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 Termination of rental agreement1

The inconvenience for a landlord caused by an early cancellation will no doubt be annoying  but it is clear that a tenant has the RIGHT to cancel a lease

One of the matters that we specialise in is Consumer law and lease agreement terminations.

Here is a recent query that was received by The Legal Advice Office last week:

“Hi, Hugh. I refer to our telephone call. I bought a business last year in September and signed a three-year lease agreement for its premises with the landlord. I also signed as surety for my company which runs the business. The business is losing money each month and I need your advice and help on getting out of this lease. Can you please help me?”

We will try to answer this question in this blog.

 The first important factor is to distinguish between a lease signed by a tenant who is a natural person like say, John Smith and a tenant which is a company, close corporation or a Trust and is therefore defined as “a juristic person.’

A clear distinction is drawn by The Consumer Protection Act No 68 of 2008 (CPA) between an early termination of lease by a natural person using section 14 of the CPA; and the position of a juristic person which cannot use section 14 as it may not do so in terms of section 14(1) which states: “this section does not apply to transactions between juristic persons regardless of their annual turnover of asset value.”

This begs the question, however.

What happens if the landlord is not a juristic person but a natural person?

Prior to the commencement of the Consumer Protection Act, on the 1st of  April 2011, the law of contract and the common law covered the issue of when and how a tenant went about cancelling a lease agreement. That has all now changed since the commencement date of the CPA, and tenants and landlords need to be aware of the statutory provisions of the Act; which now cover the early termination and cancellation of lease agreements.

Prior to April 2011; both parties were pretty much bound by the terms of the lease agreement and this was very weighted in favour of landlords and to a great degree disadvantaged tenants, especially as most lease agreements are drawn up for the benefit of the landlord and not the tenant.

It happens that incorrect terminology is sometimes used when leases are cancelled early.

Landlords and their agents often refer to an early cancellation of a lease agreement by the tenant as “a breach of contract.” This is not the case.

In terms of the Consumer Protection Act, tenants have the RIGHT to cancel their leases, as long as they do so while fulfilling ALL the cancellation criteria or requirements. Tenants who do this must do so in writing and must give at least 20 days’ written notice. This MUST be done properly and correctly so as to fully comply with the CPA.

The rental for those 20 days is payable by the tenant, and they must pay same; pro rata, if applicable, to the landlord for that period. This action DOES NOT amount to a breach of contract.

Once the landlord or his agent have received the written notice of cancellation, they should make a note of the date on which the lease is now due to end; and should start advertising immediately for a new tenant for the property. This responsibility lies squarely on the shoulders of the landlord or his agent to find a new and suitable tenant. The costs of so advertising, however, should also be noted, as these costs can be charged to the tenant, as part and parcel of the “reasonable penalty” that the landlord is entitled to hold the tenant responsible for; as a result of the early cancellation of their lease agreement.

Although the landlord is entitled, in terms of the Act, to hold the tenant liable for a “reasonable penalty” fee for early cancellation of the lease; this does not and is not meant to be used to penalise tenants; but rather is intended to allow the landlord to recoup any losses he may have suffered as a result of the early cancellation of the lease agreement; and the tenant vacating before the lease has run its course.

The costs that may be included in such a penalty would, for example, include the credit check costs for a prospective new tenant; and any other reasonable incidental costs relating to the new tenant and which have been reasonably incurred by the landlord in finding that replacement tenant; such as advertising costs and would also sometimes include the rental lost by the landlord if and during the period that the property was to stand vacant.

It is not, however, a carte blanche penalty which the landlord can simply impose as he sees fit; eg 3 months’ rent. That will not fly. It must be based on his actual financial damages. It has just been described as “a penalty which cannot be charged upfront. They can only be calculated once a new tenant has been found and the landlord cannot gain financially or benefit from the tenants' cancellation penalty costs. He is simply reimbursed.”

On this basis; penalty clauses in lease agreements which purport to agree to a cancellation penalty in advance will simply not hold up in court.

The inconvenience for a landlord caused by an early cancellation will no doubt be both annoying and time-consuming, but it is clear that a tenant has the RIGHT to cancel a lease. The landlord is only then entitled to recover his actual loses in an early cancellation penalty clause.

The CPA is however vague in that it does not define a “reasonable penalty;” and only states that a reasonable penalty may be charged for early cancellation. In practice however and in SA Law; a person who suffers damages as a result of another person’s actions is only ever entitled to recover those damages which he has actually sustained, and can prove. In practice also; it normally does not take more than a month to find another tenant.

Once again; both landlords and tenants must be aware of their rights in this regard and would be well advised to contact us in the event of wanting to terminate a lease early.

Please visit our website at www.legaladviceoffice.co.za or send us an email to This email address is being protected from spambots. You need JavaScript enabled to view it. and we will respond to your legal queries within 48 hours.

About our author:

Hugh Pollard (Legal Consultant), has a BA LLB and 42 years’ experience in the legal field. 22 years as a practicing attorney and conveyancer; and 20 years as a Legal Consultant.

082-0932304 (Hugh’s Cell Number)

This email address is being protected from spambots. You need JavaScript enabled to view it.

www.legaladviceoffice.co.za

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