When a bank repossesses a property that is rented out, tenants are often left wondering what will happen to their lease and their home. This article explains what South African tenants need to know when their landlord defaults on a home loan.
The 2007–2008 housing market crash in the USA revealed a significant vulnerability — many tenants lost their homes when banks foreclosed on landlords. South Africa took note, implementing lending reforms from 2010 onward. Yet even now, tenants are often the last to know when their landlord falls behind on bond repayments.
Are tenants informed when a landlord defaults?
Unfortunately, there is no legal obligation for landlords or banks to inform tenants about a home loan default. This leaves many renters blindsided when legal proceedings begin. "Tenants are generally unaware of the situation until legal action is underway," says attorney Khairiyah Safeda of Safeda & Associates.
In most cases, a bank will issue a notice of default — typically giving the owner 90 days to rectify the arrears. If the debt remains unpaid, the matter proceeds to court. Judgment may be granted, and the sheriff can then attach and sell the property in execution. This legal process can take several months, especially if contested.
While repossession does not immediately affect tenants, it can lead to eviction if the lease is not protected by law.
Does the lease survive the property sale?
In South African law, the common law principle huur gaat voor koop — meaning “the lease survives the sale” — is intended to protect tenants when a leased property is sold.
Whether the lease continues after the sale depends on the timing of two events: when the lease was signed, and when the home loan (bond) was registered at the Deeds Office.
If the lease was signed before the bond was registered, the tenant’s rights are stronger. The law recognises that the lease was established before the bank had any legal claim to the property. If the property is later repossessed and sold, the lease remains in place and the new owner — whether a private buyer or the bank — must honour it. The tenant can stay until the lease expires.
If the lease was signed after the bond was registered, the tenant’s rights are not guaranteed. In this case, the lease is considered subordinate to the bank’s rights. If the property is sold in execution (usually at a sheriff's auction due to the landlord defaulting on the bond), the bank can sell the property without a tenant, and the tenant may have to vacate.
Where the lease does remain valid, tenants retain important legal protections:
- The right to stay in the property unless legally evicted by court order, or if the lease comes to a natural end.
- The right to receive fair and sufficient notice before any eviction action.
- The right to recover their deposit with interest, in line with the Rental Housing Act.
How is the deposit handled?
According to the Rental Housing Act, the landlord must refund the tenant’s deposit with interest within 14 days of lease termination, assuming there are no damages or rent arrears. For a comprehensive understanding, refer to our guide on rental deposits.
If the landlord becomes insolvent, tenants may need to lodge a claim with the liquidator. Unfortunately, they will be treated as unsecured creditors, which can make full recovery of the deposit difficult. In rare cases, the bank (as the new owner) may accept responsibility for the deposit, but only if the sale generated enough funds to cover it.
What is the eviction process?
Unlawful eviction is strictly prohibited in South Africa. According to the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (PIE Act), tenants can only be removed with a court order. The legal process includes:
- A formal eviction notice served on the tenant.
- An opportunity for the tenant to oppose the application.
- A court hearing to assess and finalise the outcome.
This process may take several months, and longer if challenged. No tenant can be legally removed without following this procedure. For a step-by-step guide, see our article on the eviction process in South Africa.
Can tenants stop paying rent or pay the bank instead?
No. Even if a tenant learns their landlord is in arrears, they must continue paying rent as per the lease agreement. "Withholding rent is a breach of contract and can result in eviction," warns Safeda.
Similarly, tenants cannot redirect payments to the bank unless formally instructed and authorised by a legal agreement. Any change in payment instructions should be confirmed in writing and backed by professional legal advice.
What should tenants do to protect themselves?
Tenants are strongly advised to:
- Carefully review lease agreements for clauses related to sale or transfer of ownership.
- Maintain clear and open communication with the landlord.
- Stay informed about the landlord’s financial situation, if possible.
- Consult with an attorney if they suspect repossession is imminent.
"Maintaining a transparent relationship between landlord and tenant can reduce surprises," says Safeda. "Early communication allows tenants to plan, avoid disruptions, and make informed decisions." For insights from the landlord's perspective, refer to our landlord's legal guide to tenant eviction.
Additional resources
For more tenant resources, see our related articles on what happens when a landlord sells a rented property and understanding eviction law in South Africa.
