How the CPA Impacts Lease Agreements – Part II

Previously… we discussed the Consumer Protection Act, considered the definitions of “transaction” and “consideration”, and acknowledged, broadly speaking, the types of transactions that do not fall under the CPA umbrella. We also recognised that the CPA does, indeed, affect lease agreements. But… not ALL lease agreements. In this installment, we delve a little deeper, separating the wheat from the chaf. Or, in this case, separating those lease agreements that are covered by the CPA from those that are not.

(Missed Part I? Never fear, you can read it here!)

Exclusions to the Rule

Practically speaking, there is a wide variety of lease agreements out there. From multi-million, long-term commercial lease agreements to the short-term rental of a granny-flat to, well, a sweet old granny. Signing of said commercial lease agreement will have been preceded by protracted negotiations carried out by teams of legal counsel, with every clause of the tome critically analysed, debated, adjusted, and finally agreed upon. Contrast this scenario to Granny’s agreement, which comprises a hastily written scrawl at the bottom of the unread one-pager (she’d misplaced her reading glasses again). No prizes for guessing which tenant our legislature is most interested in protecting. At the slightest hint of a problem in our commercial agreement, both parties reach for their cellphones (they have their attorneys’ numbers on speed-dial). But in Granny’s case, should the landlord transpire to be the Big Bad Wolf, she needs to find a wood-cutter, chop-chop. CPA to the rescue!

Of course, there are a myriad of different types of rental transactions slotting in between these two extreme scenarios. How, then, do we determine which ones are affected by the CPA?

Which Lease Agreements are covered by the CPA? The answer in Legalese

The answer can be found within section 14 of the CPA, which deals with the “Expiry and renewal of fixed-term agreements”. (Quick note: for those who are quite comfortable to remain in Camp 2, have no ambitious desires to be promoted to Camp 1, and would rather read a basic précis in English than laboriously plough through the legalese, skip to the next section for the plain-languaged answer.)

Section 14: Expiry and renewal of fixed-term agreements

(1) This section does not apply to transactions between juristic persons regardless of their annual turnover or asset value.

(2) If a consumer agreement is for a fixed term –

(a) that term must not exceed the maximum period, if any, prescribed in terms of subsection (4) with respect to that category of consumer agreement;

(b) despite any provision of the consumer agreement to the contrary –

(i) the consumer may cancel that agreement –

(aa) upon the expiry of its fixed term, without penalty or charge, but subject to subsection (3)(a); or

(bb) at any other time, by giving the supplier 20 business days’ notice in writing or other recorded manner and form, subject to subsection (3)(a) and (b); or

(ii) the supplier may cancel the agreement 20 business days after giving written notice to the consumer of a material failure by the consumer to comply with the agreement, unless the consumer has rectified the failure within that time;

(c) of not more than 80, nor less than 40, business days before the expiry date of the fixed term of the consumer agreement, the supplier must notify the consumer in writing or any other recordable form, of the impending expiry date, including a notice of –

(i) any material changes that would apply if the agreement is to be renewed or may otherwise continue beyond the expiry date; and

(ii) the options available to the consumer in terms of paragraph (d); and

(d) on the expiry of the fixed term of the consumer agreement, it will be automatically continued on a month-to-month basis, subject to any material changes of which the supplier has given notice, as contemplated in paragraph (c), unless the consumer expressly —

(i) directs the supplier to terminate the agreement on the expiry date; or

(ii) agrees to a renewal of the agreement for a further fixed term.

(3) Upon cancellation of a consumer agreement as contemplated in subsection (2)(b) –

(a) the consumer remains liable to the supplier for any amounts owed to the supplier in terms of that agreement up to the date of cancellation; and

(b) the supplier –

(i) may impose a reasonable cancellation penalty with respect to any goods supplied, services provided, or discounts granted, to the consumer in contemplation of the agreement enduring for its intended fixed term, if any; and

(ii) must credit the consumer with any amount that remains the property of the consumer as of the date of cancellation, as prescribed in terms of subsection (4).

(4) The Minister may, by notice in the Gazette, prescribe —

(a) the maximum duration for fixed-term consumer agreements, generally, or for specified categories of such agreements;

(b) the manner and form of providing notices to the consumer in terms of subsection (2)(c);

(c) the manner, form and basis for determining the reasonableness of credits and charges contemplated in subsection (3); and

(d) other incidental matters as required to provide for the proper administration of this section.

Which Lease Agreements are covered by the CPA? The answer in English

To those who ploughed through the legalese, congratulations. The first thing you will have noticed is that the CPA doesn’t apply to agreements between “juristic persons”: the provisions of section 14 thus do not apply to lease agreements between two corporate entities. Juristic persons would include companies, close corporations, body corporates, partnerships or associations, and trusts. The CPA also does not apply to lease agreements that involve the State or agreements in terms of the National Credit Act.

How to know whether a lease falls under the CPA umbrella? There is a simple test to determine the answer:

Question: Are both landlord and tenant legal entities?

Answer: Yes – the lease agreement is not covered by the CPA; or

Answer: No – the lease agreement is covered by the CPA. (*) 

Now that we’ve narrowed the issue down a bit, we need to consider the key areas where the CPA impacts lease agreements. Section 14 (above) already details this. But if you favour your sanity, and would prefer a version that’s gentler on the eyes, then stay tuned for our next installment on the matter.

To Be Continued….

In Summary: When entering a Lease Agreement, consider whether the Consumer Protection Act applies.

Please note that this information is supplied for general information and does not constitute legal advice. It is advisable for you to contact a legal practitioner for guidance in respect of your unique requirements.