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Thursday Jul 03, 2014

Cancellation of lease may be grounds for damages

When a landlord or tenant cancels the lease prematurely, the party that suffers a loss or is prejudiced may sue for damage.

The cancellation may be unjust, with serious financial implications for the landlord or tenant.

It would be unfair and may seriously prejudice a landlord when a tenant vacates the dwelling without giving proper notice.

What happens to a landlord who is informed on the last day of the month by his tenant that she is moving out on that day?

The 'notice' is most certainly unjust, with serious financial implications for the landlord.

How does he get a new tenant to take occupation the following day, presupposing that the dwelling is in good condition and he is able to repaint it?

If a security deposit was paid, rent paid and the dwelling returned in the condition in which it was let, the landlord may have a chance of recouping his loss by retaining the deposit.

The landlord will have to find a new tenant and may need to advertise or use the services of a letting agent. A new lease will be an added administrative expense for the landlord.

The tenant, too, will suffer financially if the landlord is in breach, burdened by transporting personal property or for storing costs.

A tenant with children attending school will be further inconvenienced because of relocation to another neighbourhood.

When there is a breach of contract, the innocent party may cancel or seek specific performance; that is, the court can order the defaulting party to comply with the terms of the contract.

The innocent party may also claim damage in addition to specific performance or cancelling of the lease.

The claim for damage is the financial loss incurred.

In terms of the Consumer Protection Act, the tenant may terminate a lease prematurely by giving proper notice, 20 business days.

This would not constitute a breach, but the landlord is allowed to recover costs for early cancellation.

The penalties must be reasonable, and that may include all expenses incurred in securing a new tenant.

The act, in allowing a landlord prejudiced by the early cancellation to impose a penalty, is not to punish the tenant.

Similarly, the claims founded on breach are not for punitive reasons, but to compensate the disadvantaged party.

A penalty clause subject to the Conventional Penalties Act allows the innocent party to claim from the defaulting party a sum of money or to deliver or perform in terms of the contract.

A lease may contain penalties for breach, such as late payment and arrear rentals.

The tenant is bound to pay interest if this is part of the agreement.

Some agents and landlords charge an interest rate of 2 percent a month for late payment or arrears, the maximum allowed by the National Credit Act.

This is a reasonable rate levied on arrear rental, but a lease of an immovable property is not subject to the NCA.

In Absa Technology v Michael's Bid a House 2013 (3) SA 426 (SCA), the court confirmed that in terms of section 8 (2) of the credit act, leases of immovable property were excluded.

Parties can agree what interest rate would be levied on arrear rental.

If this is not stated in the lease, and in the absence of any other law that regulates the calculation of interest, the landlord cannot charge more that the maximum of 15.5 percent per annum, as prescribed by the Prescribed Rate of Interest Act.

Dr Sayed Iqbal Mohamed
Chairman, Organisation of Civic Rights
Tenant Matters
Daily News


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