Authored by Kayla Ward | 10 April 2024 | Property Law and Consumer Protection Laws

Introduction

The Consumer Protection Act 68 of 2008 (“the CPA”) was developed and enacted to provide a legislative framework that protects the rights of consumers, who may be vulnerable to unfair marketplace practices given the imbalance in bargaining power in certain transactions where the consumer is a natural person or a small business.

The CPA accordingly regulates certain consumer agreements, including lease agreements, which in turn has had a considerable impact on the rental property market. This article focuses on the impact of the CPA on a party’s rights vis-à-vis a termination of a lease. Circumstances may arise that necessitate the early termination of a lease, leading to questions about the rights and obligations of both the landlord and the tenant involved.

The Consumer Protection Act

Section 14(2) of the CPA provides as follows:

(2) If a consumer agreement is for a fixed term— (a) that term must not exceed the maximum period, if any, prescribed in terms of subsection (4) with respect to that category of consumer agreement;

(b) despite any provision of the consumer agreement to the contrary—

(i) the consumer may cancel that agreement—

(aa) upon the expiry of its fixed term, without penalty or charge, but subject to subsection (3) (a); or

(bb) at any other time, by giving the supplier 20 business days’ notice in writing or other recorded manner and form, subject to subsection (3) (a) and (b); or

(ii) the supplier may cancel the agreement 20 business days after giving written notice to the consumer of a material failure by the consumer to comply with the agreement, unless the consumer has rectified the failure within that time;

(c) of not more than 80, nor less than 40, business days before the expiry date of the fixed term of the consumer agreement, the supplier must notify the consumer in writing or any other recordable form, of the impending expiry date, including a notice of—

(i) any material changes that would apply if the agreement is to be renewed or may otherwise continue beyond the expiry date; and (ii) the options available to the consumer in terms of paragraph (d); and

(d) on the expiry of the fixed term of the consumer agreement, it will be automatically continued on a month-to-month basis, subject to any material changes of which the supplier has given notice, as contemplated in paragraph (c), unless the consumer expressly—

(i) directs the supplier to terminate the agreement on the expiry date; or

(ii) agrees to a renewal of the agreement for a further fixed term.

Section 14 of the CPA, which applies to all fixed-term agreements (i.e., agreements concluded for a specified term) including fixed-term lease agreements, states that a consumer (the tenant) may cancel a fixed-term lease agreement for any reason, provided that the consumer (the tenant) gives his or her landlord 20 business days’ notice of his or her intention to do.

It is important to note that section 14 does not apply to any agreements concluded between juristic persons. The word “between” would imply that both parties would have to be juristic persons for the agreement to be excluded from the provisions of this section. It has not yet been tested whether the section would apply where, for example, the landlord is a natural person and the tenant is a juristic person, although this question must be considered against the CPA’s legislative intent to protect vulnerable consumers.

It must be noted that landlords cannot contract out of the provisions of the CPA, as this would undermine the CPA’s protective intent. In other words, any provision of a lease agreement which does not accord with section 14 of the CPA is not enforceable against the tenant. An example of an unenforceable provision would be where the lease agreement provides that the tenant may not cancel the lease agreement before its expiry or where it requires a notice period in excess of 20 business days. In these circumstances, the tenant is entitled to ignore the existing cancellation terms of the lease agreement and simply rely on the CPA.

The landlord’s rights and obligations

The early termination of a lease agreement is, however, not without consequence. In terms of section 14(3)(b)(i) of the CPA read with regulation 5(2), the landlord may impose a reasonable cancellation penalty for early termination of a fixed-term lease agreement. What is considered a “reasonable” cancellation penalty depends on the circumstances, but a reasonable cancellation penalty must be imposed by the landlord by taking into account the following guidelines:

(a) the amount the tenant is still liable for to the landlord up to the date of cancellation;

(b) the value of the lease up to the date of cancellation;

(c) the duration of the lease as initially agreed;

(d) the length of notice of cancellation provided by the tenant;

(e) the reasonable potential for the landlord, acting diligently, to find an alternative tenant; and

(f) the general practice of the relevant industry.

The purpose of a cancellation penalty is to discourage a tenant from cancelling an agreement prematurely and to allow the landlord to recoup a loss suffered as a result of early cancellation. It is conceivable that the landlord may not, having taken all reasonable steps, be able to find a suitable alternative tenant easily, and the cancellation penalty is envisaged to prevent unfair prejudice arising from such early termination.

The parties to a lease agreement might wish to avoid a disagreement down the line as to the cancellation penalty which ought to be imposed, by agreeing at the time of conclusion of the lease agreement what the applicable penalty would be in the event of the early termination of a lease agreement by the tenant. In practice, lease agreements will often make provision for a pre-determined cancellation penalty in order to regularise the position at the point of cancellation.

Conversely, a landlord is only entitled to cancel a lease agreement with his or her tenant in circumstances where (1) the tenant has committed a material breach of the lease agreement, and (2) the landlord has given the tenant 20 business days’ notice to the tenant to remedy the breach, and (3) the tenant has failed to remedy such breach within that period. In these circumstances, a landlord should first deliver a notice of breach calling upon the tenant to remedy his or her breach, and failing the tenant’s remedy of such breach, the landlord would be entitled to deliver a notice of cancellation of the lease agreement. Should the tenant fail to vacate the premises within the time allowed by the landlord to do so, the landlord would be entitled to approach the court in terms of the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 (“PIE”) for an order evicting the tenant from the leased premises, if the premises is being let for residential purposes. Otherwise, the landlord may apply to court for an order ejecting the tenant in the ordinary course.

The pertinent point is that landlords are evidently not permitted to cancel a lease agreement without a valid basis provided for in the lease agreement whereas the CPA affords the consumer (the tenant) to cancel the lease agreement on 20 business days without having to provide a justifiable or valid basis. This means that even if a landlord wished to sell the property or take occupation of the property the landlord shall not be entitled to simply cancel the lease agreement and eject the tenant.

In our view, the CPA fails to provide adequate redress to landlords who fall victim to tenants who are habitual non-payers or late payers, but who remedy their breach within the 20-business day period.

Month-to-month lease agreements

Section 14(2)(d) of the CPA provides that upon expiry of a fixed-term agreement, that agreement will be automatically continued on a month-to-month basis, unless the tenant directs that the agreement must be cancelled, or the parties agree to renew the agreement for a further fixed-term. If the premises is let for residential purposes, this provision should be read with section 5(5) of the Rental Housing Act 50 of 1999 (“RHA”), which provides that if on expiration of the lease agreement, the tenant remains in occupation of the leased premises with the consent of the landlord, the parties are deemed to have entered into a month-to-month lease on the same terms and conditions of the expired lease and either party is entitled to cancel the lease on one months’ written notice. Notably, lease agreements operating on a month-to-month basis are not governed by section 14 the CPA because they do not constitute fixed-term agreements. In the case of a month-to-month lease agreement in respect of a residential property, the landlord and tenant both enjoy the right to cancellation on one months’ notice.

Landlords’ entitlement to early cancellation of month-to-month lease agreements has been confirmed with approval by the court. In Makah v Magic Vending (Pty) Ltd 2018 (3) SA 241 (WCC), the court decided that the provisions of section 14(2)(b)(ii) of the CPA are not applicable to the month-to-month lease agreements. The court went further to say that “to read into the CPA that this 20-day notice requirement applies to a monthly and indefinite lease, would be to offer protection in circumstances not envisaged by the act”.1

If the month-to-month lease agreement does not specify a contractually agreed procedure for termination, the party wishing to cancel the lease agreement must give the other party a clear and unequivocal notice of the cancellation of the lease agreement, which must be done in accordance with the CPA and RHA. Cancellation of such lease is typically done on one month’s notice in writing.

Conclusion

Whilst the CPA is primarily intended to protect the vulnerable consumer, there are mechanisms in the CPA and the Regulations thereto which afford some recourse to landlords where tenants terminate prematurely.

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