THE CONSUMER PROTECTION ACT

It is safe to say that no act has had such a dramatic effect on the psyche of not only the general public, but legal professionals, as the Consumer Protection Act 68 of 2008 (“CPA”).

The CPA is met with equal parts confusion and excitement, especially in the realm of lease agreements, whether for residential or commercial use. The questions we will deal with in this article include: When does the CPA apply to a lease agreement?

How does the CPA affect the termination of a lease agreement? Can the landlord still exercise his hypothec in terms of common law when tenants fail to pay rent?

The CPA does not apply in instances where the consumer (“the tenant”) is a juristic person (e.g. companies, CC’s, trusts, body corporates) whose annual turnover or asset value exceeds R2 million. Thus, if the tenant is a juristic person as determined above, neither the supplier (“the landlord”) nor the consumer can avail themselves to the provisions of the CPA.

Section 14 of the CPA applies to fixed term leases and deals specifically with the expiry and renewal thereof. Keep in mind that if both parties are juristic persons, this section does not apply, regardless of the annual turnover or asset value. Section 14 also doesn’t apply to once-off leases, in other words leases entered into which are not in the course of the supplier’s business. (An example of such an agreement would be if you leased your home in order to pay off your bond, as this is not done in the ordinary course of business.)

In terms of Section 14 a tenant may cancel a fixed-term lease in two ways, being either upon expiry of the fixed term period or at any time before expiry by giving 20 business days’ written notice to the landlord. The landlord has the right to impose a reasonable cancellation penalty, which can include lost rental or advertising costs in order to find a new tenant. The landlord must be able to prove the costs and they must be reasonable.

A landlord also has the right to cancel the lease by giving 20 business days’ notice, provided there has been a breach on the part of the tenant (such as failure to pay rent timeously as per the lease agreement) and he/she is given the opportunity to rectify such failure within the 20 day period. Should the tenant fail to rectify the breach, the landlord may cancel the lease upon expiry of the period. The implication of Section 14 is that all clauses in lease agreements which provide for immediate cancellation of the lease upon any breach by the tenant are unenforceable. It also further implies that eviction proceedings may only commence after at least 20 business days’ have passed since the breach, as the lease must be cancelled before instituting eviction proceedings, whether from residential or commercial property.

Should a tenant or the landlord not cancel a lease upon the expiry of the fixed-term period, the agreement will automatically continue on a month to month basis, or the tenant may agree to another fixed term period.

In terms of our common law a landlord enjoys specific protection against a tenant’s failure to pay rent, which is commonly referred to as “the landlord’s hypothec”. This essentially allows the landlord to attach any movable property on the leased premises belonging to the tenant if the tenant fails to pay rent timeously and to sell such property in order to recover the arrear rental amounts. Section 32 of the Magistrate Courts’ Act 32 of 1944 prescribes the procedure by which a landlord can attach and simultaneously remove the tenant’s movables from the leased premises in security of arrear rent. The good news for landlords is that this protection is not subject to the 20 days’ notice in terms of Section 14 of the CPA and the landlord’s hypothec and related remedies are unaffected. A landlord may therefore institute action for recovery of arrear rental immediately. It is thus only the cancellation of the lease agreement which requires 20 business days’ written notice.

REFERENCE LIST:

1. Section 5(2)(a)- (g) and Section 14 of the Consumer Protection Act 68 of 2008
2. Section 32 of the Magistrate Courts’ Act 32 of 1944

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.