CANCELLING YOUR LEASE AGREEMENT UNDER THE CONSUMER PROTECTION ACT
Whilst the enactment of the Consumer Protection Act No. 68 of 2008 (“The CPA”) had far reaching implications for lease agreements in general, perhaps the least understood of these relates to how tenants can rely on the provisions of the CPA to validly cancel their lease, and the consequences of such actions.
At the outset it is important to remember that the CPA will not apply to leases where the tenant is a juristic person with an annual turnover of more than R2million.
When looking at how a tenant can validly rely on the provisions of the CPA to cancel his/her lease, regard must be had to:
1. The tenants’ right to early cancellation under the CPA; and
2. The landlords’ rights once the tenant has exercised his/her right to early cancellation.
THE TENANTS’ RIGHT TO EARLY CANCELLATION
In terms of Section 14 of the CPA a tenant may cancel a lease agreement by giving 20 days’ written notice thereof. Such early termination may be exercised by the tenant without the need to prove that there has been any breach of the provisions of the lease, and furthermore this right cannot be overridden by any clauses to the contrary in the lease itself.
Notwithstanding the above, in the event of the tenant exercising his/her rights under Section 14 a landlord will not be left without any recourse against the tenant.
THE LANDLORDS’ RIGHTS:
Once a tenant has elected to exercise his/her right to early cancellation, the landlord then has a right in turn to impose a reasonable cancellation penalty upon the tenant. Regulation 5(2) of the CPA provides that the penalty may not exceed a reasonable amount, taking into account:
1. The amount that was still owing under the remainder of the period;
2. The value of the transaction up until cancellation;
3. The duration initially agreed upon;
4. The length of the notice of the cancellation;
5. The potential for the landlord to find another tenant; and
6. The general practice relevant to the industry.
In practice, the amounts that a landlord will generally be entitled to recover from the tenant will be:
1. The costs of credit checks for prospective replacement tenants;
2. Any advertising costs incurred in finding a new tenant; and
3. The rental for the period of time for which the property remains vacant after the tenant has vacated.
It is important to bear in mind that the landlord should be proactive in finding a replacement tenant in order to mitigate his losses, and that he/she cannot simply leave the property vacant for the remainder of the lease period and claim rental for such period from the tenant. Furthermore, both the landlord and the tenant need to understand that the amount that can be claimed from the tenant cannot be quantified on the date on which notice is given, but will only become known to the parties once a replacement tenant has been found.
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