Landlords ignore the Consumer Protection Act at their own peril

Private Property South Africa
Marlon Shevelew

The Consumer Protection Act (CPA; Act) has far-reaching implications for the landlord-tenant relationship, contrary to the views expressed by some commentators.

Strangely, some commentators have questioned whether the CPA even applies to leases. As a general rule, it certainly does, and only in rare cases will the opposite be true.

Whenever there is continuity, in other words, in all cases apart from short-term leases, the Act will apply. The Act applies where “services are marketed in the ordinary course of the supplier’s business”. The term “business” is defined in the CPA to mean “the continual marketing of any goods or services”.

There is a clear legislative intention to include leases generally within the ambit of the CPA. In fact, the Act explicitly recognises leasing as a “service”, stating that “access to or use of any premises or other property in terms of a rental” constitutes a service.

Some authors have rightfully recognised the need for the term “business” to be given a wide interpretation in relation to the Act. For instance, Robert Sharrock, has written that whenever a person lets property to supplement his income, the lease is subject to the CPA provisions, regardless of whether he earns his salary primarily elsewhere. Sharrock points out that the test for determining if a contract falls within the ordinary course of a particular business is whether the making of the contract falls within the scope of that business and whether ordinary businesspersons would have concluded the contract. It is irrelevant whether that particular businessperson regularly entered into such a contract.

In contrast, other commentators, rely on tax-law cases for a narrower interpretation of the word “business”. Reliance on these cases is seriously flawed. The CPAlays down a simple test for determining whether any particular activity constitutes “business” by merely requiring continuity. Many other factors must be looked at for determining whether any activity is “business” in tax-law cases, including the nature and scope of the activities, the presence or absence of the profit motive and the intention of the person engaging in the activity, over and above the question of continuity.

In addition, a purposeful interpretation needs to be given to consumer protection legislation, in order to ensure the maximum protection for the consumer.

Other jurisdictions, notably the United Kingdom and Australia, have recognised the need for a broader interpretation of the word “business” in consumer protection legislation, so that it covers leasing agreements generally.

Daniel Dovar, writing in the Solicitors Journal (UK), commented on the applicability of the Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations) to leases by explaining “The supplier must enter into the contract as part of their course of business. This should usually be easy to satisfy in tenancy cases, as rarely will property be let other than in the course of business.”

The Office of Fair Trading in the United Kingdom has also published a “Guidance on unfair terms in tenancy agreements” (September 2005), which states that “The guidance assumes that, in general, landlords can be considered ‘suppliers’ and private tenants ‘consumers’ for the purposes of the Regulations.”

In contrast, the Law Reform Commission (UK) has explained that where the element of continuity is absent, for instance, where the landlord is merely “letting their home temporarily while waiting for a better opportunity to sell it or while working in another area”, the Regulations would not apply.

These factors cumulatively demonstrate that leases will be subject to the CPA, and compliance by landlords is essential.

That brings us to the next question, namely what are the consequences for landlords who ignore the provisions of the Act?

In truth, non-compliance may have a severe financial impact on the landlord, and may even carry criminal sanctions in appropriate cases. The entire lease may be declared void and the landlord may face fines of as much as the greater of 10% of their annual turnover or R1-million, as well as imprisonment.

The obvious question then is what must landlords do to ensure they comply with the Act?

The changes brought about by the Act in regards to the landlord-tenant relationship are so far-reaching that they could simply not be summarised properly here.

Some landlords have tried to place a general disclaimer clause in their leases, merely stating that the CPA must override any inconsistent provision of the lease, without actually analysing each and every clause in their lease.

These clauses fail to meet the requirements set by the Act, in that they are not in plain and understandable language.

In the United Kingdom, the Office of Fair Trading has objected to these types of clauses on the basis that they are unclear and uncertain in effect, and can only be understood after receiving expert legal advice. (“Unfair Contract Terms Guidance”, Consultation on revised guidance for the Unfair Terms in Consumer Contracts Regulations, 1999).

It is thus safe to say, however, that the creating a truly CPA compliant lease is extremely time-consuming, rigorous and expensive. It will require the expertise of an attorney with knowledge of both, rental law and the Act.

A simple solution for a landlord who does not want to expend a substantial amount of money in ensuring their lease agreements comply with the Act, is to purchase a lease agreement template that is compliant.

Written by Marlon Shevelew, marlon@marlonshevelew.co.za, http://marlonshevelew.co.za

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