Tribunal rule on ‘unfair’ penalty for early lease termination

Dec 6, 2018 | Features

Grant Rea, rental and estate agent with RE/MAX Living Atlantic Seaboard

“The reason I say the Tribunal’s ruling is fair is simply that a case like this is unique in light of the sale”

It is business practice that a tenant has to pay a penalty, depending on the terms of the lease agreement, when there is early termination of the lease – but is it fair to charge the full penalty if the landlord is selling the property?

The Western Cape Rental Housing Tribunal recently heard just such a case. The landlord had put the property up for sale upon which the tenant, being concerned that they may not find a suitable property in time, gave early but proper notice of 20 business days. The landlord then charged the tenant as cancelation penalty the full amount that was being held as deposit meaning no refund was coming to the tenant.

The tenant thought the landlord acted unfairly and laid a complaint with the Tribunal.

According to the summary of the hearing, there was a written lease agreement between the parties with a penalty clause that allowed for a generalised penalty of 1.5 times the monthly rental. The rental was R12 500pm at the time of termination.

The landlord was thus within his rights to charge a penalty and is backed by clause 14 of the Consumer Protection Act (CPA) which states that a tenant can cancel a lease on 20 business days’ notice, but the landlord is entitled to charge a reasonable cancellation penalty.

The crux of the matter before the court was whether the landlord was reasonable to withhold the tenant’s full deposit which amounted to R18 750 (excluding interest) as a cancellation penalty.

The tenant argued that a penalty should only be relevant where a dwelling is not put up for sale and marketed. He cited the insecurity of his tenure as a result of the imminent sale was the main reason for his early termination. He said he was willing to pay R10 000 as a penalty which he regarded as fair.

The landlord, apparently, couldn’t explain which cancellation criteria they applied as required under Regulation 5(2) of the CPA.

The Tribunal ruled in favour of the tenant and found there had been unfair practice by the landlord. The latter was ordered to refund the tenant R9 153,28.

Commenting on the case, experienced rental agent Grant Rea said he found this case very interesting and the ruling of the Tribunal to be fair.

“The reason I say the Tribunal’s ruling is fair is simply that a case like this is unique in light of the sale and that landlords should be able to recover some loss but the Tribunal I feel ruled fairly as both parties needed to have met in the middle in the first place,” he said adding he suspects that the tenant wanted all his deposit back of course but that the court recognized that the landlord was paying a bond with no tenant to cover any costs.

Asked what rental agents could do to avoid this situation, Rea said the following:

  • Rental agents would need to prove that all reasonable efforts were made to find a replacement
  • Naturally apply a sense of fairness in the types of penalties charged to tenants.
  • Lease wording is really important but this case proves that even if the lease is clear about a clause regarding penalty, it is not always seen as reasonable in a court of law.

Related reading: Dealing with delinquent tenants

Do you need legal advice on a situation you are facing as rental agent or as an estate agent? We would like to help, email editor@propertyprofessional.co.za.