Lease protection under the Consumer Protection Act
Category Property Law
Under the Consumer Protection Act (CPA) a tenant may legally end a lease prematurely, subject to giving sufficient notice etc - are there situations where the landlord could also legally refuse to accept the tenant's lease cancellation?
In 2020 it is a renter's market in South Africa - with the current oversupply of accommodation tenants generally can have their pick of where they want to stay. Tenants, especially good tenants, are also hard to come by and landlords know this. The 2018 PayProp Index classified more than a third of tenants in South Africa as high risk.
Risk management is a top priority for landlords and rental agents. It is under the circumstances understandable that a landlord may want to try to prohibit a good tenant, that wants to cancel a lease prematurely, from doing so.
The Consumer Protection Act states that a tenant may legally cancel a lease agreement if he gave 20 business days' notice. Some landlords may want to argue that the Act doesn't apply to them as they don't rent out property in the 'ordinary course of business' - how should a rental agent handle such a dispute?
Other issues that rental agents have also come across include what rights, if any, does the landlord have if the rental agent was paid renewal commission? Can a landlord under such circumstances expect the agent to find a new tenant free of charge? May the landlord insist that the tenant secure a new tenant before acceptance of the cancelled lease?
Marlon Shevelew is a legal expert on residential property law. Property Professional asked him to weigh in on the matters raised above.
Shevelew begins his comments by saying the point of departure of the Consumer Protection Act 68 of 2008 ("CPA") is that, in terms of section 5, it applies to every transaction occurring within South Africa unless it falls under one of the exemptions listed in section 5(2), (3), or (4) of the CPA.
There are only two specific exemptions that are relevant to leases: leases where the state is the tenant and leases where the tenant is a juristic person with an asset value or turnover in excess of R2 million.
"What I mean is if the state is a tenant - i.e. the landlord leases to the government then there is no CPA protecting the government. Also, if a juristic entity is a tenant and is over the threshold of 2 million rand in asset value or turnover the CPA won't apply; so any company, trust, closed corporation, body corporate or partnership which has assets of 2 million rand or over or runs a business with a turnover of 2 million rand or more has no CPA protection," he explains further.
These entities cannot use the CPA to exit a lease, etc.
'Ordinary course of business'
However, says Shevelew, there is one further situation wherein the CPA is not applicable to a lease; this stems from the definition of "transaction" in the Act.
He continues that a transaction is, (among other things which are not decisive in the enquiry of whether a lease falls under the CPA), defined as being in the ordinary course of business. Unfortunately, "ordinary course of business" is not defined in the CPA, but "business" is. The definition of "business" provides some clarity; it is defined as the continual marketing of goods and services.
The position seems to be, therefore, that a lease will be in the ordinary course of business if it is not a once-off transaction. It also does not have to be in the ordinary course of the lessor's business, but if it is the type of transaction that one would expect business people to enter into, then it will satisfy the requirement that it is "in the ordinary course of business".
Applying the above to the questions asked above, Shevelew says it appears that even if a landlord argues that leasing a property doesn't fall under their ordinary course of business, the lease will most likely fall under the CPA.
"The landlord would have to accept the tenant's cancellation, as section 14(2)(b) of the CPA states that despite any provision of the consumer agreement to the contrary, a tenant may cancel a lease on 20 business days' notice to the landlord.
"As the cancellation is lawful, the landlord will in all likelihood not be able to compel the agent to find a new tenant free of charge, or to compel the tenant to do so at all," he explains.
In conclusion, Shevelew says the difference in the landlord's position when the CPA finds application compared to when it doesn't is significant, and therefore it is advisable for any landlord to make sure that he/she carefully scrutinises the applicable legislation, or ideally obtain legal advice prior to entering into or cancelling a lease. This will in the long run no doubt save on legal costs and time.
Author: Property Professional
