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06 Jun 2011

Landlords To Comply With Consumer Protection Act

Consumer Protection Act (CPA) 1 Comment

Eva Smith (Attorney) @ Lucid Living

If you rent residential or commercial property, you need to ensure that your rental agreement and your conduct complies with the Consumer Protection Act (CPA).
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.

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.

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. However, this provision is not applicable to leases involving juristic persons.

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.

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.

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.

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.

If you have not revised your rental/lease agreement or need professional legal advice contact one of our attorneys now on 010 590 5617 or subscribe to the service online.

One Response to “Landlords To Comply With Consumer Protection Act”

  1. BuyNoEvil says:

    Great article.

    Section 14 of the Act, dealing with fixed term agreements, do not apply between juristic persons, irrespective of asset value or turnover. This would mean that landlords will no doubt develop an appetite to lease property to juristic persons and NOT natural persons.

    Juristic persons with a turnover or asset value of R2M or above, are also not consumers in terms of the Act and thus the provisions of the CPA will not apply to transactions entered into by them. In other words, such juristics cannot be consumers but you have consumer rights against them, provided that you are not a juristic that meets the threshold requirements above.

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