Building hijackers rake in millions from illegally sub-letting Transnet’s hostels, houses, offices

Plans by state-owned enterprise (SOE) Transnet to recoup and repurpose its properties including hostels, houses and commercial premises, is being met by resistance from uncooperative tenants and municipalities who are unwilling to help them reclaim local hostels.

Transnet Property is in charge of at least 49 000 pieces of property across the country, valued at R6,5 billion. It wants to dispose of non-core assets such as hostels and houses initially built to accommodate its workers, as well as some commercial assets.

Previous failed attempts to claw back its properties have led to the launch of ‘Operation Thatha Okwethu,’ loosely translated – “taking back what belongs to us” – to regain control of the assets.

For decades, tenants had been occupying the properties and refusing to pay rent and municipal services, or even for the upkeep of the premises, said Transnet Property CEO Kapei Phahlamohlaka.

“Managing the property portfolio was not in accordance with the manner in which it should have been managed. With the new strategy and operating model, we are commercialising Transnet properties.

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“Part of that was to do a stock taking and understand who are the tenants, what lease agreements they have and how much they should be paying in rentals.”

The audit found that some were illegal occupants who did not have lease agreements, while others had leases that were no longer valid and had expired.

The property portfolio consists of 17 hostels, 7000 houses that include what used to be called railway homes and commercial properties.

‘Illegal tenants subletting Transnet properties’

Phahlamohlaka said Transnet’s intention is not to automatically remove illegal tenants, but to negotiate and enter into new lease agreements, to ensure a formal consensus between the parties.

“Some of the tenants owe us exorbitant amounts and are supposed to pay municipal utilities apart from the rent.

“Majority of them do not pay… The non-payment culture crept in. Some of the properties are in a dire state, and are practically rotten, compounded by vandalism.”

Regarding the houses occupied by Transnet staffers, employees are prioritised before the properties are sold to outsiders. The workers, especially prospective first time buyers, are given an option to purchase the homes.

On the commercial front, the SOE has a long standing dispute with the Durban-based company, Seaworld Aviation Services Pty (Ltd) and its director Anton Stanger. According to Transnet, the company owes R180 million in rentals, water and electricity.

Numerous attempts by Transnet to evict the company operating from the old Durban airport after the lease was cancelled have failed.

Transnet says it cancelled the lease in 2018 because, it says, the company utilised the premises in breach of the agreement.

Phahlamohlaka said the parties agreed that Stanger develops the premises for at least 18 months to use for aviation purposes and then start paying rent to Transnet.

While the company refused to pay rent, said Phahlamohlaka, it in turn sublet the property and made money for themselves.

“The understanding was that the old Durban airport would operate on a small scale, cater for the private aviation industry.

“As soon as the tenant took over, they started subletting it to businesses that have nothing to do with aviation. That was the first contention because he breached the lease. He was adamant that he could sublease, but the lease states that he has to get prior approval from the landlord, Transnet”

He added that when Transnet raised the subletting issue and that there was never an approval to bring in tenants who had nothing to do with aviation, the company then asked for immediate approval to sublease.

“We said no we cannot do that…you have breached the lease culminating in the cancellation of the agreement. Since then, there have been fights between Transnet and this tenant, both operationally, legally and commercially.”

Seaworld Aviation Services took Transnet to the high court earlier this month as another eviction attempt reached its doors.

Judge ZP Nkosi issued an interim order against Transnet to not evict Stanger and his company.

The parties will return to court in May to present their arguments.

“Our view is that he breached the lease completely, the property is now deteriorating…it is a busy place with trucks going in and out of that… No car can drive in because of potholes there, there is no maintenance.

“I heard from businesses in the area that he is collecting over R12 million a month from renting to the other five businesses. Transnet, the property owner, gets zero out of that,” Phahlamohlaka said.

Seaworld Aviation Services wouldn’t comment, saying the matter was in the courts.

‘Municipalities wont take over hostels for just R1’

The other set of residential assets, that of 17 hostels sprawled across South African townships and initially occupied by Transnet workers, is up for sale for R1 to municipalities.

The hostels are in Tshwane, Johannesburg and Ekurhuleni in Gauteng, Saldanha Bay and Cape Town in the Western Cape, Gqeberha in the Eastern Cape and Durban in KwaZulu-Natal.

Transnet had envisaged that municipalities and other government entities be given first preference in disposing of the hostels, in order to have them repurposed into formal housing units.

However, councils are reluctant to take over the hostels, said Phahlamohlaka.

“We offered all these municipalities those hostels between the 2015 and 2016 financial year to buy them for R1 a hostel.

“We wanted to contribute for these hostels to be used for human settlements, we do not want to profit out of them. But municipalities are not taking up that offer.”

The only municipality that has expressed interest lately is Ekurhuleni, which wanted to take over the Tembisa hostel.

Phahlamohlaka said Ekurhuleni came forward only after Transnet approached the Department of Human Settlements, informing it that because councils were not keen in taking and developing hostels for housing, the properties would be put up for sale.

The department then wrote to the municipalities in the four provinces giving them until December last year to indicate their interest for the hostels, and only Ekurhuleni responded.

“We are negotiating with Ekurhuleni, and the rest of the hostels will be advertised. We have no choice at this stage,” he said.

Meanwhile, the SOE spends millions every year paying for water and electricity used by hostel dwellers.

Durban’s Tehuis hostel costs Transnet at least R13 million a year, said Phahlamohlaka.

“We are incurring huge costs. For Tehuis in uMlazi in Durban, Transnet pays over R3m monthly for municipal utilities used by the occupants.

“The 17 hostels alone cost us R90m per annum and we are receiving nothing, but we are expected as management to make the organisation sustainable and not rely on government bailouts.”

‘Bad management’

Property economist and CEO at Rode and Associates, Erwin Rode, says besides bad management that causes problems between landlords and tenants, the law is skewed towards tenants.

Rode remarked that a friend of his decided to sell his residential property portfolio because of persistent problems with tenants whom the courts favoured.

“The legal situation is so much in favour of the tenants and not the landlord. The friend I referred to is a lawyer and was quite aware of the pitfalls and legal wrangling before he decided to dispose of his portfolio.”

Apart from legal matters, inadequate and bad management by landlords leads to snowballing problems.

Rode says a landlord should make sure that the lease stipulates clearly what is expected and be certain that the tenants know and understand the agreement.

“The problems we see, especially fights over evictions, are partly due to bad management. A landlord should take problems head-on the moment there is a default in payment.

“Because the law favours the tenant, there is more reason to act within the legal rights and show teeth because the more you allow it to continue, the more difficult it will become.”

Guptas’ capture of Transnet

One of Transnet’s well-known properties and a landmark is Carlton Centre in downtown Johannesburg. It houses, among others, a hotel and a shopping centre.

Transnet vacated the building it owned and moved to the affluent and expensive Waterfall City in Midrand, where it paid exuberant amounts in rentals.

The SOE is one of the many government entities that were captured and looted by politicians and their associates at the behest of the fugitive Gupta family while their ally, former president Jacob Zuma was at the helm.

It emerged in the Organized Crime and Corruption Reporting Project  2020 report that the Gupta-linked Trillian billed Transnet millions in managing its properties while it did no actual work.

Trillian also tried to buy Carlton Centre and sell it back to the government at higher amounts.

“As part of our new strategy, we are steadfast that Transnet operations must be in Transnet-owned buildings because the company owns buildings.

“The only downfall was that those properties were not properly maintained, but we are on a process to fix them in order to get operations back in, and avoid paying third party landlords when we have our own properties,” said Phahlamohlaka.

Transnet headquarters has since moved out of Water Fall City. Its national ports authority has also moved out of the rented Parktown offices, he said.

“The ports authority building was built in Gqeberha at a cost of R250m, but employees still remained in Parktown. What was the point of building it then? The decision that was taken a few years ago was recently implemented, and the ports authority is now based in Gqeberha.”

Phahlamohlaka says he and his team have given themselves three years to claim back what belongs to Transnet and ensure profitability.

According to the company’s website, some of its profitable properties occupied for office space include the Free State Premier’s Office, the Northern Cape Department of Health, the Hawks in Gqeberha, the City of Cape Town, the Passenger Rail Agency of South Africa (Prasa) and First National Bank.