Residential & Commercial Lease Agreements
The South African legal landscape has changed dramatically in the past few years with new legislation. It is important for landlords to understand that the Consumer Protection Act, 2008 (CPA) has had a significant affect on some, but not all, lease agreement. These may apply to both commercial and residential leases. The law is generally very biased in favour of tenants who are arguably over-protected. If you are a landlord we can advise you whether the CPA will apply to your lease agreement and draw an appropriate one up for you.
What the Consumer Protection Act Means for Commercial Property Owners
It is essential that property owners who lease commercial premises ensure that they are cognizant of the relevant portion of the CPA. A “consumer”, as defined by the Act, includes the tenant of a commercial property. However, if the tenant is a “Juristic person” (i.e.. a company, cooperative or trust) with an asset value or annual turnover at the time of entering into the lease equal to or exceeding R2 000 000.00, the Act will not apply.
The lease of residential properties will fall within the ambit of the Act where the landlord lets it in his or her capacity as a “supplier”. That is, as a person (or company) who markets goods or services “as part of their ordinary business operations”. Ascertaining whether the landlord falls within this definition is not as clear cut as it may seem at first blush.
Important Sections of the CPA
Section 22- Landlord’s obligation to ensure tenant understands the lease
The CPA departs radically from the renowned legal principle, “signor beware” (caveat subscriptor). Where applicable to a particular lease agreement, Section 22 requires a landlord to ensure that a lease is in drafted in plain and understandable language. Further, section 50 of the Act requires that a lease must ‘set out an itemised break-down of the consumer’s financial obligations under such agreement’. The onus is therefore on the landlord to ensure that the tenant understands the terms of the lease.
Sections 48 and 49 – Unfair, unreasonable and unjust terms
Sections 48 and 49 of the CPA preclude terms of an agreement which are deemed unfair, unreasonable or unjust. Examples commonly seen in commercial leases that limit a landlord’s liability against the tenant’s claim for damages or indemnify landlords from third party claims might be deemed unfair, unreasonable or unjust.
Section 49 in particular requires a landlord to bring to the tenant’s notice any term of the lease that purports to:
- limit, in any way, the risk or liability of the landlord or any other person;
- constitute an assumption of risk or liability by the tenant;
- impose an obligation on the tenant to indemnify the landlord or any person for any cause;
- be an acknowledgement of any fact by the tenant; and
- concern any activity or facility that is subject to certain specified risks.
Section 51 – Prohibited Transactions
In addition, Section 51 provides a general list of prohibited transactions, agreements, terms and conditions.
Many of these provisions are vague and generalist and it is advisable that landlords obtain professional advice to ensure that their lease agreements comply fully with the CPA. Where a lease is bound by the CPA and does not comply therewith, the tenant may evade liability from his obligations or even have the lease agreement declared null and void.
Section 14 - Maximum lease period (non-corporate tenants)
Where the tenant is a natural person (i.e. is not a company, cooperative or trust), section 14:
- Limits lease agreements that are applicable to the CPA to a maximum duration of two years unless the landlord can demonstrate that a longer lease will financially benefit the tenant. The CPA does not define what the term “financial benefit” means in this context.
- Permits tenants to cancel applicable leases on only 20 working days’ notice. The landlord, however, is entitled to impose a reasonable cancellation penalty for early termination in reliance on this section.