Leasing: the consumer law perspective

During your entrepreneurial journey, you might find yourself in need of operating premises. Depending on your industry, you may seek to run your operations from an office, a warehouse, or even a road-side container. However, purchasing the operating premises may not always make financial sense. At this stage, the “To Let” adverts that pop up all over the CBD may come in handy. Leasing premises is certainly an option for your business. This Legal Insight focuses on your protections under the Consumer Protection Act 68 of 2008 (‘CPA’ or ‘Act’) when entering into a leasing arrangement, in order to equip you and your business.

As a point of departure, the CPA provides that the access or use of any premises or other property in terms of a rental constitutes a ‘service’. This means that the CPA will ordinarily apply to leasing arrangements, unless the Act clearly does not apply as a result of its standard exclusions in terms of section 5(2). For instance, a tenant that is a juristic person with an asset value or annual turnover that is over R2 million is not protected by the provisions of the CPA. Importantly, the landlord must be renting out the premises in the ordinary course of its business. What follows is a discussion on: (i) how the CPA protects all business tenants that fall within its scope of application; and (ii) how the CPA affects tenants operating as sole proprietorships.

The effect of the CPA on all business tenants

At the marketing or initial client engagement stage, a tenant’s rights are already protected. If the tenant was approached telephonically or by email regarding the premises ‘to let’ and this leads to the conclusion of a lease agreement, such tenant has the right to cancel that lease agreement in writing within 5 business days without reason or penalty. This grace period is known as the ‘cooling-off period’.

At all stages preceding and after the conclusion of the lease agreement, the landlord must ensure that the tenant’s right to fair and honest dealing is honoured. In this respect, the tenant should not, at any stage of its dealings with the landlord, be subject to conduct that is unfair, coercive or fraudulent. Once the lease agreement itself has been concluded the tenant is entitled to demand quality service from the landlord. To the extent that this is not done – the landlord must either (i) ensure that the issue is resolved; or (ii) refund the tenant a reasonable portion of the price paid for the service, taking into account the extent of the service rendered.

Importantly, the terms of the lease agreement must be fair, reasonable and just. This is an all-encompassing provision that speaks to the pricing and the general terms of the lease agreement. In so far as contractual terms are concerned, the landlord cannot require that the tenant: (i) waive any of his or her rights, (ii) assume any obligations or (iii) waive any liability of the landlord, on terms that are unfair, unreasonable or unjust. A term or condition is generally considered as being unfair, unjust or unreasonable if it is excessively one-sided and against the tenant; or the information that the tenant relied on was false, misleading or deceptive.

The effect of the CPA on tenants operating as sole proprietorships

Section 14 of the CPA deals squarely with fixed term agreements and would only regulate lease agreements where the tenant is a natural person (i.e. a human being and not an entity like a company). Sole proprietors who, as their name suggests, are not operating through a separate legal juristic personality, will be able to benefit from the provisions of section 14. The provision addresses the ‘expiry and renewal of fixed term agreements’. It places a two-year cap on the maximum duration of a fixed term agreement. This mechanism is a tool to protect tenants against the risk of being locked in long term lease agreements – without financial guarantees to ensure that they can honour their contractual obligations. This is particularly beneficial for those sole proprietors operating their businesses from the leased premises. Once the contract has expired, the tenant is, in terms of the CPA, entitled to cancel the agreement without any penalty or charge. Where the agreement has not yet expired, the tenant is allowed to cancel the agreement on 20 business days’ notice, despite the notice period that is set out in the lease agreement. Upon cancellation, a tenant must always settle any outstanding payment obligations. Where the lease agreement is cancelled early, a landlord is allowed to charge a reasonable cancellation penalty. The landlord is also required to make sure that any monies that are due to the tenant, such as deposits, are paid back. In addition, the landlord has the right to cancel the lease agreement by giving the tenant 20 business days’ notice. This option to cancel the lease agreement is to assist the landlord where the tenant has fallen foul of the provisions of the lease agreement and failed to rectify the issue concerned.

Prior to the expiry date, section 14 provides that the landlord must inform the tenant that the lease agreement is about to come to an end, wiithin 40 to 80 business days before it expires. In this respect, the landlord is required to provide the tenant with further information regarding the tenant’s options, as well as any changes to the terms of the lease agreement. Unless the tenant requests that the lease agreement be terminated, it shall continue on a month-to-month basis, or at the request of the tenant, it may be extended for a further fixed term.

The above sets out an overview of a tenant’s protections under the CPA, which are well worth considering when entering into lease arrangements. So before you sign the dotted line, bare in mind your consumer rights!

Tshepiso Scott – Managing Director