Article contibuted by Durban Law Firm: FAWZIA KHAN & ASSOCIATES
Starting up a new business can be both daunting and exhilarating at the same time. You are fired up with enthusiasm and passion about your product or service and ready to unleash it onto the market. Finding the right location to ensure your business’s success is key and this normally means having to sign up a commercial lease with a landlord.
The Consumer Protection Act (CPA) will apply if your business is doing annual turnover or has an asset value of less than R2 million and your landlord who leases the property does so in the ordinary course of its business. According to this Act, the landlord will be regarded as the supplier, and you the tenant will be the consumer. This means that a landlord will not be able to enforce the lease agreement which is not compliant with the provisions of the Act.
Any provisions in the lease agreement which is unfair, unreasonable and unjust is prohibited in the CPA. Thus, an agreement which is completely one sided and only in favour of the landlord would be deemed contrary to the CPA. With regard to early termination of a lease agreement, whether it’s residential or commercial, the CPA comes to the aid of the tenant. Previously a landlord could claim damages for the remainder of the lease period and was generally in a stronger position to exert financial pressure on the tenant.
Section 14 of the CPA deals with termination of fixed term contracts, as well as expiry and renewal of these contracts. A fixed term contract can only be for 2 years and not longer. If a consumer, (in this case the tenant) wishes to cancel a lease agreement, he needs to give the supplier (landlord) between 40-80 business day’s notice before the lease expires, alternatively he can cancel at any other time, provided he gives the landlord 20 business days' notice in writing. The landlord is entitled to claim a “reasonable cancellation penalty” and can no longer demand exorbitant cancellation costs as was previously the case prior to the CPA being enacted.
However, what is considered “reasonable” is not defined in the Act and it’s generally accepted that whatever is the norm in that particular industry would be the guide as to what is regarded as reasonable. In the case of leases, a landlord would be entitled to charge the tenant the costs of advertising for a new tenant. The responsibility is for the landlord to find a replacement tenant. It’s no longer a responsibility of the outgoing tenant. The landlord will only be allowed to claim his reasonable loss and for actual damage suffered.
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