The Consumer Protection Act (“CPA”) grants many rights to consumers, South Africanconsumers now being among the most protected consumers on a global level.
The Consumer Protection Act grants many rights to consumers, South African consumers now being among the most protected consumers on a global level. As a consequence, added protection for consumers invariably means a little less protection for landlords.
As a consequence, added protection for consumers invariably means a little less protection for landlords.
Application of the CPA
The CPA does not apply to corporate tenants if their asset value or annual turnover is R2 million per annum or more, irrespective of who the landlord is. For the purposes of this article, I refer to corporate tenants as tenants who are above the threshold.
Section 14 of the CPA does not apply between a landlord and tenant if both are commercial entities.
The CPA does apply if the tenant is a natural person and the lease is deemed to have been concluded in the ordinary course of business. For purposes of this article I am treating a lease as being in the ordinary course of business.
With the CPA, however, come legal complications which many Landlords are not always aware of.
From our experience, as specialist rental property attorneys, we are seeing landlords and managing agents doing their level best to circumvent the CPA (Section 14 of the CPA, in particular) even though they are not actually allowed to (Section 51 of the CPA).
For our purposes, however, it’s important to stress the following:
Section 14 of the CPA provides, amongst others, that a natural person tenant is allowed to cancel the lease prematurely, and on 20 (twenty) business days’ notice, notwithstanding the agreed lease period. Of course, a corporate tenant that the CPA does not apply to does not have that luxury.
The lease may not exceed 24 (twenty four) months with a natural person tenant, unless a longer period is expressly agreed to between the tenant and the landlord and the landlord can show a “demonstrable financial benefit” to the tenant to justify this lease extension. Nowhere in the CPA or its Final Regulations is there any definition of what a “demonstrable financial benefit” is. A corporate tenant can sign any length lease the Landlord wants – no restrictions exist.
If the natural person tenant breaches the lease, the landlord has to give the tenant a period of time to remedy the breach and can only cancel the lease after expiration of 20 (twenty) business days from date that demand to remedy the breach was sent. Whilst the tenant will remain liable to the supplier for any amounts owed to the landlord in terms of the relevant lease, up to the date of cancellation, at best the landlord may impose a “reasonable cancellation” penalty in lieu of obtaining the balance of the rental period of rental owed. Even though a reasonable cancellation penalty is defined in section 5 of the Final regulations to the CPA, it is open to much interpretation. A corporate tenant can of course have its lease cancelled almost as early as 7 (seven) days after demand to remedy a breach, if not sooner.
In these circumstances, one could easily argue – why would I sign a lease with an individual?
But what if you don’t?
There has been a move on behalf of commercial and residential landlords to only enter into either commercial or residential leases with commercial entities to avoid the CPA applying at all or to prevent section 14 of the CPA from applying, thereby not allowing the commercial entity tenant the ability to terminate its lease on 20 business days’ notice and of course giving the landlord the right to cancel for the tenant’s breach on a far shorter time period than 20 (twenty) business days.
However, the commercial tenant such as a company or a close corporation or trust does not offer the infallibility the landlord thinks exists. An example of the impact of liquidation or business rescue application by a commercial tenant might have on the landlord is that the landlord may find itself with a tenant who cannot afford to pay rent and who the landlord cannot remove from its premises.
A business rescue practitioner must develop and implement a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities and assets so that the company has a better chance of trading on a solvent basis. A company undergoing this process may use business rescue to temporarily suspend legal action, payments and to use the law to renegotiate lease terms.
As for a liquidation of the commercial tenant, the liquidator must give written notice to the landlord in which he terminates the lease in writing. Failing that, within three months of the Liquidator’s appointment the agreement is terminated automatically.
It appears that the landlord needs a new lease on life? - Marlon Shevelew
About the Author
Marlon Shevelew is the Director of Marlon Shevelew and Associates Inc., a Cape Town Law firm, specialising in Rental Property, Contractual, Consumer and Company law. Mr Shevelew is a National Legal Advisor and/or presenter of rental property seminars with the Institute of Estate Agents (IEASA), Tenant Profile Network (TPN), PAYPROP, the University of Cape Town (UCT) and is a monthly guest expert on the “Law Report” on SAfm. Mr Shevelew also created the unique Rental Retainer Club which offers affordable legal fees to clients.