Generally speaking, when parties enter into contracts/agreements, none of them would be expecting the contract to be terminated before the object thereof is fully realized. However, things change from time to time and unforeseen circumstances may unfold making it either difficult or impossible for the contract to persist. It is advisable for contracting parties to prepare for such an eventuality, and in this article we briefly discuss principles applicable to early termination of lease agreements.
It is imperative to mention that there are several reasons why a party may prefer to terminate a lease agreement before its term lapses. It may be because the landlord or rental agents do not attend to reported faults in a timely manner, it may be because the tenant has discovered that the property and its locality are not suitable for the family, or it may be related to the discovery of latent defects which were not apparent during the inspection. The reasons are various and differ from one situation to the other. However, it must be pointed out from the onset that terminating a lease agreement early is an action that ought to be exercised with circumspection. This is mainly because there is a risk of potential financial damage to the property owner, which damage may come back to bite into the pocket of the tenant who has chosen to terminate a lease agreement earlier without giving regard to any of the agreed terms in the agreement.
The beauty of contracts is that parties are at liberty to agree on preferred terms and conditions that will govern their relationship. Of course, the law has a say on how contracts are concluded e.g the law requires that the object of the contract must not be unlawful, the terms and conditions must not be against public policy nor seek to depart from the standing positions of existing laws where exceptions are not provided by law for such deviations etc.
The most effective way for parties to prepare for unforeseen circumstances whereat a need may arise for the early termination of a lease agreement, is to include an early termination clause in the lease agreement. Parties to the lease agreement may formulate the clause in a way that captures all the aspects that are applicable to their circumstances e.g. notice period, penalty fees, deposit, allowed reasons.
In the event that the lease agreement does not contain an early termination clause, parties may rely on the common law, section 14 (2) (b) (i) (bb) of the Consumer Protection Act 68 of 2008 (CPA) as well as the Rental Housing Act 50 of 1999. The provisions of section 14 (2) of the CPA are such that the tenant ought to give 20 days’ written notice to the landlord in order to inform him/her of the early termination.
Where the lease agreement is one whereby it runs on month to month basis, the lease may be terminated upon giving one (1) month written notice to the other party as per section 5 (5) of the Rental Housing Act.
Does early termination come at a cost? This is an important question. When one buys a bus or flight ticket at some retail outlets, usually the terms and conditions will be written at the back of the hardcopy ticket and if not, usually they are written on the website of the retailer. In most cases they spell out attendant procedures when one seeks to cancel the ticket before use. A cancellation fee is usually mentioned. A cancellation fee is so as to discourage the willy-nilly buying and cancellation of tickets before use by some travelers after they have found a cheaper retailer. The justification of such a cancellation fee lies in the fact that first and foremost, the retailer is using resources to transact on the sale of these tickets and secondly, it may be difficult to find another traveler who will come and take up the space of the ticket that was canceled, as time is usually limited.
The same applies when it comes to lease agreements, in a situation where a tenant terminates the lease agreement before its term lapses, it may be difficult for the landlord to find another tenant in limited time because when a tenant takes occupation of a property the rental agent and/or the landlord will cease to advertise the property. Therefore when the tenant terminates the lease agreement early, it may well be justifiable for the landlord to demand a penalty fee however, such penalty must be limited to actual or reasonable potential loss (usually 2 months’ rental). A guideline of calculating a penalty fee is set out in Regulation 5 of the Consumer Protection Act 68 of 2008. This brings us to the topic of what is a reasonable early termination fee, and can a landlord withhold deposit for early termination?
The law is not without recourse for both parties to a lease agreement and any such party who is aggrieved may take action for redress.
At Van Deventer and Van Deventer Incorporated we assist with rental housing matters, contracts as well as a wide array of other legal services. Contact us for comprehensive and committed service.
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