The Consumer Protection Act (CPA) significantly impacted common law regarding fixed-term rental agreements. Notably, the CPA limits fixed-term rental agreements to a maximum of two years, unless parties can demonstrate a ‘demonstrable financial benefit’ to the tenant.
Landlords must provide written notice of rental termination as the rental agreement nears its end. This notice should be given to the tenant between 40 and 80 business days before the agreement expires.
The question arises how to deal with clauses in rental agreements which state that the agreement will be renewed automatically if neither the landlord nor the tenant gives notice of cancellation of the rental agreement when nearing its end.
Regarding automatic renewal clauses, the general CPA rule is that rental agreements continue month-to-month unless the consumer explicitly agrees to a further fixed term.
Debates persist about whether the CPA applies to private residential property rentals. The key question is whether landlords, when renting out property, do so ‘in the ordinary course of business.’
In the matter of Airport Inn and Suites (Pty) Limited v Strydom, it was pointed out that the phrase ‘in the ordinary course of business’ appears in the definitions of both ‘consumer’ and ‘transaction’ in the CPA. It was held that the following objective approach should be followed when interpreting this phrase:
‘… namely whether, having regard to the terms of the transaction and the circumstances under which it was entered into, the transaction was one which would normally have been entered into by solvent businesspeople.’
Applying the above test means that even if a landlord’s primary income comes from another occupation, renting out a second property (acquired for investment purposes) may subject the rental agreement to CPA provisions.
However, in the matter of Venter and Another v Els and Another, the court grappled with an intriguing legal question. The landlords, both engineers, had moved to Australia and rented out their property while contemplating their permanent stay there. When the tenant expressed interest in renewing the rental agreement beyond the initial term, the landlords agreed but included a provision allowing them to terminate the agreement with three months’ written notice. However, the tenant’s attorney argued that the rental agreement fell under the Consumer Protection Act (CPA), which prohibits early termination by landlords. The court had to decide whether the CPA indeed superseded the rental agreement’s cancellation clause.
The court determined that the landlords’ rental agreement did not fall within their ordinary course of business. As engineers, they temporarily rented out their primary residence while assessing the permanency of their move to Australia and the lease was not part of their regular income-generating activities. Consequently, the 3 months’ written notice provided to the tenant validly terminated the rental agreement, and the tenant was required to vacate the property by that date.
While it may seem that the court’s approach in the cases of Airport Inn and Suites and Venter was different, the facts of these matters were clearly distinguishable from each other. In Venter’s case, the landlords only rented out their property on a temporary basis. Additionally, the tenant agreed to the renewal agreement with full awareness that the three-month cancellation clause was included because the landlords intended to sell their property.
A rental agreement is essentially a service governed by the CPA. In this arrangement, the landlord provides the tenant with access to a house, office, flat, or other property, and the tenant pays an agreed-upon sum. However, a clause that allows for the ‘automatic renewal’ of the rental agreement is likely to be invalid and unenforceable. It’s essential to consider the specific facts of each case individually.
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