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Bugle Sales Talk Editorial

Bugle Sales Talk Editorial

Author: Andreas Wassenaar
Date: 2015-06-12
If you are a Tenant or Landlord there is a good chance you have had to apply your mind to a lease agreement since the introduction of the Consumer Protection Act (CPA). There has been much uncertainty in the legal and property industry about the application of the CPA to once of leases and in particular to the interpretation of the words "ordinary course of business". It is clear from the Act that fixed term leases concluded with a natural person in the ordinary course of business are covered by the Act and the benefits of the CPA would therefore in those circumstances flow to the consumer or Tenant.

This has implications for developers of residential property who may elect to rent some of their new homes in the absence of a sale to private individuals. If a juristic person (Company, CC, Trust) with gross assets or an annual turnover of in excess of R2m enters into a lease agreement with a Landlord who is a supplier as defined in the Act, then that consumer is exempt and will have no protection from the Act. The CPA was therefore created to try and protect individuals who have limited access to legal advise from larger corporate bodies.

However most leases for residential property in South Africa are concluded between private individuals and it would appear that these purely once off leases are excluded from the application of the Act, but the Act does not state that unfortunately. Because of this uncertainty created by this piece of legislation, many legal practitioners, including those that Seeff consulted on a national basis, recommend taking the conservative approach by including in a typical lease the clauses that would be applicable should the CPA apply in the circumstances.

If a lease agreement does in fact constitute a "fixed term" agreement as contemplated by the CPA then there are some very important provisions a Landlord should be aware of.

The first of these would be the renewal provision that provides that the Landlord has to notify the Tenant between 40 and 80 days before the expiry of the lease, in writing, of the impending expiry of the lease agreement and then specify any material changes that would apply should a new agreement be concluded. The lease agreement will automatically be deemed to have been extended beyond the expiry date on a month-to-month basis unless the Tenant agrees to a further fixed term agreement or the Tenant expressly advises the Landlord that the agreement is to terminate. The Landlord cannot therefore simply do nothing and allow the fixed term contract to terminate by itself and expect the tenant to vacate. Active management by the Landlord is required.

Another very controversial item is the early termination provision which gives a Tenant enjoying the benefits of the CPA the right to cancel a fixed term contract with 20 business days notice to the Landlord. We do from time to time come across partially enlightened Tenants who claim to want to exercise their 20 day notice to cancel, not realizing that the CPA does at the same time allow the Landlord to charge a reasonable cancellation penalty. This could be one or more month's of rental depending on how easily the Landlord is able to place a suitable alternate tenant in the property.

A third far reaching implication of the CPA is the provision by the Landlord to provide the Tenant with 20-business days notice to remedy a breach (such as non payment of rental). Non-CPA leases typically have a far shorter notice period of 7 days after which the Landlord can immediately cancel the lease and move for an eviction. This effectively buys a tenant more time. The consequences of this clause is a rental industry moving towards a two month damages deposit requirement rather than the historical one month.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com.