of those five leases is retained. So you get a rich history of what happens. On the flip side of that, if you are delinquent tenant and this was not your first delinquency with the landlord, that simply will be reflected. So if you have a history, regardless of the pandemic of partial paying or skipping months and catching up and being late, that will be recorded on your profile and because it's five years, that's 60 months of information. If it's only four months out of 60 months, then its not going to have a big effect on you. But if there's 20 months of delinquent payments and 40 months of good payments, that's going to weight negatively on your overall score.
Laura (22:18): That makes sense actually. Now quick question. In the last few years, have you noticed a decline in successful rental applications due to poor credit scores? I apologize. Not enough caffeine everyone.
Michelle (22:33): We have. So what we have seen is that there has been a very slow deterioration in credit scores from 2013, 2014 and that was the peak of when tenants were performing at their best. And that is in line with as the economy has slowly deteriorated, we are in the slowest, longest economic decline in a very long time. I cant remember the exact number of years. I'm not an economist, I'm not gonna lie but our economists will tell you that we are in the longest economic decline in a very, very, very long time. That's seven years of economic decline. And so over that period, we see that the tenants' behavior, the rental payment behavior is deteriorating. In line with that, we've seen that the credit scores applicants have slowly deteriorated as well. What have landlords done though? Landlords haven't selected less quality tenants. Unfortunately, we've been in very much up until now, a landlord market and so landlords actually pushed up their tenants scores of what they accepted. So we had this merge. We had a slow deterioration in overall tenant scores at application, but a slow improvement over what landlords were accepting in terms of the quality of tenant they actually ended up taking on.
Michelle (23:54): What I can tell you is in the last 12 months, what we do every month, is we re-credit check every active tenant on our portfolio. Every active tenant gets re-credit checked. And we re-score the entire portfolio of the country to see how that portfolio has changed. So what can I tell you there? I can tell you that coming into the lockdown, 67% of tenants nationally around the country had a quality score. So if i see a five score a : excellent, b: good, c: average, those are quality tenants. E and F, below average and poor- those are our delinquent tenants. Coming into uptown 66, 67% of tenants nationally were quality tenants as they sat in their properties. There may have been better quality tenants when they were taking on and they deteriorated when they moved in it's not to say that they were placed as more delinquent tenants. It's just to say the quality of the tenant for that month was 67%. 67% of tenants were quality tenants. In April it flatlined on 67, here's something interesting. In may. it popped up to 68. The scores of all tenants improved in May. Now why did that happen? Simple answer payment, holidays. Payment holidays, so people weren't required to make their payments. And because they had payment holidays, it did not negatively impact their credit profiles and actually the national score of all the tenants improved.
Michelle (25:30): And then in June, it dropped back down to 67. And then in July, August , September it's actually deteriorated to 65. So now we starting to see the impact. People had their payment holidays, the economy starts to open, but not everyone is re-employed, not everyone is back at their full salaries. And so the result there is, and that's not just on the rental payment profile, we're looking at all their payments. Their car finance, their home loans, their credit cards, their store cards, their insurance, their cell phones, their telecoms, all their credit and we are starting to see people battling. They are legitimately battling.
Laura (26:16): It's very interesting stats that I must say. Okay, Michelle on our last question for todays show. What advice would you give to future tenants to secure, successful application and maintain a good credit rating?
Michelle (26:29): Okay so successful applications. Get your house in order, before you go to, the property before you make your application. So get your supporting documentation together, get your bank accounts validation data in order. Make your application in full. So don't miss pieces of the application form. If the application form, and some of them are long. Some of them are three, four pages. I know TPN'S application form is six pages, because we do look at both applicants. If you're husband and wife. So fill it in in detail. Don't miss pieces out. Submit your supporting documentation and have your deposit ready. There are some companies that give zero deposit options, reach out to those kind of companies because you can do it on your own. It doesn't to be something for the landlord or estate agent requires, you can do that as a tenant, on your own. And then importantly, just maintain your credit profile. And what do I mean by that? I mean by that, so many people it's like the seven day myth. I have as a tenant, 7 days to pay my rent. That doesn't exist in law. In law, the rental housing act and the unfair practice act says "the rent is due and payable as per your agreement." And if your agreement says its due and payable on the first, well then that's when you have to pay.
Laura (27:57): Michelle, I'm guilty of that as educated or whatever. I actually also believe that. So, yes, this is important information for you.
Michelle (28:07): It's very important and if you are using the TPN lease agreement, which is the most widely used lease agreement in the. And you may not even notice it's a TPN lease agreement because often its branded. So SEEF, for example, uses IT nationally and they branded it as a SEEF document and it is drafted withTPN. If you look at the rental due date, the rental due date is payable on or before. And it must have cleared in the estate agents bank account on the first. So if you are Absa and your estate agent is FNB and you paid at seven o'clock on the night of the first, it's not going to clear on the first, it might only clear on the second and if its the weekend it may only clear on the fourth.
Laura (28:38): I'm really glad I know about this now. I think my profile might be affected.
Michelle (28:46): It's very important that you understand the terms of what you entered into with your credit providers. A: I understand the terms, understand that whatever our credit agreement is, when is it due, how must it be paid and how much be paid and what is the minimum value? And then don't say "my minimum value this month on my scorecard is actually quite low, I can't be bothered. I will pay it next month. i will double it up next month, because it's such a small amount, it's not worth the transfer." It's absolutely worth the transfer. Because if you don't pay it, you immediately get scored as not having paid that month even if it is only R60. Right? So never skip a payment on any of your accounts and make sure you're paying them on time and in full every month. Very important. Look at your credit profile. Every Bureau must give you a copy of your credit report, once a year. Go and get your free copy of your credit report, review it, make sure that it's accurate, review it for accuracy. If there is something, maybe you had a default, maybe you even know that you've been loaded with an adverse listing. Have a look at it, " oh I do remember this, ouch my bad. I'm going to go settle it and get it removed" because you're entitled to have your credit profile rehabilitated once you've settled the account or you have settled it but it hasn't yet been removed. Have a look and make sure you understand, look at all of your payment profiles, make sure you understand the accounts that are being listed, that you're being monitored on. So you may look at it and say "Oh, I didn't know, that my cell phone account was being listed here. I don't know that my short term insurance account was listed over here and you can review for accuracy. And one of the important parts is your affordability. So your affordability is based on, what the credit profile will do is say, what is your total exposure to credit? So in terms of all your credit agreements? How much do you in total, car finance, credit card. What does your facility look like on different cars? What's the total exposure, and then what is your monthly commitment?
Michelle (30:41): So I'm now going to understand as a future lender or as a future landlord or estate agent " Oh Iook I can see that you owe R2 million in terms of your total credit exposure. And I can see that you're paying it off at R30,000 per month, based on all of your different monthly repayments. And I also see that you're earning 45 and you're looking to me for 15 rent. There's nothing left for living expenses. How are you gonna pay for the groceries, the fuel account etc? So that gives me the opportunity to say " You're failing on this in terms of affordability. Maybe we can have a second, maybe there's another applicant that is cohesive with you to bring that affordability over all on the total application up.
Laura (31:31): That's fantastic advice. Michelle once again, it's really been awesome having you on our show. You've really provided us with some incredible information. And thank you very much.
Michelle (31:43): Always a pleasure , thanks so much.
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