The cancellation of a lease agreement has always been a touchy subject - what notice period do you give? What does the tenant remain liable for? When do they have to vacate? Can either the landlord or the tenant cancels their agreement whenever for whatever reason
These are a few of the many questions that the TPN legal team receives daily on the early cancellation of a lease agreement. To help clear up the confusion, we want to give a concise breakdown of all the ways in which a tenant or landlord may cancel their lease early and how to use the lease agreement to determine what procedure needs to be followed before the tenant can vacate.
The CPA and early cancellation
The most important thing to consider first is whether section 14 of the Consumer Protection Act 68 of 2009 (CPA) is applicable to your lease agreement.
The first step to determine this is to look at your lease period - if your lease agreement is running on a month-to-month basis, then the relevant notice period that either party may give to the other is one calendar month, i.e., from the first day of the subsequent month until the last day of the subsequent month that the notice was given. Should the lease agreement have a fixed period such as six months or one year, the next factor you need to determine is the legal identity of the parties to the lease agreement.
If both parties are juristic entities
In the event that both parties to the lease agreement are companies or close corporations, then section 14 of the CPA does not apply and you do not have to afford the tenant a legislated notice period before cancelling the lease agreement. You will, however, need to give the relevant notice period in terms of the breach clause of your lease agreement before cancelling the agreement. Your breach clause may provide that no notice period is necessary before the lease agreement is cancelled, or that a 7 day notice period is required before cancellation. It is important to ensure that your breach clause is comprehensive enough to include the notice period, should you wish to cancel.
Furthermore, as section 14 of the CPA does not apply in this scenario, the tenant may not cancel the lease agreement without reason. An important factor to bear in mind is that the CPA will apply where the tenant is a juristic entity whose asset value or annual turnover is less than R2 million at the time that the lease agreement is concluded. If one or both parties are a natural person If either Party to the lease is a natural person, section 14 of the CPA applies and the tenant may cancel the lease agreement, without any reason, by giving 20 business days’ written notice.
The tenant will be liable for the monthly rental and utilities for this period as well as the reasonable cancellation penalty in terms of section 14 (please see our article on the reasonable cancellation penalty here). The tenant may also cancel the lease agreement if the landlord is in breach of the lease agreement and has been given a certain amount of time to remedy the breach and fails to do so. The landlord is required to give a notice period of 20 business days for the tenant to remedy their breach of the lease agreement, whatever breach that may be, before the landlord is entitled to cancel the lease agreement immediately, by way of a letter of cancellation. Should the tenant remedy their breach, the TPN lease agreement allows for the landlord to still cancel the lease, provided that the tenant has been placed in breach for three consecutive months and the tenant has remedied their breach each time. In such a case, the landlord can cancel the lease agreement on a notice period of 20 business days. The landlord is not, however, entitled to cancel the lease agreement without the tenant being in breach of the agreement. Certain circumstances do arise that allow for the landlord to cancel the lease agreement on notice, but often lease agreements do not make provision for such cancellations. However, the TPN Lease provides and regulates these situations:
• In the event that the landlord wants to move into the premises or they intend on selling the premises, then the landlord is entitled to give the tenant a notice of two calendar months before the lease is cancelled immediately;
• Should the tenant be involved in any criminal activity on the premises, then the Landlord is entitled to cancel the lease agreement immediately by affording the tenant a 24-hour notice to vacate the premises;
• If a rental application has been accepted, the lease agreement signed and the tenant taken occupation but it is discovered that the tenant provided fraudulent information on the application, this constitutes grounds for immediate termination of the lease agreement, with no notice period necessary.
The TPN LeasePack is drafted, reviewed and updated consistently to ensure that both parties are protected in any situation that may arise in South Africa’s property industry and covers you for any cancellation technicalities that may occur. If the early bird catches the worm, the earlier worm avoids the bird! And in this case, that means lengthy eviction proceedings, unnecessary legal costs and significant financial stress.
It is vital to ensure that the legislative notice period in terms of section 14 of the CPA is followed to avoid a disappointing and prolonged, unwanted occupancy of your premises. But it is equally vital to ensure that your lease agreement is comprehensive enough to protect you in any scenario that you may come across during your lease period.
Early Cancellation Chart