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Cancelling a residential lease

27 October 2016

Introduction
There are a number of different laws that impact on residential leases. This article explores those relevant to the cancellation of a residential lease, and explains the proper procedure to be followed when terminating a residential lease as a result of a breach by a tenant.

Two different types of notice periods
It is important to distinguish at the outset between two different and important notice periods. The first is relevant when trying to cancel a lease before the agreed fixed term of the contract has run its course. Let’s call this the ‘early termination notice period’. Sometimes leases have these clauses, and sometimes they don’t. If there is no such clause, then the lease cannot (save for in situations where the Consumer Protection Act or Rental Housing Act apply) be cancelled early, unless both parties agree to this.

The second notice period becomes relevant when a landlord or tenant has breached the lease, and the other party wants to give written notice for the breach to be remedied. Failure to remedy the breach in the stipulated time period will entitle the innocent party to cancel the lease and, where relevant, claim damages suffered from the offending party. Let’s call this the ‘breach notice period’.

Court Days v Calendar Days v Business Days
Before delving into the applicable acts, it is also important to note that leases usually refer to calendar days, meaning every day on the calendar, including weekends and public holidays. The Consumer Protection Act specifically refers to business days in section 14, meaning that you must ignore weekends and public holidays. Sometimes laws or leases will refer to court days, meaning you only count days that court is open and sitting, although references to court days will be few and far between in lease situations. Where the types of days are not defined, you must regard them as being calendar days, and include weekends and public holidays.

The Rental Housing Act
The Rental Housing Act provides that if a tenant remains in occupation of the property after the period defined in a written lease expires, that the lease will continue to run on the same terms and conditions as contained in the written document, save that the duration of the lease will be only one month (i.e. a month to month lease situation will arise). In circumstances such as these, the Rental Housing Act expressly provides that the notice period for cancellation by either party is one month. This applies only to situations where a landlord wants to stop the lease from renewing for another month – it does not apply to a cancellation by a landlord as a result of the tenant’s breach. The Rental Housing Act does not stipulate how many days the breach notice period must be.

The Consumer Protection Act
The Consumer Protection Act applies to the supply of goods and services within South Africa. This Act expressly defines residential accommodation as a service, which affects residential leases. The application of the Consumer Protection Act is only excluded in two cases; firstly, where the residential lease is concluded between two juristic entities and where the lessee has an annual turnover or asset value of more than R 2 million; and secondly, where the lessor is not leasing the property in the ordinary course of business. This Act provides that a consumer (i.e. a tenant) can cancel a fixed term agreement (i.e. a lease) for any reason whatsoever – which may be entirely unrelated to a breach by the supplier (i.e. the landlord) – by giving the landlord 20 days written notice of the cancellation.

In the event that the tenant elects to cancel the lease before the lease would otherwise have ended in the ordinary course, then the landlord is entitled to a “reasonable cancellation penalty”, the guidelines for which have been provided for in Regulation 5 of the Consumer Protection Act. Some landlords simply charge the tenant for the whole amount that would otherwise have been owing in terms of the lease, had it run its full term.

This is not necessarily the correct approach. Regulation 5 expressly draws the parameters of “reasonableness” in this regard and lists a number of notable factors, including: the length of the notice period by the consumer; the reasonable length within which the landlord would be able to procure a new tenant; and general practice of the industry. Looking at the factors holistically, it is clear that between one and two months rental would amount to a reasonable penalty, along with any further damages claims and outstanding rentals incurred during the course of the lease.

A landlord, on the other hand, can only cancel a tenant’s lease if the tenant has breached the lease, and if after having given 20 business days written notice to the tenant to remedy the breach, the tenant has failed to do so. This is critical, because it applies despite what the lease says – it thus overrides the provisions of the lease (or the common law, which would have applied if certain important provisions of the lease agreement were accidentally not agreed upon). Consequently, the Consumer Protection Act only deals with the breach notice period and not the early termination notice period. Days calculated in terms of section 14 of the Consumer Protection Act, are business days, meaning you ignore weekends and public holidays.

The Consumer Protection Act also expressly states that where its provisions conflict with those of any other law, the law that gives the consumer (the tenant) the most protection will override the other. This is critical for reasons discussed below.

Common Law
Common law is relevant because it is the ‘default’ position that ‘kicks in’ when the parties omit to reach agreement on certain terms of a lease. In fact, this occurs quite often. For example, the parties might forget to agree on how many days written notice is required for a tenant to make good a breach before a landlord can cancel, or how many days / months notice must be given if either party wants to terminate the lease before its natural end.

In terms of our common law, when notice is given to terminate a lease agreement, the notice must run for the duration of a calendar month, meaning that notice cannot be given from the 15th of April to the 14th of May for example, as it needs to be given from the 1st of any particular calendar month until the last day of that particular calendar month. In addition, our common law provides that notice periods coincide with the rental payment intervals; meaning that if you pay rent every month, the notice given must be at least one month in advance. In relation to the breach notice period, if the parties fail to agree on this, the law provides that it will be a ‘reasonable’ period. What is ‘reasonable’ depends on the facts of each case, and the court will decide this. So if the parties agree that the lease can be terminated by either one of the parties before its natural conclusion, but they forget to stipulate how long the early termination notice period must be, then the answer is that at least one calendar month’s written notice is required to bring about an early termination of the lease by either party, and it must be given from the 1st of the month to the end of that month. This is subject to the proviso that this notice period is considered ‘reasonable’ – each case is to be judged on its own facts.

Conflict of laws
Because there are so many laws that apply to residential leases in any given situation, it is often difficult to determine the number of days that must be given for breach and cancellation notice periods. The common law will always be subservient to any legislation that has been subsequently enacted to deal with a particular problem. Any legislation enacted that deals with the problem in general, will normally be subservient to legislation subsequently enacted to deal with the problem specifically. To confuse the matter further, the Consumer Protection Act (which is not specific to leases) says that if its provisions conflict with any other law, the law that provides the most protection to the consumer will apply.

Several difficult questions arise:
1. If your lease says 7 days’ breach notice is required, but the Consumer Protection Act says 20 business days’ written notice is required to cancel the lease, how do we reconcile the two?

2. Is it still possible to cancel a lease after the ‘third strike’ (i.e. third breach) by a tenant, without giving further notice, as many leases provide for, in light of the Consumer Protection Act?

3. If a lease agreement (either oral or in writing) does not specify the early termination period, does the Consumer Protection Act ‘kick in’ and result in a situation where the lease is not prematurely terminable by a landlord at all, and is only terminable on a breach by the tenant?

#1: Breach notice period and cancellation period
Firstly, look to the provisions of the lease itself. Most leases contain a breach clause, which indicate a period of a number of days that are necessary to be given as notice to the tenant of a breach. If there is no breach period specified, it will be a ‘reasonable period’ in terms of the common law.

If you give notice of the breach, and it is not remedied in the breach notice period, this means that you can take action to sue for whatever is owed or even issue summons and attach the tenant’s goods by evoking your landlord’s hypothec, but you cannot cancel the lease and evict.

The reason for this is that you need to have given 20 business days written notice to cancel the lease (and therefore to evict, because you can’t evict without having cancelled the lease) in terms of the Consumer Protection Act. So if you ultimately think that you would like to or need to cancel the lease and evict, you can only do this after 20 business days’ written notice has been given – during which time the tenant has failed to remedy the breach. Many landlords include both time periods in their breach notice, saying that if the breach is not remedied in 7 calendar days (or whatever number of days is stipulated in the lease, or whatever number of days is reasonable in terms of common law) then they will take action to recover amounts owing; but if the breach is not remedied in 20 business days, then the lease will be cancelled and the tenant evicted. This way you give one notice, but it is valid for both time periods and the tenant is adequately warned of the consequences of non-compliance, as well as how and when he needs to remedy the breach to avoid those consequences.

#2: Third strike clauses
These are clauses in a lease that provide that once a tenant has breached the lease (usually with specific reference to late payment) three times, the landlord is entitled to cancel the lease without further notice to the tenant. In instances such as these, the landlord would not give the tenant a third opportunity to remedy the breach, but would simply send a cancellation letter.

However, it is questionable whether this is legally permissible in light of the Consumer Protection Act, which provides that the landlord may only cancel the lease on 20 business days’ written notice, and after the tenant has failed to remedy the breach.

It thus seems that these ‘third strike’ clauses are no longer legally valid. In the author’s view, this is a grave injustice to landlords, because it means that they are forever doomed to accept late payments and other breaches of the lease by their tenants. Provided that the tenant remedies the breach with the 20 business days’ notice period, the landlord will not be entitled to cancel. The only way to get rid of a pesky tenant in such a situation would be to allow the lease to run its full course and ensure cancellation without further renewal.

#3: Is there an early termination period if the lease does not specify, and what is it?
1. If the parties have agreed that there is an early termination period applicable and they have agreed on what that notice period is, then either party can cancel by providing the requisite notice to the other side. This will apply as long as the lease is not one affected by the provisions of the Rental Housing Act – i.e. where the written lease expired and the parties simply continued with the lease on a month to month basis thereafter.

2. If the lease is a month to month lease as contemplated in the Rental Housing Act, then it can only be terminated by either party by providing one full calendar month’s written notice.

3. If the parties did not contemplate at all that early termination would be permissible, then it is not an option – other than as provided for in clause 3.2 above, which is more a refusal to renew the lease again than an early termination of the lease.

4. If the parties have agreed that there is an early termination period applicable but they have not agreed what that notice period is, then the common law will kick in and one full calendar months’ notice should suffice – provided that this is ‘reasonable’ in the circumstances.

5. In some instances, however, the Consumer Protection Act will be applicable – which means that if there is an early termination clause providing for termination by agreement where the tenant has not breached the lease agreement, the landlord will be precluded from giving such notice by virtue of section 14 of the Consumer Protection Act, which stipulates that fixed term agreements can only be cancelled on 20 business days’ written notice where the tenant has actually breached the lease agreement and where the breach has not been remedied. However, it appears that this will only apply where the Consumer Protection Act is more beneficial to the consumer than the other laws that apply to the same scenario. This is because the Consumer Protection Act expressly provides that where there is a conflict with its provisions and any other law, the law that is the most beneficial to the consumer will apply. The authors are of the view that this is an unreasonable situation for the legislature to have created for the property industry as it creates massive uncertainty as to when early termination clauses will be upheld, because what is beneficial to the consumer in one instance may be prejudicial to the consumer in another. Hopefully, our courts will give us guidance on how to navigate this mess soon – but until then, take care when relying on early termination clauses as they may be invalidated by the Consumer Protection Act.

Conclusion
To be certain, consult an experienced property attorney before sending breach and/or cancellation and/or early termination and/or renewal or non-renewal notices to ensure that you don’t find yourself supplying your pesky tenant with accommodation (and paying him/her damages) for unlawfully evicting them

Chantelle Gladwin, Partner and Renand Pretorius, Candidate Attorney
Schindlers Attorneys

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