Service providers sometimes see it necessary and in best interest to request consumers to provide guarantees of payment towards service accounts.
Such measures are necessary to forestall and compensate for any default in payment of accounts so that business continuity and viability is not affected.
The most prevalent instance is within the housing rental sector where the landlord often requests the tenant to pay a rental deposit over and above the rental amount for that period (month).
The purpose of a deposit is of course so that there are ready funds in case the tenant damages the property, gives short termination notice or defaults in payments which are due.
In effect, the deposit will serve as insurance that in the event of either events mentioned above happens, the landlord is left in a better person to have the situation restored to its initial position but for the breach.
As a service provider the City of Johannesburg is entitled to request the consumers of its services to pay deposits for much the same reasons and purposes as above.
The municipality argues that these deposits will be used to compensate for any arrears on utility bills and from the information gathered so far it is considered that the City of Johannesburg sees consumers whose consumption exceeds the average over a given period as risky accounts that need guarantees of payments.
However, the requirement for deposit is not limited to these only. Section 39 (1) (d) of the City of Johannesburg’s Credit Control and Debt Collection By-Laws of 2005 states that “No municipal service may be provided to an applicant, unless and until an amount equal to the amount prescribed… has been deposited as security or other security, as prescribed, has been furnished.” Further, 33.1 of the City’s Credit Control and Debt Collection policy states that “all account holders shall pay a deposit for the supply of electricity and/or water by the City calculated as the rate of the deemed consumption for a period of two months in respect of the property in question.”
The nature of the deposits are such that they are kept separately where they are not affected by the fluctuation of the utility account itself, whether by decrease or increase depending on the consumption.
In practice this means that should there be R4 000 deposit in a consumer account, if in any particular month the consumer’s account is debited with R300 for usage of electricity or water, such R300 must be paid directly from the consumer’s pocket and not taken from where the R4 000 deposit is being held until such time it really becomes necessary to compensate arrears with the deposit amount, and may result in the consumer being asked to restore the deposit to R4 000.
The deposit is requested either when the application of an account is lodged and will only be opened once the deposit is paid, or the deposit will be billed over and above the particular month’s bill and both amounts will be due by the same date when the normal utility amount is due.
The question of whether the deposits must earn interest while they are being held by the City of Johannesburg depends on what the City uses those funds for. It is unclear at the moment what those funds are used for and until such time this is determined, the position remains that the deposits are interest free.
In the case of increased deposit amounts, what options are available for consumers?
Consumers where the requested deposit amounts are considerably high may, firstly, ask the City to enter into Acknowledgment of Debt arrangements so that the deposit is broken down into manageable amounts while the consumer enjoys the use of municipal services.
If an acknowledgment of debt agreement is entered into in respect of arrears, the City is to give a maximum of 60 months to the consumer to settle the said arrears.
Secondly the consumer may provide security and/or guarantees as envisaged by section 3 of the By-Laws. What acceptable security and/or guarantee is, will need to be determined by the City or as per agreement between the parties.
A guarantee may also, at law, mean a Bank Guarantee or an attorney’s Irrevocable Letter of Undertaking.
Our professional and committed approach will serve your best interests in these matters and others. It is important to seek legal assistance so that we can assist you comprehensively. Contact us for more information.
The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter. One should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this site contain general information and may not reflect current legal developments or address one’s situation. We disclaim all liability for actions one may take or fail to take based on any content on this site.
Subscribe to our Newsletter
Estate Agent Training
Bond & Transfer Calculator
Get the latest updates in your email box automatically.