Update: residential lease packs now available here.
NOTE: This article is concerned solely with residential leases (leases of homes, shacks, garden cottages, flats and such like), where property is leased in the ordinary course of business, and not commercial leases.
Residential leases are subject to:
- the common law;
- the Constitution of the Republic of South Africa;
- the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (“PIE“);
- the Consumer Protection Act (“the CPA“);
- the Protection of Personal Information Act (“POPI“) (note this Act was signed by the State President in November 2013 and will come into force on a date yet to be published in the Government Gazette; we still believe it is good practice for all to start getting to grips with its provisions); and
- the Debt Collectors’ Act (in certain instances).
Please note: This article deals solely with the provisions of the Consumer Protection Act (“the CPA“) in the context of residential leases.
Note further: For information purposes, we will make further articles available on this site in due course that deal with residential lease agreements in the context of the other legal categories we mention above. Once those articles are loaded onto this site, we shall create hyperlinks for you from this article for ease of reference. It helps you to visit this site regularly and to read the legal information articles that we place here.
The CPA applies to tenants if they are:
- natural persons; or
- juristic persons that have an asset value or turnover of less than R2m at the time of the transaction (save for the provisions of Section 14 of the CPA which do not apply if both the landlord and tenant are juristic persons; see further below); and
- all franchisees, irrespective of turnover or asset value in the case of juristic persons (save for the provisions of Section 14 of the CPA which do not apply if both franchisor and franchisee are juristic persons).
Note, that for purposes of the CPA, “juristic-persons” include companies, body corporates, close corporations, partnerships, trusts and voluntary associations, BUT NOT sole proprietorships. (Trusts, partnerships and associations (unless such associations, or trusts, are registered as non-profits in terms of the Nonprofit Organisations Act) are generally not juristic persons, so this is a bit of an artificial construct in the CPA, but perfectly understandable.)
In terms of Section 4 (4) of the CPA if a lease is prepared by a landlord, it shall be interpreted in favour of the tenant if it drafted in a way that is ambiguous or appears to erode a tenant’s rights under the CPA. This makes it absolutely imperative for landlords to know what their rights and obligations are under the CPA; see our cautionary note to landlords below, where we alert them to the dangers of using “standard residential lease agreements” that have been downloaded from the internet. If you see a clause in a residential lease agreement presented to you by a landlord that states either that “the contra proferentum rule shall not apply”, or that “the rule of interpretation that a contract shall be construed against the party that drafted it, is hereby excluded”, such will be of no force or effect by virtue of Section 4 (4) of the CPA.
Landlords who lease residential property in the ordinary course of business are also subject to the CPA and are regarded as “suppliers” in the context of the CPA. There is a school of thought that believes that if a landlord leases residential property intermittently or on a once-off basis, then such does not constitute letting in the “ordinary course of business” as business entails a continual activity as per the CPA. An example of such may be where someone leases a residence to a tenant pending the sale of that property to the tenant, or a situation where someone owns a holiday flat and leases such to a relative who is there on a short-term work contract. There is another school of thought though, that is of the opinion that all residential leases to tenants (that constitute tenants under the CPA) are subject to the provisions of the CPA. In time, we believe, that this issue will be definitively pronounced on by our courts. In the meantime, it is best to err on the side of caution, and to consult an experienced legal practitioner if in doubt.
Section 14 of the CPA deals with how residential lease agreements expire and how they are to be renewed. Note, the provisions of section 14 do not apply to any tenants that are juristic entities, where the landlord is also a juristic person, i.e. section 14 does not apply where both the landlord and tenant are juristic persons.
To ascertain practically whether Section 14 of the CPA would apply or not, you would have to first determine whether the landlord was leasing residential property in the ordinary course of business. Assuming that residential property was let on a continuous (and not intermittent) basis, then the landlord would constitute a “supplier” for purposes of the CPA as already referred to above.
Assuming the landlord is a juristic person and the tenant is a small business housed in a private company (assets, or turnover less than R2m at time of the deal), section 14 would not apply, but the rest of the CPA would.
Let’s continue assuming that the landlord is a juristic person and the tenant is a large company (turnover and assets more than R2m at date of transaction). Big business is excluded from the CPA, so the CPA does not apply at all to this deal.
In the third example, the landlord is a juristic person and the tenant is a natural person. The CPA applies to this leasing deal in its entirety (that means section 14 applies as well).
Let’s assume that the landlord is a natural person and the tenant is a natural person as well. In this case all aspects of the CPA, including section 14, apply.
Continuing to assume that the landlord is a natural person, what is the case where the tenant is a small private company (with a turnover, or assets less than R2m at the date of the deal); the latter is regarded as a consumer for purposes of the CPA and the provisions of section 14, together with the rest of the CPA apply.
Residential leases between landlords who are natural persons and larger corporates, as discussed above, are not regulated by the CPA at all.
Generally residential lease agreements may endure for a maximum fixed-period of 24 months. Under the CPA, a longer period is permissible ONLY if there is a demonstrable financial benefit that the tenant gains from such a longer fixed-term. The onus lies on the landlord to prove a “demonstrable financial benefit”.
Even where a residential lease agreement is fixed for a period of 24 months, or less, the tenant may still cancel before this fixed term is over. The way he or she or it (note, juristic persons are gender neutral; hence the use of “it”) will do this is by giving the landlord 20 business days’ notice. This does not mean that the tenant can simply walk away from the residential lease agreement without incurring any liabilities. While there is a common law duty on the landlord to mitigate his damages (this means he must do what he legitimately can to ensure he does not suffer even more loss, e.g. he must start looking for a new tenant as soon as he can and must not dither), the landlord is also entitled to claim reasonable cancellation penalties from the tenant. Once again, how such is to be calculated and what constitutes “reasonable” will be borne out in our courts over time, suffice to say that Regulation 5 (2) of the CPA states that in calculating what is reasonable, the following criteria should be considered: the amount the tenant is still liable for to the landlord up to the date of cancellation, the value of the lease transaction up to cancellation; the value of the goods which will remain in the tenant’s possession after cancellation; the value of the goods that are returned to the landlord, the initial fixed term that was agreed upon at the inception of the agreement, any benefits or losses incurred by the tenant as a result of the tenant entering into the agreement, the nature of the goods or services that were reserved or booked, the length of the tenant’s cancellation notice, the reasonable potential for the landlord, acting diligently, to find an alternative tenant between the time of receiving the cancellation notice and the time of the cancelled lease, the general practice of the residential leasing industry. It is suggested that where a dispute is likely to arise as to what constitutes a reasonable cancellation penalty, that such be referred to be determined by an independent expert, whose decision should be binding on the landlord and tenant.
Further to what we state above, landlords must note that in terms of Regulation 5 (3) of the CPA, they cannot state that the tenant is liable for a cancellation penalty that is so excessive that it places a red-line through the entitlement of the tenant to cancel on 20 business days’ notice to the landlord. If anything, we are of the opinion that this Regulation simply underscores the duty of the landlord to act reasonably in determining an early cancellation fee. While the landlord may not charge for every rental that the landlord would have been entitled to up to the expiry of the residential lease agreement, it is arguable that the tenant may charge for cleaning costs, advertising costs and costs of not having the property occupied for a certain period of time owing to difficulty in sourcing an adequate tenant (again, the “certain period of time” cannot include the entire remaining residential lease period, as to make the tenant liable for all those costs would be punitive, unreasonable, at odds with the tenant’s cancellation rights under the CPA and would also dilute the landlord’s duty to mitigate his damages).
Given what we have discussed above, it is unlikely (or less likely) that financial institutions will regard cessions of rights, title and interest in and to residential rental income streams as security for purposes of debt finance in future.
Where the tenant materially breaches the residential lease agreement, the landlord may cancel on 20 business days’ notice to the tenant, unless the tenant rectifies the breach within that time. Please note that ANY agreement between a landlord and tenant to reduce the 20 business days time frame is invalid as it is tantamount to a consumer being deprived of a right that he/she may not be deprived of in terms of Section 51 of the CPA (see further below).
(We will deal with the issue of tenants refusing to vacate leased residential premises on cancellation and eviction in a separate article.)
Under Section 14 of the CPA landlords also have the onus of notifying tenants that a residential lease agreement is about to expire (“the expiry notice“). They must do this at least 40 business days, but not more than 80 business days, before the residential lease fixed-term (which must not be more than 24 months, except if there is a demonstrable financial benefit to the tenant) expires, and the expiry notice must also inform tenants of the amended terms and conditions of the new residential lease agreement, i.e. the residential lease agreement that will come into effect upon expiry of the fixed-term.
The tenant must either state whether the tenant accepts the expiry notice and agrees to a continuation of the residential lease agreement on the terms and conditions set out in the expiry notice, or whether the tenant wishes the residential lease agreement to expire at the end of the fixed-term period. If the tenant does not communicate either way to the landlord, then the residential lease is deemed to continue on a month-to-month basis on the terms and conditions as set out in the expiry notice. It may be prudent for landlords to build an automatic termination of the residential lease agreement at the end of the fixed-term into the agreement (note however that there are differing legal points of view as to whether this is permitted by the CPA as the wording of Section 14 is ambiguous; accordingly, this is something that may be clarified in time by courts, or the legislature). However, if the latter has not been done and the tenant has not opted to terminate the residential lease agreement, then such will continue on a month-to-month basis in accordance with the provisions of Section 14 of the CPA. Each of the tenant and the landlord then have the right to cancel a month-to-month residential lease agreement by giving one another one calendar month’s written notice.
It is interesting that while the CPA is not written in plain language, section 22 of the CPA requires that all residential lease agreements must be written in plain language. This means that a residential lease agreement must be written in such a way that tenants who have average literacy skills and who don’t have much experience being tenants are still able to understand what such an agreement says. The agreement must be comprehensible to, and understandable by, tenants. If a landlord has a residential lease agreement that is very broadly and widely worded, it shall always be interpreted in a way that is favourable to the tenant.
Residential lease agreements must also be fair in terms of pricing specifically and generally the provisions of a residential lease agreement must be fair, reasonable and not unjust. This is contained in Section 48 of the CPA. This section states that clauses in a residential lease agreement that require a tenant to waive a right, or assume an obligation, or that waive the liability of the landlord, may only be done in a manner that is consistent with Section 48 concerning the requirements of being fair, reasonable and just.
Given the plain language requirements of the CPA and the requirements that residential lease terms may not be unjust, unfair or unreasonable, it is very important that landlords pay especial attention to what is contained in their residential lease agreements. It is simply not acceptable to simply pull a precedent of a free residential lease agreement off the internet and expect that to be sufficient. Also it is not prudent to simply have a clause in the residential lease agreement that you pulled off the internet stating that to the extent that there is a conflict between that document and the CPA, the CPA will prevail, without analysing and modifying each clause in the context of the CPA specifically, and applicable SA law generally! Landlords open themselves up to huge legal, criminal and financial risks if they do so and if residential agreements are found to one-sided in favour of the landlord, or inequitable as against the tenant, or not in plain English, or generally at odds with the CPA. Tenants can now legitimately argue that they did not understand certain terms and conditions of a residential lease agreement and the landlord will bear the onus of proving that such was not the case.
Under Section 49 of the CPA, any part of a residential lease agreement in which the landlord’s liability is limited, e.g. in the case of mere negligence (gross negligence is dealt with in terms of Section 51), or which results in the tenant taking on a risk or a liability, or requires the tenant to indemnify the landlord, or forms an acknowledgement of fact by the tenant, must- in addition to being set out in plain language- be clearly pointed out and brought to the attention of the tenant. It is important that landlords make substantive residential lease agreements available to potential tenants and afford them adequate time to peruse, clarify and amend such.
For landlords who believe that they can get tenants to agree to the waiver of the CPA, such is impossible (and of course ludicrous). Section 51 of the CPA states that residential lease agreements may not contain provisions that deprive tenants of CPA rights in any manner, or avoid a landlord of CPA obligations, or that unlawfully dilute, negate, water-down the provisions of the CPA. This makes complete sense. If the CPA was enacted to protect consumers, of which tenants are a sub-set, then they may not be arbitrarily deprived of such rights. Section 51 also affects limitation of liability clauses that would typically protect landlords. No longer may landlords protect themselves against their gross negligence, and no longer can they pass this liability onto the tenant and make the tenant responsible for such damages. This is good news, not just in the context of residential lease agreements specifically, but consumer contracts generally. (Certainly, tenants are still liable for losses and damages arising out of their gross negligence, recklessness and criminal misconduct.)
Also, under Section 51 of the CPA, no longer can residential lease agreements have clauses stating that no representations or warranties were made by the landlord to the tenant prior to the agreement being concluded, if such were in fact made. To do so is false and capable of being challenged by the introduction of extrinsic evidence. Arguably the following clause in a residential lease agreement would be capable of being challenged by virtue of the provisions of Section 51 if certain representations were made to the tenant, but not recorded in the residential lease agreement:
“This Agreement constitutes the sole record of the Agreement between the Parties in relation to the subject matter hereof. Neither Party shall be bound by any express, tacit or implied term, representation, warranty, promise or the like not recorded herein. This Agreement supersedes and replaces all prior commitments, undertakings or representations, whether oral or written, between the Parties in respect of the subject matter hereof.“
We reiterate, clauses at odds with residential lease agreements are unenforceable, void and severable from the rest of the agreement, but that is not all. In addition to the latter, landlords that/who flout the provisions of the CPA open themselves up to possible imprisonment of a year, or a fine (the greater of 10% of annual turnover or R1m), or both a fine and a year-long imprisonment.
Please note, it is important for landlords to understand that where they make use of rental agents and delegate duties to such agents, then it is essential for landlords to ensure that such rental agents understand the provisions of the CPA and all relevant laws impacting on residential leases, as failure by the rental agent to act in accordance with SA legal requirement, STILL opens the landlord to liability. In such instances the landlord and the rental agent would be jointly and severally liable. It is arguable that landlords cannot contract out of the liability resting on them pursuant to what we’ve discussed above by delegating their obligations to rental agents.
Rather than download a “standard” residential lease template off the internet and conclude such, have regard again to the above article and the huge risks that landlords face in doing so. Landlords need to be aware of the CPA and a whole lot of other regulatory imperatives. Either, seek the services of a seasoned legal practitioner to assist in the drafting of residential lease agreements that comply with the common law, the Constitution, the PIE, the CPA, POPI, the RHA and its regulations (SITL Legal can assist in this regard; please e-mail us at email@example.com and visit www.sitllegal.co.za for more information), or purchase our residential agreement lease combination pack that will be shortly made available for sale on this website. We will make two such packs available, one where a landlord leases residential property in his/her/its own stead, and one where the landlord makes use of a rental agent. These packs contain comprehensive documents such as a rental application form, a landlord’s disclosure document, a plain-language residential lease agreement, a plain-language suretyship, a rental agent services agreement, a specimen resolution and property inspection documents.
We reiterate that if you require bespoke/custom residential lease agreements drawn up that comply with all the pieces of legislation and common law that we refer to above, please contact SITL Legal via firstname.lastname@example.org or on www.sitllegal.co.za; otherwise please wait for our cost-effective residential lease packs to be made available for sale on this site.
As always, we urge you to be prudent as a landlord and to err on the side of caution.