The legality of requiring and paying security deposit under the Zambian Rent Act

Introduction

This Article discusses the legality of any person requiring of a tenant payment of security deposit as part of the conditions for letting residential premises. Analysis is made on the Rent Act, Chapter 206 of the Laws of Zambia (the "Rent Act"), a few Zambian decided cases as well as English jurisprudence.

Security deposit

Security deposit has been defined as money placed with a person as earnest money or security for the performance of a contract. The money will be forfeited if the depositor fails to perform.*

The Rent Act

The Rent Act was enacted by the Parliament of Zambia in 1972. The objectives of the Act include: restricting the increase of rents, determining the standard rents, prohibiting the payment of premiums and restricting the right to possession of dwelling-houses, and for other purposes incidental to and connected with the relationship of landlord and tenant of a dwelling-house.

In particular, Section 15 (1)-(3) of the Rent Act provides as follows:

"15. (1) No person shall, as a condition of the grant, assignment, renewal or continuance of a tenancy, lease, sublease, subletting or occupation of any premises, require the payment of or take any fine or premium or other like sum, or any pecuniary consideration, in addition to the standard rent; and where any such payment or consideration has been made or given in respect of any premises under an agreement made after the prescribed date, the amount or value thereof shall be recoverable by the person who made such payment or gave such consideration.

(2) Any person who requires or takes any payment or consideration in contravention of this section shall be guilty of an offence and liable on conviction to a fine not exceeding four thousand penalty units or to imprisonment for a term not exceeding twelve months, or to both.

(3) This section shall not apply to the grant, assignment, renewal or continuance of a tenancy for a term exceeding twenty-one years." (Emphasis mine).

The above provision is a general prohibition against payment or receipt of any fine or premium or other like sum, or any pecuniary consideration, in addition to the standard rent.

The Act does not define what a premium is. The Oxford Dictionary of Law defines it as a lump sum that is sometimes paid by a tenant at the time of the grant, assignment, or renewal of his lease or tenancy.*

It is not clear if security deposit amounts to a premium. However, the expression "any pecuniary consideration" is wide enough to capture any monetary consideration by whatever name called. This position finds support in the English case of White v Elmdene Estates Ltd [1959] 2 All ER 620, which considered the Landlord and Tenant (Rent Control) Act 1949 an Act similar to our own Rent Act. Lord Evershed MR observed as follows:

"It was the submission of counsel for the defendant company that “other pecuniary consideration” must be construed ejusdem generis [of the same kind] with “fines” and “premiums”—which (for reasons already indicated) he sought to confine to the kind of usage in which those words are found in connexion with older conveyancing language, where the “fine” or “premium” is, in effect, equivalent to, or in substitution for, a part of the rent and intended to reduce the annual amount payable by way of rent accordingly. I do not think that “other pecuniary consideration” ought to be, or can properly be, so limited. After all, the words in the definition are “any other pecuniary consideration”—which means, presumably, according to the ordinary sense, any pecuniary consideration other than (inter alia) fines or other sums like fines. It seems to me, therefore, that the phrase “any other pecuniary consideration” (although I am not suggesting that it covers other than pecuniary considerations) is a formula of fairly wide import."

The above holding is in keeping with Section 4 (4) of the Interpretation and General Provisions Act, Chapter 2 of the Laws of Zambia which provides that:

"Where the words "or", "other" and "otherwise" are used in any written law they shall be construed disjunctively and not as implying similarity, unless the word "similar" or some other word of like meaning is added."

Under English law, it is illegal to demand a premium in respect of a protected tenancy but this does not apply to assured tenancies. This distinction between protected tenancies and assured tenancies does not exist under current Zambian law and nothing more on this is considered in this Article.

My research was unable to find any Zambian decided case that considered the legality of security deposit vis-á-vis the Rent Act. However, I found a few cases in which security deposit was involved without the Court being invited to pronounce itself on the legality of the same. These cases are considered briefly below:

In National Housing Authority v Kelvin Macwani Supreme Court Selected Judgment No. 10 of 2013, among the Appellant's grounds of appeal was that the lower court erred and misdirected itself in ordering that the Appellant pays damages to the Respondent which damages must take into account security deposit paid by the Respondent to the Appellant, for it was evident that as per tenancy agreement between the Appellant and the Respondent, security deposit was paid in case of the Respondent falling into arrears of rent or having to foot the repairs on leaving the house and indeed it was evident that the Respondent fell into arrears of rent and his goods were distressed.

The Supreme Court found that the Respondent was entitled to an account for his goods which were seized by the Appellant and for the K20,000.00 security deposit. The Court ordered that the Appellant must render an account to the Respondent for the K20,000.00, security deposit and the Respondent’s goods which were seized and auctioned by the Appellant without accounting to the Respondent.

In Kasule Kabuye Samuel v Esmie Chrissie Chaponda & 2 Others (2013)/HP/0168, this case involved illegal possession of premises and distress on the tenant's goods by the landlord. Among the Applicant's claims was a refund of the sum of K2,400.00 being security deposit paid by the Applicant to the Respondent for the said house.

Among other things, the High Court found that the Applicant was entitled to a refund of the sum of K2,400.00 being security deposit paid by the Applicant to the landlord for the demised premises. The Court ordered that the said amount be refunded to the former tenant.

Lastly, in Margaret Chimanse v Nelly Katebe (2016)/HP/1953, the Applicant sought a number of reliefs which included payment of all outstanding rentals standing unpaid from September, 2016 to October, 2016 amounting to the total of K 6,000.00.

The Applicant claimed to have used the security deposit in the sum of K3,000.00 to partially repair the damage caused to the Premises during occupation by the Respondent.

The former tenant admitted owing the Applicant rental arrears for only the month of October, 2016 in the amount of K3,000.00 and that she left the premises during the first week of November, 2016 after continuous harassment from the Applicant. The Respondent denied causing damage to the premises as alleged by the Applicant and submitted that the rental arrears for September, 2016 was covered by the security deposit of K3,000.00 that she had paid the Applicant at the commencement of the lease, as there was no damage occasioned to the Premises.

Among the issues that the Court identified as requiring its determination were:

1. Whether or not there were outstanding rentals due to the Applicant as claimed;

2. Whether or not there was damage that was occasioned by the Respondent to the Premises, during the tenancy period;

3. Whether or not the Applicant was entitled to apply the security deposit paid by the Applicant towards the repairs of the Premises.

The Court found that outstanding rentals from the Respondent were only for the month of October. The Court entered Judgment in favour of the Applicant against the Respondent for the payment of the sum of K3,000.00 being outstanding rentals for October, 2016.

The Court found that the Applicant did not adduce any evidence to support her claim for damages arising from the damage caused to the Premises and the alleged cost of repair she incurred.

The Court held that the Applicant could not therefore apply the security deposit towards the unproven damage allegedly caused to the Premises. It was the Court's view that the Applicant was only entitled to rental arrears and as such the security deposit paid by the Respondent was applied towards the rental arrears for the month September, 2016.

Analysis of the above decisions

It must be noted that although the issue of security deposit arose in each of the Zambian cases considered above, it was never in the context of the legality of security deposit in relation to the Rent Act.

Stated another way, the Courts were never invited by the parties to pronounce themselves on the legality of security deposit vis-á-vis the Rent Act. The Courts in all the above cases actually seemed oblivious to that question and quite understandably so as the question never specifically arose before them.

Suffice to say I am not aware of any Zambian decision that has ruled on the legality of security deposit vis-á-vis Section 15 of the Rent Act. Be that as it may, it would appear to be generally illegal to require security deposit in addition to the standard rent as the same is captured in the expression "any pecuniary consideration".

It must also be noted that the freedom of contract accorded to contracting parties does not extend to contracting outside mandatory prescriptions of the law.

Possible solutions for landlords

Section 15(3) of the Rent Act: Tenancy exceeding 21 years

The above provision has already been reproduced above. Its effect is to exempt a tenancy for a term exceeding twenty-one years from the application of Section 15. The net effect of parties having such a tenancy would in terms of Section 3(2)(d) of the Act actually seem to prevent the application of the whole Rent Act to such an agreement.

In view of the definitions of "lease" and "tenancy" not being exhaustive under Section 2 of the Rent Act, there appears to be no clear distinction between the expression "...lease for a term certain exceeding twenty-one years" and "...grant, assignment, renewal or continuance of a tenancy for a term exceeding twenty-one years."

Placing the duty of repair on the Tenant

The rationale behind security deposit is to accord the landlord what may be termed as a self-help remedy in the event of a tenant breaching their obligation under the Act or the tenancy agreement.

There would seem to be no lawful way of the landlord to have recourse to such self-help remedy in form of requiring and utilizing security deposit as the same would amount to pecuniary consideration under the Rent Act as demonstrated above.

Landlords may take advantage of Section 24 of the Rent Act by placing on the tenant the obligation to repair the premises in the event of damage caused by the tenant. Such a clause in the tenancy agreement can go further to provide that should the tenant fail on that obligation, the landlord may repair the same and whatever expenses the landlord would have incurred shall be recoverable against the tenant as a civil debt. Care must however be taken not to purport such debt as being a penalty arising from the breach of the tenancy agreement as that may invalidate the application of the Debtors Act, Chapter 77 of the Laws of Zambia.

Conclusion

The requirement for a tenant of residential premises to pay security deposit in addition to rent would appear to be in general contravention of Section 15 of the Rent Act as it may amount to a premium or pecuniary consideration.

Section 15 of the Rent Act does not apply to a grant, assignment, renewal or continuance of a tenancy for a term exceeding twenty-one years. Such a tenancy would however seem to bring itself outside the purview of the whole Act.

Landlords may take advantage of Section 24 of the Rent Act by placing on the tenant the obligation to repair the premises in the event of damage caused by the tenant. Where the landlord incurs any expense in repairing the damaged premises due to the tenant's default, this may be made recoverable from the tenant as a civil debt.

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* Garner, B. (9th Ed.). (2009). Black’s Law Dictionary. New York: Thompson West.

*Law, J. (Ed.). (7th Ed.). (2009). Oxford Dictionary of Law. London: Oxford University Press.