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COVID19 - Cancelling a Commercial Lease

We can only benefit from the law if we understand what our rights and obligations are.

COVID19 has had a major impact on commercial leases. Both tenants and landlords are living in uncertain times and our law needs to protect and ensure that relief exists for both parties.

commercial leases COVID19

The Consumer Protection Act

Tenants now rely on the Consumer Protection Act (CPA) no. 68 of 2008 to legally escape terms imposed by commercial leases.

Commercial leases fall within the ambit of the CPA and refer to an agreement between a landlord and a business setting out terms and conditions governing a property rental.

The CPA applies to contracts entered with natural persons and juristic persons with an annual turnover or asset value of less than R2 million.

The Rights of the Tenant

The CPA has significantly changed the rights of the tenant as well as the obligations of the landlord. The Act increases a tenant’s rights and has left many landlords in tough legal positions when seeking legal relief. It plays an influential part potentially altering the legal position between the tenant and the landlord.

Landlords need to understand the implications that the CPA has on a lease and adhere to the Act to avoid scrutiny and penalties which may be imposed for non-compliant contracts. Furthermore, it is important that the CPA coexists with a commercial lease to ensure the promotion of fairness, openness, and good business practices between contractual parties.

Before commercial leases are entered, they should be evaluated by rental agents, attorneys, and the contracting parties.

A Commercial Lease must be drafted in plain language

Landlords can no longer rely on the enforcement of a contract based on the signature of both parties. Section 22 of the CPA prohibits this enforcement because the landlord is obligated to ensure the tenant understands the terms of the commercial lease and the implications thereof. The content of the commercial lease must be drafted in plain language that is understood by any lay person.

The tenant’s attention must be drawn to provisions in the agreement that limit the risk of the landlord, constitute any assumption of risk for the tenant, an indemnity by the tenant or an acknowledgement of fact by the tenant.

These provisions are regarded as standard terms of a commercial lease that must be adhered to prior to the signing of the lease agreement. A tenant must fully understand the provisions drafted in the commercial lease and the implications of liability thereof.

The landlord must make certain that the commercial lease entered is not excessively one sided. This is a compliance issue as one party would effectively have more rights than the other increasing their liability in terms of the agreement.

Section 48, 49 and section 51 of the CPA

Special attention needs to be given in respect of section 48, 49 and section 51 of the CPA. Sections 48 and 49 declare certain provisions unfair, unreasonable and unjust terms. Section 51 provides a list of prohibited transactions, agreements terms and conditions. This places substantial obligations on the landlord to ensure that a commercial lease does not contain provisions that may conflict with the CPA.

Landlords can protect and exercise their legal rights by removing any conflicting terms under section 48, 49 and 51 before the commercial lease is entered into and signed by the contracting parties.

Bailey Haynes Inc. – Commercial Attorneys Cape Town

In conclusion, the CPA has afforded more protection for the tenant and placed more obligations on the landlord. It is always advised that tenants have leases looked at by an attorney and likewise, landlords have leases professionally drawn up by attorneys.

Bailey Haynes Inc. offers the following services:

  • Distribution agreements
  • Rental / Lease agreements
  • Commission based agreements
  • Cross border agreements
  • Employment contracts
  • Restraint of Trade
  • Service Level Agreements / SLA’s
  • Non-disclosure agreements
  • Sale of Business / Going Concern
  • Confidentiality agreements

For more information about our law firm and our services, please contact us.

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