In tough economic times landlords and tenants may be faced with the difficult decision of having to terminate a lease agreement prior to the expiry of the lease period.
The right to cancel a lease agreement is primarily regulated by the agreement between the landlord and the tenant, whether this agreement is recorded in writing or not.
Whether or not a lease agreement specifically makes provision for early termination, certain legislative provisions may be available to the parties to lawfully cancel a lease agreement prematurely.
RESIDENTIAL LEASES – THE TENANT
A tenant who is a natural person and who rents a residential property, may terminate a fixed term lease agreement prior to the expiry of the lease period, subject to compliance with the provisions of the Rental Housing Act 50 of 1999 (“Rental Housing Act”) and the Consumer Protection Act 68 of 2008 (“CPA”).
Section 14 (2) (b) of the CPA states a tenant may at any time cancel its fixed term lease agreement by giving the landlord at least 20 business days’ notice in writing.
This section of the CPA expressly states that this right will be available to a consumer (the tenant in this case), despite any terms to the contrary contained in the lease agreement concluded between the parties.
Even though the CPA allows the tenant to cancel the agreement before the expiry of the lease period, the tenant may still be liable for paying penalties or losing a deposit. In terms of Section (3)(a) and (b) of the CPA the tenant remains liable to the landlord for any amounts owed to the landlord in terms of the agreement up to date of cancellation and the landlord may also impose a reasonable cancellation penalty to the tenant in contemplation of the agreement enduring for its intended fixed term.
The Rental Housing Act, in terms of Section 5(3)(n), provides that a tenant can vacate the property before expiry of the lease period. If the tenant, however vacates the property without the required notice as mentioned in the CPA, such conduct will be deemed to be a breach of contract, in which case the landlord will retain all his/her rights arising from the tenant’s breach of the agreement (including the right to cancel the lease agreement and claim damages).
RESIDENTIAL LEASES – THE LANDLORD
The landlord may also terminate a lease agreement prematurely when the tenant is in breach of the contract. Such termination is also subject to the terms of the CPA and therefore the landlord –
- must give at least 20 business days’ notice to the tenant to correct such breach and if the tenant fails to do so, the landlord may then cancel the lease agreement; and
- may also claim a reasonable cancellation penalty from the tenant, by considering the length of the notice and the time it would take to replace the vacating tenant.
The landlord cannot ignore the law and forcefully evict the tenant, change the locks to the property to limit the tenants access, or disconnect the water and electricity supply to the property. Such conduct is illegal and the landlord will have to approach the courts to evict a tenant from the property. Should a landlord, however, be forced to approach the courts for an eviction order, the tenant may have to pay the legal costs of the landlord, which could be a substantial amount.
COMMERCIAL LEASE AGREEMENTS
Unlike the legal position with residential lease agreements, the right to the early termination of a lease agreement in respect of commercial or industrial property or farmland may not be as simple, especially where the tenant is a juristic person such as a company, a close corporation or a trust.
In this regard it should specifically be noted that the right to the termination of a lease agreement may not be available to a tenant where both the tenant and the landlord are juristic persons, irrespective of their annual turnover or asset value.
As a first step in determining whether your lease agreement can be cancelled lawfully before the expiry of the lease period, we invite you to use our Smart Questionnaire that forms part of our firm’s Tech Enabled Law, by –
Should you furthermore require assistance with the proposed termination of your lease agreement, please feel free to contact our offices for one of our experienced commercial lawyers to assist you.
Property and Commercial Department
Phone: 012 361 9823