Lease Agreements And The CPA
The Consumer Protection Act 68 of 2008 has considerable impact on lease agreements. The Act has been passed in order to regulate and normalise the relationships between the suppliers of various goods and services and their consumers in the marketplace. In order to properly assess and interpret the CPA, one must take cognisance of the ambit, intention, and purpose for which the Act was passed.
The Consumer Protection Act 68 is an Act which aims to:
“… promote a fair, accessible and sustainable marketplace for consumer products and services and for that purpose to establish national norms and standards relating to consumer protection, to provide for improved standards of consumer information, to prohibit certain unfair marketing and business practices, to promote responsible consumer behaviour, to promote a consistent legislative and enforcement framework relating to consumer transactions and agreements, to establish the National Consumer Commission…”
In this regard, it is important to pay attention to section 14 in particular:
Section 14 – Expiry and renewal of fixed-term agreements
Section 14 of the Consumer Protection Act 68 of 2008 is the section dealing with the expiry and renewal of fixed-term agreements. This section extends to numerous forms of agreements but most notably for the purpose of this discussion, fixed-term lease agreements. The Act is included in Appendix C for ease of reference.
Upon reading section 14, it is clear that transactions between juristic persons, regardless of their asset value or annual turnover, would automatically be excluded from the provisions of Section 14. Hence, a fixed-term lease agreement concluded between a juristic landlord and a juristic tenant is excluded in terms of sec 14(1). It is important to note that according to the definitions of the CPA, partnerships, trusts, bodies corporate and associations are considered juristic persons.
The above provision does not make any further averments beyond what is contained in sec 14 (1). We can therefore assume that the legislature intended to bind fixed-term agreements between either; two or more natural persons or; between two or more natural persons and a juristic person, or vice versa.
The Act does not stipulate the form of fixed-term agreements to which sec 14 applies, apart from the agreement having to fall within the definition of a consumer agreement. From this we can once again only infer that the legislature intended to leave this open in order to encapsulate a wide array of fixed-term agreements.
It is important to point out the following:
• Sec 14 will not apply to lease agreements entered into between juristic persons, regardless of their annual turnover or asset value.
• Sec 14 would apply to all fixed-term lease agreements (excluding the above) regardless of the specific property type.
• The term of the agreement may not exceed 24 months, unless a longer period is expressly agreed upon, and the landlord can show a demonstrable financial benefit to the tenant, resulting from the extension of the default 24 months. In lease agreements, a longer term would, for example, have the financial benefit that the tenant would not have to pay a deposit at new premises, and would not have the financial burden of moving costs etc.
• The landlord may cancel the agreement with 20 business days’ notice, but needs to prove that:
i) the tenant was in breach of a material term of the agreement; and
ii) the tenant was demanded to remedy the breach but failed to do so in full.
• Notice must be given to the tenant regarding the imminent expiry of the agreement, not more than 80 business days and not less than 40 business days before expiry of the lease. If this notice is not given the lease will not terminate.
• Upon expiry, these lease agreements will automatically renew on a month-to-month basis, subject to the Rental Housing Act and be amended only in respect of material changes to which the landlord has given notice. The CPA however provides that a month-to-month renewal will be effective upon expiry, unless the tenant expressly directs the landlord to terminate the agreement on the expiry date or agrees to a renewal for a further fixed term.
• Fixed term leases that are subject to the CPA are terminable on notice by the tenant. The Lease is therefore cancelled on 20 business days’ notice to the landlord. The landlord however, by contrast, may only cancel the contract for a material breach of the contract by giving 20 business days’ notice of the breach and the opportunity to remedy the breach.
• While it may seem irregular that the tenant may terminate the lease agreement irrespective of the reason, the landlord may, on cancellation by either party impose a “reasonable cancellation penalty in contemplation of the agreement enduring for its intended fixed term.” Regulation 5(2) provides that a penalty may not exceed a reasonable amount taking into account various factors listed in the regulation such as:
o the amount that was still owed under the remainder of the period;
o the value of the transaction up until cancellation;
o the duration initially agreed upon;
o the length of notice of the cancellation;
o the potential for the landlord to find a replacement tenant; and
o the general practice relevant to the industry.
• While the notice of cancellation in terms of the CPA only applies to fixed-term leases, the notices in terms of the provision of the RHA apply to periodic leases.
• As was mentioned earlier, there is a significant difference between the cancellation of the lease agreement and the termination (or expiration) thereof. Notice must be given to the tenant of the imminent expiry of the agreement which is prescribed as not more than 80 business days and not less than 40 business days before expiry of the lease.
(Extract from The Landlord’s Guide)
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