THE CONSUMER PROTECTION ACT AND FIXED TERM AGREEMENTS,
SUCH AS LEASE AGREEMENTS

TO ALL ESTEEMED BUSINESS PARTNERS

Number

06/2017

Introduction

Fixed term agreements are contracts of a definite duration. A property lease agreement is an example of a fixed term agreement.

Section 14 of the Consumer Protection Act, 68 of 2008, dealing with the expiry and renewal of fixed terms agreements does not apply between juristic persons, irrespective of their turnover or asset value. This excludes presumably all commercial lease agreements. A juristic person is defined as a body corporate (company, close corporation, etc.), a partnership or association or a trust as defined in the Trust Property Control Act, 57 of 1988. The rules relating to fixed term agreements thus only applies where a natural person (including a sole proprietorship) is the subject of such agreement.

The Act provides that fixed-term consumer agreements must not exceed a certain maximum period. The regulations currently prescribe 24 months from the date of the consumer’s signature as the maximum period, unless such longer period is expressly agreed with the consumer and the supplier can show a demonstrable financial benefit to the consumer.

Termination by Supplier (Lessor)

A supplier must give written (or other recordable manner or form) of notice to a consumer of the pending expiry of a fixed-term agreement not more than 80 business days and not less than 40 days before the expiry date thereof. The notice must include any material changes to apply in the event or renewal or continuance of the agreement, as well as of any other cancellation or renewal options available to the consumer.

Automatic Continuance

A fixed term agreement will automatically continue on a month-to-month basis, and subject to the material changes as communicated to the consumer in the above notice, unless the consumer expressly cancels the agreement on the expiry date or renews it for a further period. If the supplier did not give notice to the consumer of material changes in the terms, then it would seem that the new month-to-month will be on the old contract terms.

Any provisions to the contrary in a fixed term agreement to which Section 14 applies will be void (invalid).

Termination by Consumer (Lessee)

In addition to the above, a consumer may cancel such an agreement before the agreed expiry date by giving the supplier 20 business days written (or other recordable manner of form) of notice. No reasons for the cancellation are required. A supplier may also terminate the agreement prior to the expiry date if the consumer fails to remedy a material breach on his part, after having been placed on 20 business day terms to do so.

Liability of consumer and supplier on termination

Where an agreement is cancelled by either the consumer or supplier in terms of the above:
  • The consumer remains liable to the supplier for amounts owned up to the date of cancellation
  • The supplier may impose a reasonable penalty or charge for any goods supplied, services provided or discounts granted to the consumer in contemplation of the agreement running for its intended fixed term
  • The supplier must credit the consumer with any amounts that remains the property of the consumer as of the date of cancellation.
Penalty for termination

The following must be considered by the supplier in determining the REASONABLE cancellation charge or penalty:
  • The amount which the consumer is still liable for to the supplier up to date of cancellation;
  • The value of the transaction up to cancellation;
  • The value of the goods which will remain in the possession of the consumer after cancellation;
  • The value of the goods that are returned to the supplier;
  • The duration of the consumer agreement as initially agreed;
  • Losses suffered by or benefits accrued to the consumer as a result of the consumer entering into the agreement;
  • The nature of the goods or services;
  • The length of notice of cancellation provided by the consumer;
  • The reasonable potential for the service provider, acting diligently, to find an alternative consumer; and
  • The general practice of the relevant industry.
Notwithstanding the above, the cancellation charge may not have the effect of negating the consumer’s right to cancel a fixed term agreement. In other words, the regulations specifically prohibit charging a consumer the full amount owing in respect of the remainder of the contract or a lease agreement.

Consumers who exercise their right to early cancellation should insist on their supplier providing them with a breakdown of how the cancellation charge or penalty has been calculated in order to assess for its reasonability.
 
For any queries please contact our property law division at the details below:

Allen West

Tel: 012 425 3549

Daleen Loubser

Tel: 012 425 3489
dloubser@macrobert.co.za
Disclaimer: This newsflash is for general information only and should not be used as legal or professional advice. No liability can be accepted for any errors or omissions, nor for any loss or damage arising from reliance and any information therein