LET'S TALK How does the Consumer Protection Act impact my lease agreement
Updated: Apr 7, 2020
In order to answer this question it is necessary to first determine whether or not the Consumer Protection Act ("CPA") applies to your lease agreement. The CPA will apply in the following instances:
The property is being let out by the landlord or owner in his or her ordinary course of business.
The tenant is a consumer. All natural people are consumers and a juristic person (e.g. Company) is a consumer if their asset value or annual turnover, at the time of entering into the lease agreement, is less than R2 million.
The next step is to ensure that you understand the various sections of the CPA which might have a bearing. The following are important to note in relation to your lease agreement:
Maximum duration of fixed-term agreements
The CPA provides, in section 14 as read with Regulation 5, that fixed term contracts such as lease agreements in respect of residential property, are limited to a maximum duration of 24 months unless the landlord and tenant expressly agree to a longer term and the landlord can show "a demonstrable financial benefit to the tenant ". What constitutes "a demonstrable benefit to the tenant” is not defined but may include, by way of example, a discounted rental afforded a tenant who agrees to the conclusion of a lease agreement with a 5-year term as opposed to a lease agreement set to endure for a period of only 24 months.
The tenant’s right to early cancellation
Firstly, it must be understood that the CPA does not afford a tenant an unfettered right to terminate a lease agreement at the tenant's election.
Secondly the provisions relating to the termination of fixed term contracts (such as lease agreements) do not apply to transactions entered into between juristic persons (i.e. companies, close corporations and trusts).
While the CPA permits a tenant to cancel a lease on 20 business days’ notice, the Act in turn entitles a landlord who receive such notice to charge a reasonable cancellation penalty as contemplated in section 14 (3)(b)(I) of the act.
A "reasonable cancellation penalty" is determined by having regard to the factors listed in regulation 5(2) which include, inter-alia, the duration of the lease agreement as initially agreed, the length of notice of cancellation provided by a tenant to a landlord, the reasonable potential for a landlord, acting diligently, to find an alternative tenant and the general practice of the industry.
In order to obviate unnecessary dispute around what might constitute a reasonable penalty it may be best to insert a clause in your lease agreement that provides for an agreed amount (which takes account of, inter-alia, outstanding commission owing to rental agents, the cost of re-advertising the property, the remaining duration of the lease, loss of rental as a result of early termination etc.) as the cancellation penalty which is to be applicable in the event of an early termination.
When calculating the cancellation penalty, it is important to note that the landlord has a duty in law to mitigate his/her/its damages by employing all reasonable measures to secure a replacement tenant (this principle is also recognised in regulation 5(2)). If a landlord does not take steps to mitigate his/her/its prospective damages alternatively should a landlord secure a replacement tenant on terms and conditions that are more favourable than those which previously prevailed then, in the first instance, the landlords’ damages/penalty claim will be compromised (and potentially extinguished) and in the second instance such a landlord may not have a damages/penalty claim given that the landlords contractual position will have improved.
In the event of a dispute the damages/penalty claim may be decided through an alternative dispute resolution mechanism as contemplated in section 70 of the Act.
In order to navigate the practical effects of the CPA we recommend that you consult your attorney or property rental agent/manager for advice and assistance sooner rather than later.