Apr 5,2011 / News / Legal Brief

The Consumer Protection Act (CPA) applies to every transaction in SA relating to the supply or promotion of goods or services to consumers.  A rental agreement is a service to which the CPA applies, as a tenant is regarded as a consumer under the CPA. The definition of supply in relation to services in this context refers to the granting of access to premises.

THE CONTRACT OF LEASE

To ensure that a lease contract / agreement complies with the provisions of the CPA, the following general principles (although not exhaustive) should be followed:

  • The contract must be in plain and understandable language that would enable an ordinary person with average literacy skills and minimal experience to understand the content and significance.  This implies that the landlord should at least ensure that the contract is provided in a language in which the tenant is fluent.
  • The tenant’s attention must be drawn to any provision in the agreement that limits the risk of the landlord or constitutes an assumption of risk for the tenant, an indemnity by the tenant or an acknowledgement of fact by the tenant. This notice must also be in clear and understandable language.
  • Clauses exempting the landlord from any liability arising from the repair of the premises and requiring the tenant to indemnify the landlord against any claims arising from the use of the premises, will not be permitted under the CPA.
  • The lease agreement cannot contain provisions which will defeat the purpose of the CPA, or any provision which limits or exempts the landlord from liability for any loss attributable to gross negligence or requires the tenant to assume liability for this.
  • The agreement should not contain a false acknowledgement by the tenant that no representations or warranties were made by the landlord, or on behalf of the landlord (e.g. by the rental agent).
  • Contracts should not be substantively unfair.  This means that they should not be excessively one-sided in favour of the landlord or contain provisions so unfavourable as to be discriminatory.

Unfortunately there is no “tick-box” available to assist in the drafting of lease agreements.  It is recommended that a holistic approach is followed by taking each provision of the CPA into account, as well as the agreement as a whole.

WARRANTIES

The practice of including warranties relating to the purpose for which the premises is intended to be used by the tenant, zoning of the property or the attainability of any licences or rights in respect of the intended use thereof will no longer be possible, unless a tenant has been expressly informed that the premises are offered in a specific condition.

EXPIRY AND RENEWAL OF LEASES

The regulations will prescribe certain maximum periods relating to the duration of fixed-term agreements. Limitations on the terms of long-term leases will have far-reaching effects on landlords and tenants alike.  It will also deal a significant blow to the security of tenancy normally created by such leases.

More worryingly, and a principle that all landlords should take notice of, is the fact that the tenant will be able to cancel the lease, at any time, by giving the landlord 20 business days’ notice.  This right will be available to tenants, despite any provision in the lease to the contrary. Even though the tenant will remain liable to the landlord for amounts owed in terms of the lease up to the date of cancellation, and the landlord will be entitled to impose a reasonable cancellation penalty, the uncertainty caused by this could negatively impact on landlords, particularly those wishing to use rental agreements as security.

PENALTIES

Landlords that ignore the guidelines of the CPA by including prohibited provisions in their leases, run the risk that the offensive provision, or in fact the entire lease agreement, could be declared void and unenforceable.

And if that is not enough to scare landlords into compliance, failure to comply may result in a fine or imprisonment for up to one year, or both a fine and imprisonment.  Fines could be substantial and may range up to the greater of 10% of annual turnover or R1 million.

Landlords must also ensure that their agents are well versed on the CPA, as the conduct or failure of, for instance, a rental agent during the process of concluding a lease agreement on the landlord’s behalf, may result in the landlord incurring vicarious liability on a joint and several basis.

THE WAY FORWARD

Although the CPA will have only limited application, if any, to agreements concluded before 1 April 2011, it is clear that landlords should assess how the act applies to their business operations without delay. Standard lease contracts should be reviewed and adjusted to comply with the CPA.  There will be no mercy for any landlord whose house is not in order thereafter.