Making peace with the Consumer Protection Act and lease agreements

We remember April 2011 looming and bringing with it the Consumer Protection Act, with its reach extending to Lease Agreements. Prior to this my colleagues and I attended numerous seminars at quite some cost – there were many people giving talks on their interpretation of the then proposed Act and their opinion on whether or not property rental agreements would fall under the ambit of the CPA

Eventually it was clear that leases did indeed fall under this legislation and finally, after some very well-informed seminars later, we had a good understanding of what was covered by the Act.

Before this enlightenment we initially understood that the CPA was born out of a need to protect consumers and believed that when written, they were thinking in terms of things like gym memberships and cellphone contracts, but not leases surely?

But a rental agreement is a service as far as the CPA is concerned and amongst other things, the 20 working days notice which the CPA allows on a contract applies to tenants – BUT subject to penalties. Remember that in terms of the Act, the act of giving notice does not cancel the consumers’ liability if the supplier is in for costs (or as in the case of leases, loss of income if the property is not re-let timeously).

And as we have discovered, this right to give notice during a lease is not a such a bad thing at all. In fact, in our experience, it’s the contrary.

Having experienced the effect of the CPA for some years, we feel it has actually made people more transparent. Where previously if a tenant wanted to break a lease they may very well not have advised you, and not paid their last month’s rent in order to leave without losing much deposit. Leaving you with an empty property, trying to get a new tenant as quickly as possible, and losing income in the interim.

Now we find the tenants who do have to their break lease are giving us plenty of notice – we’ve had one who had advised that they had to leave in Feb the next year instead of June, and another who gave 3 months notice one and half years into a 2 year lease.

Before we understood the CPA, all we could envisage in our knee-jerk reaction was people moving in and out on a whim. What were we thinking?

• Firstly, no one likes to move. We have found that the cancellations happen to a very small percentage of leases with many still renewing after the 1st year as they’d done before.
  
• Secondly, people are reasonable, especially if you’ve built a good relationship with them – those who do have to leave don’t, in our experience, merely give one month’s notice.
  
• And most important to remember – the Landlord (supplier) has the right to reasonable penalties (payment of rental if property remains unlet, recoup agents commission, etc.) which will make any tenant think twice before frivolously cancelling their lease, and certainly not give such short notice.

Having experienced the effect of the CPA for some years, we feel it has actually made people more transparent.

On meeting new Landlords we often find they have the same spontaneous reaction we did in the beginning, and until we explain it thoroughly, they sometimes ask that we put in an onerous clause to negate the tenant’s right. The Act is very clear on the implications of doing this – if just one condition of the lease is found to be unlawful in terms of the CPA it can invalidate the entire lease agreement, and there are potentially mind-blowing fines if discovered.

Just a couple of our reminder notes on the CPA and rentals:

• Remember that a lease agreement can no longer be extended beyond 24 months (2 year lease, or 1 year + 1 year renewal, after which a new lease must be signed), unless it can be shown there are sound financial benefits to be gained for the tenant for a longer lease (this would probably apply to certain Commercial leases).
  
• The CPA does not apply to contracts with Juristic persons (a Trust, Close Corporation, or Company) with assets in excess of R2m.

The most important of all is that your agency is up to speed with the terms of the various Acts which now govern leases and has a lease agreement which protects you, and complies with current legislation.