Lease agreements are a common aspect of the rental market in South Africa, providing a legal framework for the relationship between landlords and tenants. However, circumstances may arise that necessitate the early termination of a lease, leading to questions about the rights and obligations of both parties involved. Early termination of lease agreements should be done carefully to avoid any future legal action due to breach of the lease agreement. In this article, we will explain the concept of early termination clauses in lease agreements, as well as the legal position under circumstances where an agreement does not include such a clause.
Understanding Early Termination Clauses
An early termination clause is a provision included in a lease agreement that allows either party, the landlord or the tenant, to end the lease before the agreed-upon termination date. These clauses are designed to provide flexibility and protect the interests of both parties in the event of unforeseen circumstances. However, it is important to carefully review and understand the specific terms and conditions of such clauses, as they can vary from one lease agreement to another. It is also important to remember that not all lease agreements contain an early termination clause.
In addition, if the parties agree on a notice period, either party may give notice and the agreement will terminate as per the terms of the agreement. If the parties did not include any notice period in the agreement, but provision is made for early termination, the parties can rely on the common law principle, being one calendar month’s notice.
Legal Rights and Obligations
Notice Requirements: Both landlords and tenants must provide proper written notice of their intent to terminate the lease early, as specified in the lease agreement or according to the provisions of the Rental Housing Act (Act 50 of 1999). The notice period can vary depending on the circumstances and may be subject to negotiation between the parties involved. Tenants should bear in mind that failure to provide proper notice may result in financial penalties or legal consequences.
Deposits: It is important to note that the landlord is required by law to invest the deposit in an interest-bearing account, with interest accrued being owed to the tenant. Landlords are required to return the tenant’s deposit within a reasonable time after the termination of the lease. The cost of any repairs the landlord has to make for damage caused by the tenant can be deducted from the deposit, as well as any other amounts still due and owing to the landlord. These damages must go beyond normal wear and tear and the landlord is not allowed to use a deposit for general maintenance or upkeep of the property.
Rental Arrears and Damages: Tenants are responsible for any outstanding rental arrears and damages caused to the property beyond normal wear and tear. It is essential for tenants to understand their obligations regarding rent payment until the lease termination date.
Can landlords charge a penalty fee for early termination?
Landlords generally have the right to charge a penalty fee for early termination of a lease agreement. However, it is important to note that the specific terms and conditions regarding penalties for early termination should be clearly stated in the lease agreement itself. When including an early termination penalty clause in a lease agreement, landlords should ensure that the fee is reasonable and proportionate to the potential losses incurred. The penalty fee should reflect the actual damages suffered by the landlord as a result of the early termination. Courts may scrutinise penalty clauses and may declare them unenforceable if they are deemed to be excessive or punitive.
If these terms are not stated, then the landlords will need to refer to the Consumer Protection Act 68 of 2008 (CPA) and Rental Housing Act (RHA).
Cancellation of lease agreements if there is no early termination clause
If the lease agreement does not make provision for the early termination of the lease, the parties will have to rely on the CPA and RHA.
The CPA allows for early termination subject to two conditions:
- The lease agreement should be for a fixed term. In other words the agreement is for a specific duration (for example 12 months); and
- The tenant should be a natural person.
Section 14(2) of the CPA provides that a tenant must give 20 business days written notice to the landlord of their intention to terminate the lease agreement. The tenant remains liable for any amounts owed to the landlord in terms of the lease agreement up to the date of cancellation.
The landlord will have the right to impose a reasonable penalty. However, the penalty cannot have the effect of negating the tenant’s right to cancel a fixed-term agreement. The guidelines for determining a reasonable penalty is set out in Regulation 5(3) of the CPA. These guidelines are general principles, which include:
- The actual losses suffered by the landlord due to their inability to find a new tenant;
- Advertising costs to find a new tenant;
- The rental agent’s pro-rata fee.
Under these circumstances, the landlord will need to prove that they attempted to mitigate their damages and took positive steps to find a new tenant. Generally, an amount equal to two months’ rental is awarded if the landlord is unable to find a replacement tenant.
Termination of a month-to-month lease agreement
Section 5(5) of the RHA provides that either party wishing to cancel such a lease agreement can do so by giving at least one month’s written notice of its intention to cancel.
Non-Paying Tenants and Termination
Since COVID-19, there has been a large number of people with unfortunate circumstances, making them unable to pay their rent, which also means landlords are struggling too. In South Africa, the eviction process for non-paying tenants is governed by the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (PIE Act) of 1998 and the Rental Housing Act (RHA) of 1999. Landlords must provide written notice to tenants in arrears, giving them a reasonable opportunity to rectify the situation. If the matter remains unresolved, landlords can seek assistance from the Rental Housing Tribunal or apply for an eviction order from a court. The court considers various factors to determine if the eviction is just and equitable. If granted, the eviction is executed by the Sheriff of the Court, and tenants are given a specified period to vacate. Engaging in illegal eviction practices is prohibited. Seeking legal advice is essential for both landlords and tenants to navigate the eviction process properly.
Mediation and Legal Recourse
In cases where disputes arise between landlords and tenants regarding early termination, it is advisable to first attempt mediation or negotiation to reach a mutually acceptable resolution. Mediation services may be available through relevant rental housing bodies or organisations.
If mediation fails, either party can seek legal recourse through the appropriate channels, such as the Rental Housing Tribunal or the courts. It is important for both landlords and tenants to seek legal advice and understand their rights and obligations before pursuing legal action.
Understanding early termination of lease agreements is crucial for both landlords and tenants in South Africa. By familiarising themselves with the rights and obligations associated with early termination, both parties can navigate potential disputes more effectively. Clear communication, adherence to notice requirements, and acting in good faith can contribute to a smoother termination process and help protect the interests of all involved.
It is advisable for landlords to seek legal advice when drafting lease agreements, including early termination clauses and penalty fees, to ensure compliance with applicable laws and to avoid potential disputes. Similarly, tenants should review and understand the terms of the lease agreement before signing to be aware of any potential penalty fees associated with early termination.
For any legal assistance with lease agreements or terminations, please contact our specialised team practising Property Law.