CPA and REASONABLE cancellation fee on rental housing long term leases.

UPDATE: 26 JUNE 2018 VIEW OF ADVOCATE RIAAN DE JAGER:

“Although the CPA entitles suppliers to impose a penalty as compensation for lost earnings a result of the cancellation, the CPA’s regulations make it clear that suppliers “cannot pull a penalty out of the air”. Indeed, regulation 5(3) states that a penalty may not be so large as to deter the tenant from cancelling the contract.

Regulation 5(2) states that the factors that can be taken into account when calculating the penalty include the amount owing for the remainder of the contract, the amount paid until the date of cancellation, the term of the contract, and the potential for the supplier “acting diligently” to find another consumer. The implication is that the penalty can be determined only when the contract is cancelled, and the extent of the penalty will depend on whether or not the cancellation does, in fact, result in the supplier incurring a loss.

IN OTHER WORDS, as per the above, no contract can have a flat rate penalty in it, that will not be enforceable by the supplier at all.

END OF UPDATE.

Previous:

Section 14 of the Consumer Protection Act, 2008 (Act No. 68 of 2008) provides for the early termination of a long term agreement between a consumer and a supplier. Section 14 (2) deals with the notice period in (b)(i)(bb) setting the minimum notice period on 20 working days. In subsection 3 (b) it deals with the right of the supplier to a reasonable cancellation fee a supplier may charge, but in the instance as to when the supplier is a landlord, and the consumer is a tenant, one must carefully look at the RESTRICTIONS imposed by the same section on when a cancellation fee becomes applicable.

Section 14 (3) (b) is very clear in this case. It states that the reasonable penalty do not apply to cancellation penalties imposed with respect to goods supplied, services provided, or discounts granted to the consumer, other than in contemplation of the agreement enduring for its intended fixed term.

So “other than in contemplation of the agreement enduring for its intended fixed term” is the key phrase here, so lets look at those contemplation’s one by one, with my comments in brackets underneath each.

1. the amount for which the consumer is still liable to the supplier, up to the date of cancellation;

(That is just logic, but it also reads the consumer is ONLY liable up to the date of cancellation, see)

2. the value of the transaction up to cancellation;

(Again, it was not worth more than what is owed up to date of cancellation, see it is pre-paid)

3. the value of the goods which will remain in the possession of the consumer after cancellation;

(Rental housing it is nil, because the tenant (hopefully) are not taking half of the building with him when he moves)

4. the value of the goods that are returned to the supplier;

(The supplier is not loosing any value here because the full value is returned to him)

5. the duration of the consumer agreement as initially agreed;

(have no influence on rental housing because tenant no 2 is moving in)

6. losses suffered by or benefits accrued to the consumer as a result of him entering into the consumer agreement;

(this is actually a credit to the tenant due, if tenant moves out because of landlord neglect)

7. the nature of the goods or services that were reserved or booked;

(has no influence on rental housing as such)

8. the length of notice of cancellation provided by the consumer;

(If it was anything shorter than the minimum requirement of 20 workdays, that will be then a thing that can be penalized by the landlord, to a limit. The norm in the industry is a 1 month rental penalty, however there are no substance for this, as when a tenant gives 20 workdays notice, it is equal to a month, and already paid for in advance, the landlord cannot piggy bank or double dip an extra month plus the new tenant that pays for same month.)

9. the reasonable potential for the service provider, acting diligently, to find an alternative consumer between the time of receiving the cancellation notice and the time of the cancelled reservation;

(20 workdays is long enough, if a landlord cannot find another tenant within 20 workdays, he did not act diligently)

10. the general practice of the relevant industry.

(for rental housing, it all goes from month to month, monthly rental, month notice etc etc.)

So, looking at the above, a landlord cannot warrant any cancellation penalty as such, except maybe the cost of advertising the unit for rent, and will really have a huge battle to try and enforce anything else. All he can do is to charge actual costs like advertising for a new tenant (and that is about it) no other things like credit check new tenant (double dipping), paying commissions to agents, (double dipping with new tenant) etc etc. This is based on the interpretation of the writer of this article of the CPA and RHA and in no way authority on this matter, and should be used as a guideline to confront a landlord who may want to charge unfair cancellation fees to a tenant. We at LTSA are in the future going to try and get a declaration judgement to put this matter to rest for once and for all.