Landlords: ignore CPA at your peril
The Consumer Protection Act applies to every transaction, including lease agreements
THE Consumer Protection Act’s six-month warranty of quality has been a prominent focus for consumers, with many taking retailers to task for not allowing refunds or replacements. Often, suppliers are insisting on repairs when it’s actually up to the consumer to decide on a remedy.
However, the act has a very wide remit: it applies to every transaction occurring within the country for the supply of goods or services, the promotion of goods or services and the goods or services themselves, unless the transaction is exempted from the CPA.
This exemption is not up to suppliers to determine: it’s stipulated in the act.
Transactions that are exempt include those involving the promotion or supply of goods or services to the state; transactions in which the consumer is a juristic person (a company, close corporation, body corporate or a trust) whose asset value or annual turnover is more than or equal to R2-million; transactions that have been exempted by the Minister of Trade and Industry; transactions that constitute credit agreements; services supplied under an employment contract or a collective bargaining agreement.
(A “supplier” is anyone who markets goods or services, including selling, renting and hiring.)
But the juristic person definition has become a sticking point in a matter involving a tenant and his landlord. Mike Goldstein wanted to cancel his lease for Security Zone three months before termination because the rental had become too steep for the area.
The Cavaleros Group, though, is insisting on holding the tenant to the lease and does not want to refund the deposit. And his lawyer, Ricardo Teixeira, insists the CPA doesn’t apply to the lease because both landlord and tenant are juristic persons.
Not so fast, Goldstein’s attorney, Trudie Broekmann said: “The CPA certainly does apply to the lease. Mr Goldstein set up a close corporation for his son years ago, to allow him to make a living from a shop called Security Zone.
For the last 13 years, the CC has been renting premises from Pro Direct Investments 312 (Pty) Ltd (The Cavaleros Group).
“The rent has become very high for the area, and so the CC wished to cancel the lease three months before the annual lease terminates. They contacted me to advise from a CPA perspective, whether this was possible.
I studied the lease and it became immediately apparent that the entire lease was non-compliant with the requirements of the Consumer Protection Act – almost every clause is drafted in a manner which is prohibited by the CPA.
The effect of such non-compliance is that the entire lease is void and the landlord cannot rely on the lease.
“I think the ‘moral of the story’ is that landlords need to be very careful of just ignoring the CPA. It’s been in force since 31st March 2011 and there cannot be a basis for a landlord or his lawyer pleading ignorance any more.
“The CPA applies to all leases in South Africa. If the tenant is an individual, or a juristic person with a turnover and asset value of under R2-million (as is the case with my client), then all of the provisions of the CPA apply.
“If the tenant is a juristic person with a turnover or asset value above R2m, then sections 60 and 61 of the CPA still apply to protect the tenant.”
I asked Marelize Bosch, the chief operations officer of the National Consumer Tribunal about leases and the CPA and she confirmed Broekmann’s view: “The Consumer Protection Act applies to every transaction in South Africa in terms of which goods or services are supplied to consumers, unless same is exempted in terms of the CPA.
“From the applicability clause (Section 5), it is clear that the CPA will apply to lease agreements, unless specifically exempted. “
Bosch points out that Section 14 of the CPA, which deals with fixed-term agreements – whether they’re leases, contracts with your private security company or even a gym membership – empowers the consumer to cancel on 20 business days’ notice. No matter what the contract says, it does not trump the CPA.
“If this cancellation is prior to the expiry date of the agreement then the landlord may charge a reasonable cancellation penalty. The landlord must also advise the consumer no earlier than 80 days before and no later than 40 days of the expiry of the agreement.
“It would be advisable for all lessors of residential premises to be cautious and rather take note of the CPA when entering into lease agreements as the consequences of not adhering to the CPA could be even more detrimental to the lessor (administrative fines etc).”
Broekmann observes that leases with individuals and small juristic persons which don’t comply with the requirements in the CPA, are in fact void: the landlord is not entitled to charge rent and cannot enforce the lease at all. The administrative fine which can be levied is a maximum of R1 million or 10% of the landlord’s turnover, whichever is the greater amount.
Some of the requirements for leases in the CPA: Written in plain language Terms which shift the risk onto the tenant must be drawn to the tenant’s attention and the tenant must specifically agree to those terms
The lease may not contain any terms which are unfair, unreasonable or unjust toward the tenant
The lease may not be for a period of longer than 24 months, unless there’s a demonstrable financial benefit for the tenant, and the tenant has specifically agreed to the longer term
The deposit plus interest belongs to the tenant not the landlord
Leases must be in writing, give a breakdown of the tenant’s financial obligations and a copy must be given to the tenant.