CONSUMER PROTECTION ACT AND RESIDENTIAL LEASES
The Consumer Protection Act and Residential Leases
To learn more about the consumer protection act and residential leases, one has to refer to The Consumer Protection Act, No 68 of 2008 (CPA) which applies to the supply of goods and services within South Africa, and this Act expressly defines residential accommodation as a service. This means residential leases fall within the ambits of the CPA and lease agreements are affected by this Act.
In terms of the Act a landlord operating a rental business will be defined as a supplier or a service provider if leasing commercial property. The Act applies to all commercial leases entered into by the following:
- Natural person;
- Juristic persons with an annual turnover or asset value of less than 2million.
- All franchisees, irrespective of turnover or asset value in the case of juristic persons.
However, Section 14 of the CPA does not apply if both the landlord and tenant are juristic persons, and if both franchisor and franchisee are juristic persons. Juristic persons will be companies, body corporates, close corporations, partnerships, trusts and voluntary associations but not sole proprietorships.
Section 4 (4) of the CPA states that if a lease is prepared by a landlord, it should be interpreted in favour of the tenant if it is drafted in a way that is ambiguous or appears to erode a tenants rights under the CPA. In this case, it is important for landlords to know what their rights and obligation are under the CPA.
Sections 48 to 52 of the Act deals with unfair, unreasonable and unjust contract terms. Sections 48 and 49 prohibit the landlord from entering into agreements on terms that are unfair, unreasonable or unjust. The landlord is prohibited from entering into a lease agreement that will be in his/her favour. This means the landlord cannot rely on the principles of the law of contract, which state that where a party signs a contract he/she is bound by that contract. Section 22 of CPA also provides that a lease agreement must be written in basic language in order for tenant that have less literacy skills to understand the contents of the agreement.
There is limitation on the duration of the leases, the CPA provides that fixed term contracts are limited to a maximum duration of 24 months, unless such longer period has been expressly agreed with the tenant and the landlord can also show a demonstrable financial benefit to the consumer.
Can a tenant cancel a lease agreement by notice prior to expiration of the fixed term contract?
Yes, the tenant can cancel the lease agreement before the fixed term contract is over, however, the CPA states that he or she must give the landlord 20 business days written notice and this does not give the tenant right to just move out of the premises without incurring liability. This means the early cancellation is subject to reasonable cancellation penalties in favour of the landlord.
Regulation 5 of the Consumer Protection Act
Regulation 5 provided the calculation of the penalties as following:
- The amount which the tenant (consumer) is still labile for to the landlord (supplier) up to the date of cancellation;
- The value of the transaction up to cancellation;
- The value of the goods which will remain in the possession of the consumer after cancellation;
- The value of the goods that are returned to the supplier;
- The duration of the consumer agreement as initially agreed;
- Losses suffered or benefits accrued by consumer as a result of the consumer entering into the consumer agreement;
- The nature of the goods or services that were reserved or booked;
- The length of notice of cancellation provided by the consumer;
- The reasonable potential for the service provider, acting diligently, to find an alternative consumer between the time of receiving the cancellation notice and the time of the cancelled reservation; and
- The general practice of the relevant industry.
The lease agreement can include an amount of early cancellation penalties and in terms of CPA, a pre-agreed cancellation penalty amount is applicable in the event of early cancellation.
Cancellation due to breach of the lease agreement and expiration of fixed term lease agreement
If the CPA is applicable to a lease agreement, the landlord cannot just cancel the lease agreement upon the tenant’s breach before serving the tenant with 20 business days written notice to remedy the breach. Should the tenant fail to remedy the breach within the stipulated time then the landlord has right to cancel the lease.
Lease agreements normally have the breach clause, which provides the procedure on how to deal with a breach. If one party in the lease agreement breaches one of the clauses, the other party has a right to serve the defaulting party with written notice demanding such breach to be remedied within a stipulated period.
Failure of the defaulting party to remedy the breach within the stipulated time will mean that the other party will be entitled to cancel or enforce the lease. The provisions of a breach clause will be followed in cases where the CPA is not applicable to a lease agreement.
Section 14 of the CPA stipulates that a landlord has the duty to provide the tenant with at least 40 business days, but not more than 80 business days, written notice that the lease agreement is about to expire. The notification for expiry must inform the tenants of the amended terms and conditions of the new residential lease agreement in the event that the tenant elects to renew the agreement.
The tenant needs to reply to the notice on whether he/she accepts the expiration notice and if he wants to continue with the lease agreement on the terms and conditions set out in the expiry notice or if he/ she wants the lease agreement to expire at the end of the fixed-term period. If the tenant fails to reply to the expiry notice, the lease agreement will continue on a month-to-month basis on the terms and conditions stated in the expiry notice.
It is important for landlords and tenants to seek legal advice before entering into a lease agreement and at the stage of terminating the lease agreement. In order for landlords to protect themselves, they must make sure, that the lease agreement is drafted on reasonable terms and it is explained to the tenants prior it being signed.
The Consumer Protection Act, No 68 of 2008