PROPERTY: Landlords, Beware Consumer Act
Recent Western Cape Business News
While the impact of the Consumer Protection Act (CPA) on the manufacturing, supply and distribution of goods and services is fairly clear, its effect on landlords and leases of immovable property requires scrutiny.
“According to the definitions of the CPA, landlords, rental agents and buy-to-let investors can be seen as suppliers and tenants as consumers, both subject to the provisions of the CPA,” says Danelle Corbett, a director of Werksmans Attorneys.
She explains, “The CPA relates specifically to a landlord that lets premises as part of his or her ordinary business as opposed to a lease arrangement in a once-off private situation”.
While the CPA will have limited application to agreements retrospectively, standard lease contracts must be reviewed and adjusted to comply with the provisions of the CPA, as there will be no mercy for any landlord whose house in not in order after the inception date.
The protection offered to consumers by the CPA does not apply to all consumers – for example the provisions of the CPA will not apply to any transaction in terms of which the consumer is a juristic person (an entity other than a natural person such as a company) whose asset value or annual turnover, at the time of the transaction, equals or exceeds R2 million.
However, in terms of property rentals, a “consumer” as defined in the CPA includes not only individuals in respect of residential leases, but also tenants of commercial properties such as small or medium business enterprises. In this regard, the CPA has onerous implications.
“One of the most serious challenges to the security of tenancy normally created by long term leases is the fact that according to the CPA, tenants may now provide 20 days’ notice of cancellation, despite any provision in the lease to the contrary,” explains Corbett. However, this provision is not applicable to leases involving juristic persons, regardless of their annual turnover or asset value.
“While 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 landlords wishing to use rental agreements as security” says Corbett.
Furthermore, the conduct or failure of a rental agent to comply with the provisions of the CPA during the process of concluding a lease agreement on behalf of a landlord may result in the landlord incurring indirect liability on a joint and several basis.
“Landlords will need to ensure that tenants fully understand the terms and provisions of lease agreements. The potential for abuse by tenants is real in that a tenant may claim that he or she did not understand the extent of the agreement or was influenced to sign, and the onus will be on the landlord to prove otherwise,” warns Corbett.
The tenant must also be advised of any provision that limits the landlord’s risk or constitutes an assumption of risk by the tenant, an indemnity by the tenant or an acknowledgement of fact by the tenant. Any provision which purports to limit or exempt the landlord from liability for any loss attributable to the gross negligence of the landlord or requires the tenant to assume liability for this is, not allowed.
The regulations in terms of the CPA prescribe a maximum period of two years for the duration of fixed-term agreements, except to the extent that the landlord can show a “demonstrable financial benefit” to the tenant if a longer lease is concluded. It is uncertain how a landlord will be able to show such benefit.
Landlords should also take note that they are obliged to provide a notice of termination of the lease when it is nearing the end, even if the period is clearly outlined in the lease agreement.
“Another practice that will be curtailed is the inclusion of minimum warranties and exclusion of warranties relating to the purpose for which the premises is intended to be used. This will no longer be possible except to the extent that the tenant has been expressly informed that the premises are offered in a specific condition. For instance, where a tenant intends to use the premises as a restaurant and this is clearly conveyed to the landlord, the tenant will have the right to receive the premises in a condition that is reasonably suitable for this purpose. It could thus be argued that this will include being in a condition to obtain a liquor licence,” explains Danelle.
Ignoring the provisions of the CPA as it pertains to leases can result in the entire lease agreement being declared void and unenforceable. Furthermore, failure to comply with a compliance notice directing that prohibited conduct be rectified 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.
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