The enactment of the new Consumer Protection Act No. 68 of 2008 (herein referred to as the CPA) introduces some changes to lease agreements for immovable property. Parties acquire certain rights in respect of the cancellation of a lease agreement, as well as certain rights pertaining to the maximum duration of a lease agreement.
When referring to the regulations promulgated in terms of the CPA a maximum duration of 2 years are prescribed for fixed term agreements. This provision also applies to lease agreements, but there are certain exclusions.
Cancelling a lease agreement
Section 14 of the CPA stipulates that a tenant may cancel a lease agreement by giving 20 business days’ notice, without having to prove breach of contract. However, the tenant will remain liable for any amounts owed to the landlord in terms of the agreement up to the date of cancellation, but not for the entire duration of the contract.
The landlord has the right to impose a reasonable cancellation penalty for all outstanding amounts owed in terms of the lease agreement, once a tenant has cancelled the agreement prior to the expiry date.
Regulation 5(2) of the CPA now provides that a cancellation penalty may not exceed a reasonable amount taking into account factors such as:
- The amount that still owed under the remainder of the period.
- The value of the transaction up until cancellation.
- The duration of the agreement that was initially agreed upon.
- The length of notice of the cancellation.
- The potential for the landlord to find another tenant.
- The general practice relevant to the industry.
It is important to note that all calculations for penalty purposes can only be made once a replacement tenant has been found, but a cancellation penalty may not negate a tenant’s right to cancel.
Landlords may also cancel the agreement by giving 20 business days’ notice but they need to prove a material failure in terms of the provisions of the lease agreement, that the tenant was asked to remedy such breach and has failed to do so.
When a lease agreement is nearing its expiry date, the tenant must be notified within more than 80 business days and no less than 40 business days before expiry of the lease.