CONSUMER PROTECTION ACT AND LEASES

Tuesday, August 11, 2009
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The Consumer Protection Act 2008 (“the Act”) was assented to on 24 April 2009 and is to come into operation incrementally with the majority of the provisions coming into effect 18 months after the date on which the Act was signed by the President.  Accordingly the majority of the provisions of the Act will come into operation on 24 October 2010.

One wonders whether all of the consequences of the Act, particularly in the context of leases, were intentional or whether some of the provisions of the Act, and their consequences, were simply not thought through thoroughly enough.

One of such provisions is Section 14 of the Act which effectively entitles a lessee (who is a natural person) of premises in terms of a fixed term lease to terminate that lease before its due expiry date by giving 20 business days notice of termination to the landlord.  The only remedy available to the landlord is a statutory claim for a “reasonable cancellation penalty”.

Precisely what constitutes a “reasonable cancellation penalty” is an open question.  The Act provides for the relevant Minister to prescribe the manner, form and basis for determining such reasonable penalty.  This has not yet been done.   Hopefully it will in effect enable the landlord to claim an amount equal to the common law damages which it would have been entitled to claim in the event of a breach but for the provisions of the Act.

But what happens if, as presumably will be the case in the majority of instances, the penalty is disputed and/or is determined only after the tenant has vacated the premises?  The landlord will have the difficulty of pursuing its claim for a reasonable penalty against the tenant, wherever the tenant may then be.  Furthermore the landlord will have lost the security afforded to it by the landlord’s common law lien or hypothec which is limited to rentals and other amounts payable in terms of lease and which does not, in my submission, extend to the statutory compensation provided for in the Act.  It is also doubtful whether most current forms of deed of suretyship will render a surety liable if the tenant fails to pay the reasonable cancellation penalty.

The position of a landlord in terms of a long term lease where rental is paid as an upfront lump sum is even worse.  In such cases the landlord will arguably have to reimburse the tenant with prepaid rentals!  Any waiver by the tenant of its rights to repayment is prohibited by virtue of the provisions of Sections 48 and 51 of the Act.

The implications of the Act on financiers also need to be considered, particularly where rights in terms of leases concerned are offered as security.  Such security will be lost if the leases are terminated by tenants in terms of the Act.

Numerous provisions of the Act are vague, uncertain and capable of differing interpretations.  These are certain to lead to litigation which cannot be in the interest of landlords and consumers alike.

Given the fact that residential tenants are already afforded the protection of the existing Rental Housing Act 1999, one wonders whether it was the intention of the legislature that the Act would also effect leases of residential property, or whether this was accidental and not even considered!

Hopefully sanity will prevail and the Minister will exempt leases of property from the provisions of the Act.  If this is not done landlords will have to consider their legal position, and the ramifications of the Act, very carefully.