CPA: As much of a swear word as FICA and RICA?

The purpose of the Consumer Protection Act (CPA) as defined by the Act itself is: “To promote a fair, accessible and sustainable marketplace for consumer products and services and for that purpose to establish national norms and standards relating to consumer protection, to provide for improved standards of consumer information, to prohibit certain unfair marketing and business practices, to promote responsible consumer behaviour, to promote a consistent legislative and enforcement framework relating to consumer transactions and agreements…”

The section of the Act that influences lease agreements specifically is section 14, which deals with the expiry and renewal of fixed term agreements. The CPA is not of relevance when the tenant is a juristic person, which includes a Body Corporate, a partnership, association, or a trust, nor is it of relevance when two juristic parties go into a lease agreement.

The first limitation the CPA puts on lease agreements is that an agreement may not exceed a period of 24 months, unless there is a financial benefit for the tenant if the agreement is for longer than 24 months.

The CPA also allows a tenant to give a landlord 20 business days’ written notice at any time during the agreement to cancel the agreement. The Landlord may also cancel the agreement if the tenant is in breach of the agreement, and has received 20 business days’ written notice to rectify the breach and fails to do so.

If the tenant or the landlord cancels the agreement with 20 business days’ notice as prescribed above:

  • The tenant remains responsible for any amounts that are still owed in terms of the lease agreement up to date of cancellation of the agreement;
  • The landlord may impose a reasonable cancellation penalty on the tenant for early cancellation of the agreement;
  • The landlord has to credit the tenant any amounts that belong to the tenant after the date of cancellation of the agreement.

The CPA does not prescribe what is considered to be a reasonable cancellation penalty, but does give a few guidelines to determine this figure:

  • The amount that the tenant would have paid the landlord if the lease agreement was not cancelled before the expiry of the agreement;
  • The value of the lease agreement up to date of cancellation of the agreement;
  • The initial period of the lease agreement;
  • The length of notice that was given;
  • The potential for the landlord to find another tenant if he acts diligently to find a replacement tenant;
  • The industry norm.

It is however easier to agree in the lease agreement what the penalty will be for early cancellation of the agreement, to avoid any uncertainty.

It is also necessary for a landlord to inform his tenant in writing between 80 and 40 business days before the expiry of the lease agreement that the lease is expiring. In this notification, the landlord should inform the tenant of any material changes that will come into effect when the lease agreement is extended for a further period. This includes:

  • The new lease period;
  • The new rental amount payable;
  • Any other changes that will affect the tenant’s use of the premises.

If the tenant does not explicitly renew the agreement with the landlord, the agreement will continue on a month to month basis, unless the tenant informs the landlord that he does not wish to renew the agreement.

In the end, it can only be beneficial for a landlord to adhere to the legislation and follow the rules.

Published in: Linprop news


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