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By Sharné Zimri
2019-02-11

If you are a tenant who no longer wants to be bound by your lease agreement or you are a landlord and your tenant no longer wants to be bound by or breaches the lease agreement, this post explains the factors which need to be considered. We explain how a lease agreement may be terminated or cancelled and the consequences of doing so.


Most leases have a fixed term, meaning they terminate automatically after an agreed period, for example 24 months. Terminating or cancelling a lease before the end of a lease period can be done lawfully or unlawfully. The consequences differ depending on whether the lease is a residential or commercial lease. By “commercial lease” we mean a lease between two entities or juristic persons such as companies, body corporates, trusts, partnerships or associations. By “residential lease” we mean a lease where one party to the lease is an individual or sole proprietor.


Lawful termination


Automatic termination. When deciding to terminate any lease, first consider the duration of the lease. When the lease period comes to an end, the lease terminates automatically, and the termination is lawful. The duration of a residential lease may not be more than 24 months unless there is a financial benefit for the tenant. Most residential leases terminate automatically after 12 or 24 months. Where the tenant wishes to terminate the lease before the lease period ends, the other provisions of the lease agreement become relevant.


Early termination. Some lease agreements have provisions allowing for early termination before the end of the lease period. These provisions provide that the tenant must give the landlord notice of termination of the lease and at the expiry of the notice period, the lease will be validly terminated. For example, if the lease agreement requires one month’s written notice of termination and on 1 March 2019 the tenant gives written notice that the lease will end on 30 March 2019, the lease will lawfully end on 30 March 2019. Rental until 30 March 2019 will be payable. Sometimes the lease agreement will also require the tenant to pay an early termination charge, which the tenant will be liable to pay unless it is unreasonable.


Mutual termination. The tenant and the landlord may mutually agree to terminate the lease early. In those circumstances they will usually agree on the terms of the termination, for example, the date on which the tenant will vacate the premises, what the final rental amount will be and when it will be paid. The tenant must be careful not to breach the lease agreement when approaching the landlord to discuss mutual termination. Any expression by the tenant that conveys an intention not to be bound by or perform in terms of the lease agreement is a breach of contract called repudiation.


Where the lease is not terminated automatically, mutually or according to the early termination provisions of the lease agreement, then it may be cancelled in accordance with the Consumer Protection Act (“CPA”), Rental Housing Act, the common law or the cancellation provisions of the lease agreement.


Cancellation


An agreement is cancelled where there is a failure to comply with its terms, also referred to as a breach of contract. Examples of a breach by the tenant is repudiation, failing to pay rent or other agreed charges, non-compliance with the rules of the complex/estate and damage of the property.


Lawful cancellation of a residential lease


Lawful cancellation by the landlord. Where there is a cancellation clause in the lease agreement, it usually requires the landlord to give the tenant time to remedy the breach. If the breach is not remedied within the required time, the landlord can lawfully cancel the lease. The Rental Housing Act, applicable to leases for housing purposes, provides that a landlord can cancel a lease agreement on grounds set out therein provided they are not unreasonably prejudicial to the rights or interests of the tenant. Section 14 of the CPA allows the landlord to give the tenant 20 business days' written notice of a breach of the lease agreement and if the tenant does not remedy the breach within that time, the lease will be cancelled. This applies regardless of the terms of the lease agreement. Certain breaches are incapable of remedy, such as a repudiation, and the landlord may cancel the lease immediately. 


Lawful cancellation by the tenant. In terms of section 14 of the CPA, a lease agreement may be lawfully cancelled by a tenant after giving the landlord 20 business days’ written notice of cancellation. A residential tenant can do so without giving the landlord any reason and despite the terms of the lease agreement.


After a residential lease is cancelled by the landlord or tenant in terms of the CPA, the tenant will be liable for rent owing up to the date of cancellation (being 20 business days after the notice of cancellation was received by the tenant or landlord, as the case may be). In addition, the landlord can charge the tenant a reasonable penalty to cover the effect of the cancellation.


The penalty amount is determined after considering what is owing by the tenant to the landlord at the date of cancellation, the monthly rental amount, market-related rental, duration of the lease, the tenant’s losses or benefits as a result of the lease, how much cancellation notice was given, the potential of finding another tenant, and the general practice of the property industry. Any deposit remaining, after deducing the cancellation penalty, must be returned to the tenant.


Lawful cancellation of a commercial lease


A commercial lease is usually cancelled in terms of the lease agreement. Cancellation in terms of section 14 of the CPA does not apply to commercial leases. Where a commercial lease is cancelled without a contractual basis or due to a breach by the tenant, the tenant is liable to pay rental up to the date of cancellation as well as contractual damages. Contractual damages are awarded for breach of contract in order to place the landlord in the position it would have been in had the contract been properly and fully complied with. Therefore, the tenant will be liable for loss of the rental income which the landlord would have received if the lease agreement was not cancelled.


However, the landlord is required to mitigate its damages by taking reasonable steps to decrease its losses. The leased property must be marketed immediately after the cancellation to find a replacement tenant. The old tenant will be liable for the costs incurred by the landlord to find a replacement tenant, such as agent’s fees, advertising costs and the cost of drafting a new lease.


When the landlord finds a replacement tenant, damages are calculated by subtracting the rent in terms of the new lease from the rent the landlord would have received in terms of the old lease. The old tenant will not be fully liable for the difference if the landlord did not act reasonably.


Other Damages


If the tenant does not vacate the premises after cancellation or termination, the tenant will be liable for damages for the period the tenant remains in occupation. Remaining in occupation after cancellation or termination of a lease is called holding over. Holding over may delay occupation by a replacement tenant or the landlord’s ability to find a replacement tenant and for those reasons the tenant will be liable for the market related rental. Holding over may include the tenant leaving furniture or other possessions on the premises.


Ordinarily, the tenant will also be required to return the leased property in a good state of repair. If the tenant does not do so, the landlord can claim from the tenant the cost of getting the property to the required state. There are other forms of damages for which the tenant may be liable, and each matter must be determined according to its facts.


Conclusion


Where a tenant wishes to end a lease, the contents of the lease agreement must first be considered, specifically its termination and cancellation clauses. If the lease cannot, in the circumstances, be validly terminated in accordance with the lease agreement, the landlord should be contacted to discuss the situation. The tenant must be careful not to breach the lease agreement by expressing an intention to no longer be bound by its terms or fulfil the lease obligations.


If the lease is cancelled without the consent of the landlord or breached by the tenant and cancelled by the landlord, the tenant must be prepared to pay a reasonable penalty and/or damages. The tenant should attempt to reach agreement with the landlord on this amount, failing which the matter could be resolved with the assistance of an attorney.


This article is intended to give general information which can be useful when considering whether to end a lease. It is not intended to replace the need to seek legal advice and does not contain all the information relevant to the subject matter. Each situation is different and must be evaluated on its own merits. For advice on how to cancel or terminate a lease, contact us.