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What happens when a lease is cancelled early

What happens when a lease is cancelled early

Landlords and tenants need to be aware of their responsibilities when there is an early termination of a lease agreement.

The Consumer Protection Act (CPA) has changed the way South Africans do business and as its name implies, has been put in place to protect consumers from unscrupulous business practices.

Unfortunately, there appears to be a great deal of confusion regarding the CPA and property, particularly when tenants are thrown into the mix.

Under the CPA a tenant has the right to cancel any lease by providing 20 business days’ notice. But - and this is a very big but - this doesn't mean a tenant can simply walk away penalty free and there could well be some financial repercussions in the form of a cancellation fee, the cost of advertising as well as other ‘reasonable costs’ if the landlord is unable to secure a new tenant in the short term.

This doesn't mean that a landlord can withhold a deposit, force the tenant to pay rent for the remainder of the lease or make them pay an exorbitant cancellation fee.

Guillaume Earle, an attorney and director of Nakani Watts Incorporated, notes that section 14 of the CPA allows for the early termination of a lease. “It is however important to note that under these circumstances a landlord could, depending on a number of circumstances (including having to advertise for a new tenant), be entitled to a small cancellation fee which usually equates to one month's rent.”

What's very important to remember is that a landlord may not withhold a deposit in lieu of the cancellation fee. The deposit is seen by many landlords as a sort of ‘get out of jail free’ card and as such they believe they can withhold the money for almost any reason.

“The deposit is held in trust in an interest-bearing account and can only be used to repair damages to the property,” says Earle. “Landlords may not guesstimate how much any repairs will cost and must furnish receipts to the tenant in order to prove how much of the deposit money has been used for the necessary repairs. The balance must be refunded to the tenant.”

There are also landlords who completely ignore the CPA by insisting the tenant is financially liable for the entire lease if he cancels before the end of the agreement. In one instance a tenant, who had furnished the required 20 business days’ notice, was informed he would have to pay the landlord the 15 months’ worth of outstanding rent (as per the two-year lease agreement) if he wanted to vacate the premises early. In addition, the tenant was expected to pay a cancellation fee as well as the costs associated with advertising for a new tenant. This is obviously ridiculous and the affected tenant sought legal advice in order to resolve the issue.

What should a tenant do if he believes his landlord is attempting to cash in on an early lease termination?

“There are various things a tenant can do under these circumstances,” says Earle. “He can approach the National Consumer Tribunal for assistance or contact the Rental Housing Tribunal. Rental agents who attempt to flout the rules of the CPA can be reported to the Estate Agency Affairs Board. A strongly-worded letter from an attorney also generally does the trick.”

It's imperative to read the lease agreement carefully before signing, taking heed of any provisions for early cancellation as per the CPA. Tenants need to remember that although they should be, not every landlord is aware of the provisions laid out for early termination and this could cause major problems at a later stage. Consider renting another property if the landlord refuses to recognise that as a tenant you may give the required 20 business days’ notice at any stage of the lease and move out without harsh penalties being imposed.

In summary -

What a landlord can do when a lease is cancelled early:

  • Charge the tenant a small cancellation fee to cover the cost of advertising etc

What a landlord cannot do when a lease is cancelled early:

  • Withhold the deposit
  • Force the tenant to pay rent for the remainder of the lease
  • Charge an unreasonable cancellation fee

Article from privateproperty