Lease agreement disputes

31st Jul 2019

Lease agreement disputes:

Disputes often arise between a tenant and the landlord and / or the agent. Various reasons can exist for these disputes, such as the amount of rent due, breach of contract, discounts forfeited, early termination and so on. In this article we will primarily focus on disputes that can arise based on the early termination of a lease agreement.

The Consumer Protection Act 68 of 2008 and the Rental Housing Act 50 of 1999, both affect lease agreements. Should one of the parties want to cancel the lease agreement, prior to the expiry thereof, this can only be done in situations where the Consumer Protection Act or Rental Housing Act apply or if there is a clause in the contract that specifically allows for early cancellation or if both parties agree to the early termination.

One must distinguish between termination based on breach of contract and early termination of the lease agreement. When a lease agreement is terminated based on breach of contract, the party in breach should be given time to rectify the breach. Should the breach not be rectified in the time allowed, the innocent party has the right to enforce or terminate the lease agreement and institute a claim for damages.

Section 4 of the Rental Housing Act contains the rights of the tenant and the landlord:

“(3) The tenant’s rights as against the landlord include his or her right not to have-

(a) his or her person or home searched;

(b) his or her property searched;

(c) his or her possessions seized, except in terms of law of general application and having first obtained an order of court: or

(d) the privacy of his or her communications infringed.

(5) The landlord’s rights against the tenant include his or her right to –

(a) prompt and regular payment of a rental or any charges that may be payable in terms of a lease;

(b) recover unpaid rental or any other amount that is due and payable after obtaining a ruling by the Tribunal or an order of a court of law;

(c) terminate the lease in respect of rental housing property on grounds that do not constitute an unfair practice and are specified in the lease;

(d) on termination of a lease to –

(i) receive the rental housing property in a good state of repair, save for fair wear and tear: and

(ii) repossess rental housing property having first obtained an order of court: and

(e) claim compensation for damage to the rental housing property or any other improvements on the land on which the dwelling is situated, if any, caused by the tenant a member of the tenants household or a visitor of the tenant”.

If a tenant wishes to terminate the lease agreement before the expiry thereof, it should be done by giving the required notice in terms of the lease agreement to the landlord or its agent. Should the lease agreement not provide for a specific notice period, the tenant can give 20 business days’ notice, as stipulated in the Consumer Protection Act. However, if the lease agreement does contain a specific notice period the tenant should give notice of termination as stipulated in the lease agreement. This will inform the landlord whether it is early termination or not. In the case of early termination, the landlord will be entitled to charge a cancellation fee, should such a cancellation fee have been agreed upon in the lease agreement. This should usually be the easiest way to deal with an early cancellation if both parties agree, or if the lease agreement makes provision for early termination. If the two parties however, are not in agreement or there is no cancellation clause in the lease agreement, the Consumer Protection Act or the Rental Housing Act applies. Section 14 (2) of the Consumer Protection Act states:

“(b) despite any provision of the consumer agreement to the contrary—

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”.

Section 14(3) should be read with the above:

“(3) Upon cancellation of a consumer agreement as contemplated in subsection (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, as prescribed in terms of subsection (4)”.

It is possible that a tenant’s early termination could still be viewed as a breach of contract should the lease agreement not specifically allow for the early termination thereof or if the parties did not agree to early termination or if the landlord had not breached the contract.

If the tenant vacates the property without sufficient notice to the landlord and before the expiration of the lease, the landlord retains all its rights arising from the tenant’s breach of contract. As compensation for the rental income the landlord loses in the tenant vacating without notice and / or the potential loss of rental income until a replacement tenant is found, the landlord is within its rights to withhold the tenant’s deposit to recoup costs. The landlord will be within its rights to demand that the tenant still pay the rent due for the balance of the lease period and the tenant may also lose its deposit. It is therefore best to first discuss the termination with the landlord as you may be able to reach an agreement in this regard.

The deposit must be used to repair damages or to pay outstanding rental and the landlord must be able to show receipts of actual repairs done as these would be considered to be damages suffered.

Section 5(g) of the Rental Housing Act states the following:

“On the expiration of the lease, the landlord may apply such deposit and interest towards the payment of all amounts for which the tenant is liable under the said lease, including the reasonable cost of repairing damage to the dwelling during the lease period and the cost of replacing lost keys and the balance of the deposit and interest, if any, must then be refunded to the tenant by the landlord not later than 14 days of restoration of the dwelling to the landlord”.

Once the landlord or its agent has received the written notice of cancellation, they should start advertising immediately for a new tenant for the property to minimise their losses and / or damages.

Although the landlord is entitled, in terms of the Consumer Protection 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 it is intended to allow the landlord an opportunity to recoup any losses it 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.

Regulation 5 (2) of the Consumer Protection Act describes the criteria that must be taken into account when determining a “reasonable cancellation fee”. They are the following:

(a) The amount which the consumer is still liable for to the supplier up to the date of cancellation;

(b) The value of the transaction up to cancellation;

(d) The value of the goods that are returned to the supplier;

(e) The duration of the consumer agreement as initially agreed;

(f) Losses suffered or benefits accrued by consumer as a result of the consumer entering into the consumer agreement;

(g) The nature of the goods or services that was reserved or booked;

(h) The length of notice of cancellation provided by the consumer;

(i) The reasonable potential for the service provider, acting diligently, to find an alternative consumer between the time of receiving the cancellation notice and the time of the cancelled reservation; and

(j) The general practice of the relevant industry

Regulation 5 (3) of the Consumer Protection Act should be read together with the above and it states that

“The supplier charge a charge that would have the effect of negating the consumer’s right to cancel a fixed term consumer agreement as afforded to the consumer by the Act”.

This simply means that the cancellation charge cannot be exorbitant or render cancellation of the contract more of a financial burden than a long-term relief from a contract.

Based on the above it is clear that a landlord will be entitled in certain circumstances to claim damages from the tenant based on early cancellation as well as breach of contract. Also clear is that the landlord could also be in breach of the lease agreement, which would entitle the tenant to cancel its lease early, and possibly a claim for damages.

We therefore urge tenants and landlords to take time to go through the lease agreement and to peruse each clause carefully. We also encourage tenants and landlords to have an open dialogue with each other when circumstances change in order to mitigate their own damages and in order to avoid unnecessary litigation.

Noelene van Coller

Posted in Articles