This article considers whether the “Three Strikes Rule” that is often utilised by landlords to create an instant cancellation mechanism in the event of a tenant repetitively breaching a lease, is still valid in terms of the amendments made to our Common Law of Landlord and Tenants by the Consumer Protection Act 68 of 2008 (“the CPA”).
The Three Strikes Rule
Many leases contain a provision entitling a landlord to effectively cancel a lease agreement in the circumstances where repetitive breaches of the terms of the lease agreement take place, and ordinarily allows the landlord to give the tenant notice of cancellation after the third breach of the lease without first needing to afford the tenant a period within which to remedy the breach. This “Three Strikes Rule” is commonly found in both residential and commercial leases, and was lawful and enforceable in terms of our Common Law before the introduction of the CPA.
The Consumer Protection Act
Section 14 (2) of the CPA provides that a landlord needs to give a tenant a minimum of 20 business days’ written notice of a breach of a lease, which affords a tenant a 20 business day period in which to remedy that breach before the landlord is entitled to cancel the lease. There is nothing in the CPA whatsoever that permits a landlord to cancel a lease after a tenant has breached without first giving the tenant the requisite 20 business days’ notice. On a strict and literal interpretation of the CPA, therefore, the “Three Strikes Rule” is no longer lawfully enforceable and our Common Law must be regarded as having been amended to invalidate this remedy for landlords.
Harm to Landlords
As one can imagine, if landlords were no longer able to make use of the “Three Strikes Rule” a landlord may very well find himself in a position where a tenant repetitively abuses the 20 business day notice period referred to in the CPA. In so doing, the tenant avoids having to perform his or her duties in terms of the lease in a timeous manner. For example, a tenant could pay the rent late every single month, without any penalty whatsoever, provided the tenant remedied the breach (i.e. made payment) within the 20 business day notice period. This means that even if the rent is due on the first of every month, and the landlord gives notice to the defaulting tenant as early as the second of the month, the tenant will typically have until approximately the end of that calendar month (give or take a day or two depending how weekends fall) to make payment of the rent. Giving rise to a situation where the landlord can never bank on receiving his rent at the time stipulated in the lease – which is usually in advance – and will have to settle for rental paid in arrears (by approximately a month).
A landlord who faces this kind of problem will never be able to cancel the lease and evict the troublesome tenant because the tenant is always remedying the breach within the prescribed 20 business day notice period. The abovementioned example illustrates the skewed balance of landlord and tenant rights and affords little protection to a property owner who struggles with abusive tenants.
In effect, the landlord is left with no relief and must essentially “fund” the tenant’s occupancy for the better part of a month before expecting payment. It wreaks havoc with landlords’ cash flow, who typically need to make bond repayments by the first of the month in advance, and who in addition may have other service providers to pay such as the garden service, security company, or telephone and internet bills monthly in advance. This could also disadvantage a landlord who is holding only one month’s rental as deposit, because by the time the defaulting tenant has used up his breach period of 20 business days, a month has passed and the tenant could move out, forcing the landlord to absorb the month’s rental held as deposit for the unpaid rental, and leaving absolutely no deposit to cover any necessary repairs for damages or arrear utility charges. There is thus a developing trend among landlords in South Africa to require two months’ rental deposit.
A Different Approach
As explained above, when you interpret section 14 (2) literally and strictly, it leads to what is (frankly, in the view of the authors) an absurdity, because it allows repetitively defaulting tenants to continue causing harm to the landlord by breaching the lease on an ongoing basis without allowing the landlord any recourse against the tenants for this behaviour. This begs the question of whether there is any other permissible interpretation of section 14 (2) which does not result in this absurdity.
In terms of our law there are a number of different ways to interpret statutes such as the CPA. The most common method of interpretation is a literal interpretation, but in the event that a literal interpretation leads to impractical outcomes then the courts are empowered to utilise a different interpretation. Another interpretation method is known as a purposive interpretation, in terms of which the court interprets a provision of a statute to give effect to its intended purpose rather than literally (because a literal interpretation would lead to an absurdity). A purposive interpretation must be undertaken in line with the provisions of our Constitution and other prevailing laws and legal principals, as well as the boni mores (moral standards) of our society in our constitutional democracy.
The authors submit that such a purposive interpretation of section 14 (2) would result in the court recognising that section 14 (2) was created in a statute that was not specifically designed to deal with landlord and tenant relationships. The CPA was created rather to deal with supplier and consumer issues (of which landlords and tenants form a very small category). One must take into account, however, that our Common Law relating to landlords and tenants is very developed and further that there is a specific statute (The Rental Housing Act 50 of 1999) which has already been enacted to develop the law of landlords and tenants in South Africa. In this context it should be understood that section 14 (2) must be read subject to our prevailing Common Law of Landlord and Tenant (in terms of which the “Three Strikes Rule” is valid and enforceable). This accords well with the legal principle of interpretation that the specific will usually override the general, and further recognises another cardinal rule of legal interpretation, which is that if the legislature had intended to invalidate the “Three Strikes Rule” it would have done so expressly either in the Rental Housing Act, or in the CPA (which it did not do).
The authors are of the view that despite the wording of section 14 (2) of the CPA, the “Three Strikes Rule” is still available to landlords because a purposive interpretation must be given to section 14 (2) rather than a literal interpretation, for the reason that a literal interpretation results in a legal absurdity. Whether the courts agree with us remains to be seen and until such time as there is clarity on this point, landlords are warned to tread carefully and utilise this opinion at their own risk. It does, however, mark a starting point for the comeback of landlords’ rights and proposes that the general application of CPA provisions requires a contextual review by our courts.
Chantelle Gladwin, Partner and Renand Pretorius, Associate