Life is unpredictable and sometimes it becomes necessary to terminate a lease agreement entered into for a fixed term earlier. Can a tenant give notice to the landlord to cancel the lease before the agreed fixed term of the lease has run its course?
The first point of departure is to read the lease agreement. Sometimes leases have clauses providing for an early termination notice period. If there is no such clause the lease may only be cancelled in situations where the parties agree to the termination or in the situations where the Consumer Protection Act applies.
The Consumer Protection Act (“the Act”) applies to the supply of goods and services within South Africa. Residential leases fall within the definition of services where the landlord leases the property in the ordinary course of business.
Unfortunately it is not yet clear how our courts will interpret this definition in respect of residential leases.
If your landlord is a property developer with a letting business with a whole selection of apartments or houses, the lease will definitely fall under the Act. It is not so clear whether a private homeowner who rents property on a temporary basis will fall within the definition.
When the Act applies
The application of the Act is further excluded where the lease is concluded between to juristic entities and where the tenant has an annual turnover or asset value of more than R2 million Rand.
If the Act applies to the lease, the tenant may cancel a fixed term lease for any reason by giving the landlord 20 business days written notice of the cancellation.
“Business days” means weekends and public holidays are not counted. If the tenant cancels the lease before the lease would have ended in the ordinary course then the landlord is entitled to a reasonable cancellation penalty.
In order to determine a reasonable penalty the following factors must be considered:
- the rental amount which the tenant stills owes the landlord up to the date of cancellation;
- the value of the lease transaction up to the date of cancellation;
- the duration of the lease agreement as initially agreed upon by the parties;
- losses suffered or benefits accrued by tenant because of the tenant entering into the lease agreement;
- the length of the notice period given by the tenant
- the length of the period within the land lord would be able to find a new tenant
- the industry practice
Between one and two months rental would probably be considered reasonable.
In cases where the Act applies to a lease, a landlord can only cancel a tenant’s lease if the tenant has breached the lease and if after having given 20 business days written notice to the tenant to remedy the breach, the tenant has failed to do so.
Consult an experienced property attorney before sending breach and/or cancellation and/or early termination notices. Contact Goldberg & de Villiers Inc on 041 501 9800 for advice.