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inciteadvisor, Commercial Lawyer
Category: South Africa Law
Satisfied Customers: 1610
Experience:  B.Com LLB Registered Corporate lawywer
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Re-selling of electricity by landlords: we know that landlords

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Landlords are not entitled to resell electricity to tenants at rates less favourable than those at which the tenants could have purchased from the municipality themselves. To avoid problems many landlords simply instruct their agents to apply the applicable municipal tariffs to their tenants. However the question is whether it is legal for landlords (who may be subject to more favourable tariffs anyway by virtue of being bulk purchasers) to earn windfall profits at all ?
Welcome, and thank you for your question.

Could you perhaps provide more detail on your particular situation? Which landlords are you referring to? On what basis are they receiving electricity at a lesser tariff?

Yours faithfully,
Customer: replied 4 years ago.
We're a business tenant (restaurant) in a multi-tenant mixed use development where most other tenants are domestic users (apartments). Recoveries by building owner have been calculated by his meter reading agent according to the ruling City Power winter tariff for consumption band >3000 KWhr, which is what we would have been charged if we had a direct supply from City Power. But landlord most probably has a bulk supply arrangement where he purchases from City Power based on a (more favourable) maximum demand tariff, in which case he will over-recover from probably all his tenants, especially large users like us, thereby earning windfall profits. He may contend that his recovery method is 'legal' based on the fact that he is charging the same tariff we would have been charged by City Power as stand-alone user. Hence the question as to 'entitlement' to windfall profits by virtue of having a more competitive rate than his tenants.... this seems to contravene both the by-laws and Electricity Act.
I'm sorry, but I am unable to assist at this time.

Yours faithfully,
Customer: replied 4 years ago.
What now ? Does 'at this time' mean I need to wait a bit longer, or is this query now closed ?

Welcome, thank you for the opportunity to address your question.

I need a bit more information in order to provide you with a comprehensive answer:

  • Would you be entitled to receive electricity at the same bulk rate from the municipality or electricity regulator?

Best regards,

Customer: replied 4 years ago.
Hi .Short answer is no. Building owner by virtue of his position as a bulk user might get preferential rates from City Power that individual tenants would not. Generally he recovers from tenants at those rates that they would have been charged by City Power if they entered into supply agreements directly. So he makes windfall profits, which seem to me to be contrary to the municipal by-laws and Electricity Act. To my mind its not about what City Power would have charged the tenant but more about what it IS charging the landlord and how equitably he is apportioning the charge whilst not making profits from his tenants.

Unfortunately this is a very contentious issue in many municipalities since the old Electricity act was repealed. The are unclear definitions as to what constitutes electricity reselling and whether and under what circumstances the resale of electricity is permitted constitutionally and in terms of national legislation, the Electricity Regulation Act in particular. Ultimately it has landed in the ambit of local authorities that are delegated authority to issue by-laws in this regard. The by-laws differ in places but most of the larger authorities have adopted a similar version of a reseller tariff clause that states broadly that a reseller may not resell electricity at a rate and under conditions that are less favorable to the purchaser than those that would have been payable and applicable had the purchaser been supplied directly with electricity by the local authority or electricity regulator.

What this means is that as long as there is a difference in tariffs between wholesale and retail users, the wholesale resellers will be able to make a margin. The margin would be reasonably justifiable in legal terms due to the significant payment risk and administration charges incured by the wholesaler and not by the local authority.

Probably not the answer that you looking for, and I do understand that often the margin received is not in relation to the cost and credit risk accepted by the reseller, but equally I have seen clients with unpaid tenant utility costs that they will never make up with a reseller's margin within contemporary times.

I trust that the legal information provided is helpful in assessing your position going forward. I am always happy to clarify any aspect of the answer provided should you so require. Feedback and a rating of my answer will be greatly appreciated as
experts are only paid on answers positively rated by our clients.

Best regards,

inciteadvisor, Commercial Lawyer
Category: South Africa Law
Satisfied Customers: 1610
Experience: B.Com LLB Registered Corporate lawywer
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