Rent Defaulters

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As at November 30, 2018, the National Housing Corporation (NHC) was owed $148,971.74 by tenants occupying the controversial high-rise apartments at the Woods in Dalkeith, St Michael, commonly referred to as the Grotto.

This was among the findings contained in a follow-up audit by the Auditor General to his September 2016 special audit, which pointed out that 49 tenants in the Rent-to-Own programme defaulted in the amount of $112,671.74.

Of these tenants, ten each had a combined monthly income which was less than the estimated threshold of $2,667, and 32 each had a combined monthly income in excess of $3,000 per month.

“A tenant whose salary was less than $2,000 with a monthly rental charge of $859, also owed in excess of $11,000,” Trotman reported.

He also pointed out that: “Thirteen tenants in the Rent-to-Buy programme defaulted in paying their monthly occupancy charge totalling $36,300.”

Of those tenants, he said, 11 each had a combined monthly income in excess of $3,000 while the others had a monthly income of less than $3,000.

There was only one case where the NHC enforced the provision of the contract by repossessing the apartment of a tenant who defaulted. That tenant’s contract was terminated on February 12, 2018 with the condition that all outstanding monies, approximately $7,200 at that time, should be paid on or before March 31, 2018.

“No evidence was received to indicate that these arrears were paid,” Trotman said.

He revealed that notices of arrears dated March 12, 2018 were issued to 13 tenants in the ‘Rent-to-Own’ programme who were in arrears as at February 28, 2018.

However, as at November 30, 2018, the total arrears for nine of these tenants had increased by 138 per cent, whereas the arrears had decreased by 44 per cent for the other tenants.

“No evidence was provided of any further letters being sent to tenants who were in arrears,” he said.

Trotman said the NHC has been lax in dealing with its defaulters, adding that the high volume of defaulters at the Grotto was “alarming” as it was a relatively new project.

Trotman recommended that the NHC seek to reduce the number of people defaulting on their monthly occupancy rent and ensure that actions, as outlined in the tenancy agreements for default, are taken in a timely manner.

The audit also revealed that 12 tenants were allowed to pay a security deposit which was less than two months’ rental charge, and ten of these tenants owed arrears totalling $43,088.72 as at the end of November 2018.

The main objective of the audit, which covered the period April 1, 2016 to November 2018, was to determine whether the units were allocated according to the policy of the NHC, the level of default among the tenants and whether the cost of constructing the units would be recouped.

The auditor general concluded that the NHC did not follow its own eligibility criteria when the units at the Grotto were allocated.

With the aim of providing housing solutions for rental/sale for the lower-middle income to lower income group of citizens, the then Democratic Labour Party Government had built 80 units at a cost of approximately $35.4 million including interest paid and the cost of the land.

However, Trotman pointed out that construction costs have moved the units into the middle to upper income category, with each unit constructed at a cost of $442,509.

Seventy-nine of the units were allocated to tenants while one was reserved to be used as the office of the site superintendent.

The Auditor General said based on the findings, persons from the lower income sector would no longer benefit from this development under a sale arrangement.

Each successful applicant for the units at the Grotto was expected to submit a mortgage certificate from a financial institution confirming their eligibility for a mortgage of $225,000 or $215,000 based on their option.

However, the auditor general found that only one mortgage certificate was presented for audit inspection and no evidence was provided to verify that the other tenants at the Grotto had submitted mortgage certificates at the time of applying to rent/purchase the units.

Trotman said failing to ensure that mortgage certificates were provided before tenants were selected, the NHC exposed itself to the possibility of having tenants who cannot acquire a mortgage to purchase the units at the time of sale and this would result in tenants continuing to rent beyond the stipulated time.

In its response the NHC said while the report showed 44 of the 62 tenants as being in default at the end of November last year, 23 of those were for default on only one month’s payment or less.

“Several of those shown as in default, payments are by deductions. The Corporation has over the years suffered from slow remittances from some Government departments and business entities,” the NHC added.

However, Trotman complained that issuance of the Notice of Arrears to tenants was not effective, adding that the non-enforcement of the provision in the contract for managing defaulters shows a “weakness” in enforcement by the NHC.

“The decision to allow persons to pay a reduced security deposit exposed the corporation to the risk of not being able to recover costs in case of damages to the units caused by the tenants,” he said.

He recommended that lessons learned from the Grotto project should be applied to future projects to ensure that the same issues are not encountered.

“Special attention needs to be paid to the cost of construction to ensure that the target population can meet the cost recovery targets set by the board,” he added.

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