Deposits and cancellation of lease agreements in the time of COVID-19

Deposits and cancellation of lease agreements in the time of COVID-19

MAIN IMAGE: Cilna Steyn, managing director SSLR Incorporated

Cilna Steyn

There are so many questions from landlords, tenants, and rental agents alike. A particularly pressing issue is the legal implications of cancellation of lease agreements where the reason for the cancellation of the lease agreement was specifically that the tenant could no longer afford to pay the rent for the particular premises because of the financial pressures brought about by COVID-19.

These financial pressures could include a tenant that lost his job completely, who has been retrenched, the tenant that is a sole proprietor who has no income because his business cannot trade, or a tenant receiving a reduced salary.

Does the reason for cancellation impact the penalty the landlord can charge from the tenant?

Let’s begin with lease agreements that is governed by Section 14 of the Consumer Protection Act; this will be fixed-term lease agreements where there is a natural person involved in the transaction, this can be either the landlord or the tenant. In these agreements the tenant would be entitled to cancel the lease agreement by giving the landlord 20 business days’ written notice of such cancellation, the landlord will however be entitled to claim a reasonable cancellation penalty from the tenant. The reasonable penalty would be an amount that the parties agreed to in terms of the lease agreement or if the lease agreement is silent on this topic, the landlord will have a claim against the tenant for the actual damages (financial loss) suffered by the landlord, provided that he can show that he attempted to mitigate his damages as much as possible.

During lockdown, as well as the phased reopening of the country; the real estate industry is still mostly closed and not operational. This means that a landlord would not be able to place a new tenant since the landlord would not be able to show the property to prospective tenants and would accordingly not be able to conclude new lease agreements. The effect of this is obviously that the landlord has no ability to mitigate his damages and this will leave the tenant exposed to a damage claim for the full damages suffered by the landlord. A court will definitely consider the tenant’s personal circumstances when faced with an order like this. However, unfortunately for many tenants in a position like this, the laws regarding damages remains unaffected, even by the economic impact of the COVID-19 pandemic.

Landlord may claim from the deposit

Presumably the landlord will have a deposit from the tenant which can be used by the landlord to make good any damage to the property or restore any financial damages suffered by the landlord, for instance non-payment of rent or for that matter, damages suffered due to early cancellation of the lease agreement. A landlord would be entitled to hold and utilise the deposit in a situation where a tenant cancels the lease agreement early; and where the landlord is suffering financial loss as a result of this, the landlord might even have a damages claim over and above the deposit held by the landlord.

The principle of Ubuntu with cancelled leases

There has been a lot of talk about the legal principal of Ubuntu and its application in South African law, this is one of those instances where we would like to see landlords and tenants effectively meeting each other halfway. The tenant can surely not expect a landlord to allow him to cancel a lease agreement, nor pay rent any further where the landlord is not in a position to place a new tenant. On the other hand, a landlord can surely not hold a tenant to the full term of the lease agreement where the tenant indicates that he can no longer afford to pay the rent. These are not hard and fast rules in our law, but this is the principals of Ubuntu, which sets a very strong foundation in interaction between people, and the way our courts apply our set legal principles.

Landlords and tenants are implored to communicate in this time, keep the communication in writing and find middle ground to accommodate each other. If this is not possible unfortunately the parties will be left with litigation and the legal principals above will be applied by our courts.

End

About the author: Cilna Steyn is an award-winning businesswoman and the managing director of the property specialist law firm, SSLR Incorporated, which she co-founded in 2008. She also acts on the panel of experts for the Law Society of South Africa’s Legal Education and Development, is one of the drafting attorneys of the TPN (Tenant Profile Network) Residential LeasePack and authored “The Landlord’s Guide – Property Rental and Eviction” in 2015. Cilna regularly publishes articles in newspapers and peer review magazines. She also regularly presents training sessions to rental agents and tenants and often participates in TV and radio discussions relating to property law, in particular evictions.

Showing 6 comments
  • Revina
    Reply

    Informative thank you. It would be nice to have information on different scenarios. For example around leasing a residential property to a company? How does one charge for and manage same with a view to managing risk?

  • Liziwe LELALETSE
    Reply

    I gave my landlord one and half month notice ending in May 2020. The readon behind is the fact that my daughter being a student, classes were suspended and myself, being self-employed, could no longer afford to pay the rent due to Covid 19. I had to close my guesthouse my source of income. Now agent and landlord want me to pay a cancellation fee and June rental. Is it rightfully so of the landlord to charge me so much?

  • Joggie Viljoen
    Reply

    I had a 12 month contract for my daughter studying in NWU in Potch. She went for a mid semester break in March and then lockdown started. All further lectures were done online and she stayed with us in Jhb. I also took a 100% loss of income from March. The flat was unocupied for the rest of the semester. In July the NWU informed us that the second semester will also be in the form of online classes. I asked the estate agent if the landlord can give us some form of relief. They gave us a R800 relief for 3 months. Middle July I informed the estate agent that I can no longer afford the flat and that we will not be using it for the rest of the year. I was told that I have to give a calander months notice. We vacated the flat on the 31st of July and also gave notice on the 1st of August. According to the contract we had to pay a two month penalty after the notice month. I still paid for August although I returned the keys on the 31st of July. As I still had no income I said that they can use the deposit money for the first month penalty and then for the second month penalty we use the R800 discount and then I would have to pay the rest. I have ran out of money and simply can not afford to pay the last penalty amount. I have been without income for 6 months. My work is mainly overseas and is dependant on international travel and broadcasting of international sporting events. I had all contracts cancelled until February 2021. I have paid for an unocupied flat for 6 months. Due to covid 19 and government and university legislation my daughter could not return to Potch. Due to covid 19 and international laws and rules I could not continue to work and earn a living.
    What will happen if I do not pay the last installment. I do not have any spare money to pay for something that I am not utilising.

  • Maylene
    Reply

    Good Day

    I am breaking an early lease agreement (lease expires 1st Feb 2021) however rent is paid up to end October 2020. I couldn’t afford it anymore due to COVID and sent letter explaining (gave 2 months notice in August) as per the agreement. They said they will deduct a percentage for the months from November 2020-February 2021 from my deposit (even though they got new tenants that moved in on the 1 November, so there was no loss on their side at all). I find they have no leniency for the damage as a result of COVID. The lockdown will have the effect that many obligations cannot be complied with … Surely some measure of empathy must prevail?

  • Wim Kamermans
    Reply

    Good Day
    I rented a one bedroomed flat for my son a year and a half ago and paid a two months deposit. Rent being R9500.- At the beginning of lockdown the rent was re negotiated to R6500. The lease has now gone into month to month as the first year has expired. The landlord found a tenant willing to pay the full rental and I offered R8500.- No luck. They offered my son a much smaller flat at the back of the building for R8000.- We are now looking around but I’m worried about the deposit as I will need it for the next rental.
    I own a jewelery shop that deals only with foreign tourists and I’ve been closed since the lockdown began.
    Can the landlord (besides normal damages etc.) deduct any previous reduced rental of the deposit?

  • DAVID HUBBLE
    Reply

    I left the premises 3 months before the end of the lease. Nothing in the lease states a cancellation fee. How can I not pay the cancellation fee presumably one months rent? In my particular case the premises were not habitable anymore as the kitchen cupboards were rotten, the landlord was made aware of this and they did nothing. Also it became an unsafe place to stay as there were tiles falling from the side of the house and in November one large piece fell and nearly landed on my wife’s head. the landlord was also aware that the tiles were falling off the building for some time, but nothing was done to correct this. Is this enough to not pay any cancellation fee?

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