Section 14 of the Consumer Protection Act No 68 of 2008, (“CPA”), which relates to the expiry and renewal of fixed term agreements, reads as follows:

“14 (1)  This section does not apply to transactions between juristic persons regardless  of their annual turnover or asset value.
(2)  if a consumer agreement is for a fixed term –
  (a)   that terms must not exceed the maximum period, if any, prescribed in terms of subsection (4) with respect to that category of consumer    agreement;
  (b)   despite any provision of the consumer agreement to the contrary –
   (i)   the consumer may cancel that agreement –
   (aa)  upon the expiry of its fixed term, without penalty or charge, but subject to subsection (3)(a); or
    (bb)   at any other time, by giving the supplier 20 business days’ notice in writing or other recorded manner and form,      subject to subsection (3)(a) and (b); or
   (ii)   the supplier may cancel the agreement 20 business days after giving written notice to the consumer of a material failure by the consumer to comply with the agreement, unless the consumer has rectified the failure within that time….

(3)   upon cancellation of a consumer agreement as contemplated in section (1)(b)-
  (a)   the consumer remains liable to the supplier for any amounts owed to the supplier in terms of that agreement up to the date of cancellation; and
  (b) the supplier –
    (i)  may impose a reasonable cancellation penalty with respect to any goods supplied, services provided or       discounts granted, to the consumer in contemplation of the agreement enduring for its intended fixed term, if any; and
    (ii)   must credit the consumer with any amount that remains the property of the consumer as of the date of       cancellation...”

Section 14 applies to all fixed term agreements concluded in the normal course of business, save when entered into by and between juristic persons (thus, any lease agreements entered into on a month to month basis would not fall within the scope of section 14), accordingly it has had a substantial impact on the rental property market since its commencement on 31 March 2011. In most instances lease agreements are entered into for a fixed term, and in turn it is clear that section 14 would be applicable to many, if not all lease agreements relating to immovable property, especially lease agreements in respect of residential property.

Section 14(2)(d) provides, however, that upon expiry of such fixed term, such agreement will automatically continue on a month to month basis, thus, although previously governed by section 14, after expiry it will no longer be regulated thereby.

Cancellation

Section 14(2)(b) as quoted above, has the effect that a lessor will not be in a position to cancel a lease agreement during the term of the agreement, unless the lessee breaches a material term of the agreement and fails to remedy such breach within the allowed time after receiving written notice to that effect. This would imply, that should the lessor wish to take occupation of the premises or sell the property, that he would not be permitted to cancel the agreement. Where the lessee is in breach of a material term of the agreement, the lessor is obliged to give the lessee written notice in which the breach is described and the lessee should be allowed 20 business days to remedy such breach. The lessor would have to indicate in the notice that the failure of the lessee to remedy the breach within the allowed time would result in cancellation of the agreement. This subsection is particularly cumbersome. It effectively has the result that the lessee would be in a position where the rent can be paid one month in arrears instead of one month in advance.

Conclusion

It is clear that the CPA has had a substantial impact on fixed-term lease agreements. It is vital to be aware of this effect.

The purpose of the CPA is to protect the consumer, however, it was not the intention of the Act to unjustly prejudice a property owner. The owner has a responsibility to comply with the Act, but this compliance does not have to be to the detriment of the owner. When dealt with correctly, section 14 meets the purpose of the CPA without creating an unreasonable disadvantage to the owner.

It is accordingly of vital importance to ensure that the lease agreement to be entered into is drafted correctly, and it is advised to approach your attorney in this regard.

Written by Mareon Basson, Schoemanlaw Inc