Understanding the circumstances under which a lease can be terminated is crucial for landlords and tenants. Whether the lease is for a fixed term or month-to-month, various factors come into play when considering early termination.
A tenant may cancel a lease in the following situations:
1. If the lease is for a fixed term and does not provide for early termination:
(a) on the agreed expiry date without paying a penalty. Section 14 of the Consumer Protection Act, 2008 (the CPA) stipulates that the landlord must give the tenant no more than 80 days and no less than 40 days’ notice of the impending termination. The notice should also specify what changes, if any would be implemented should the parties agree to renew or extend the lease.
(b) the tenant is entitled to early termination of the lease provided 20 business days’ notice is given to the landlord.
2. The tenant is obliged to pay all outstanding rent due up to the date of cancellation. The landlord is entitled to charge a reasonable penalty for the early cancellation. Regulation 5 under the CPA sets out factors to consider in determining a reasonable fee. As a rule of thumb, 2 months’ rent plus compensation for any expenses incurred by the landlord due to the early cancellation (e.g. advertising charges) should generally suffice.
3. If the lease is for a fixed term and does provide for early cancellation, it may be terminated in compliance with those provisions.
4. If the lease is for a fixed term and there is a dispute about whether or not the tenant has the right to early termination, section 14 of the CPA should be applied.
5. If the lease is not for a fixed term (i.e. a month-to-month lease), the landlord should be given one calendar month’s notice of the tenant’s wish to terminate the agreement.
6. Irrespective of the type of lease involved, if the landlord breaches any of his obligations in terms of the lease, the tenant may cancel if the landlord fails to remedy his breach as demanded by the tenant.
The above summary applies to both residential and commercial properties. The CPA is not applicable if the tenant is a trust, a company or a close corporation.