Renting? The CPA could have nasty implications

With the postponement of the Consumer Protection Act (CPA) implementation date to April 1 2011, property experts have a lot to digest as to how this will impact on property deals.

The Minister of Trade and Industry (the dti) Dr Rob Davies said in a media statement in September, the dti believes the postponement will give business and the public sufficient time to prepare themselves for compliance with the new law.

Under the Act, consumers will be protected against unfair business practises. They will also have the power to cancel contracts if they are not satisfied with the terms.

The CPA does enforce legislation that could negatively affect landlords and property managers earning a living in the rental market.

It will have wide ranging impacts for the shopping centre industry on all levels, says Amanda Stops, general manager of the South African Council of Shopping Centres (SACSC).

Director at Couzyns Attorneys, Christo Van Wyk explains that among other things, the Act aims to promote and protect economic interests of consumer. It will also improve access to and quality of information necessary so that consumers are able to make informed choices according to their individual needs.

Consumers can only cancel on 20 days notice if they are private individuals but not corporates. Franchises are affected regardless of whether the franchisee is a private or corporate. All private tenants have an automatic right to renewal not just shopping centres.

For shopping centres, if the tenant does not renew the contract, they are entitled to a month to month contract. Tenants can now claim that rental charged is not fair.

"It remains to be seen how the SA courts will interpret this legislation," he says.

Property legal expert and founder of Marlon Shevelew and Associates, Marlon Shevelew says the Act is a good move for suppliers and consumers in that it puts a check and balances system in place to ensure that suppliers are regulated by the products they supply. Consumers will also have a right of recourse if this is not adhered to.

"The problem for the property industry in SA is that by definition, landlords, rental managing agents, buy to let investors are suppliers and tenants are consumers in terms of the Consumer Protection Act," says Shevelew.

Accordingly, the Act will impact on the property industry by allocating the self same and at times draconian provisions to an agreement between a landlord and tenant lease agreement. Tenants would be able to cancel leases on 20 business day notice.

This will make leasing of property, the lease itself and the rights of the tenant to comply with the lease requirements subject to tremendous scrutiny. The CPA will dissuade potential property purchases, cause panic with already belligerent tenants and inevitably lead to acrimony in strained tenant and landlord relationships in many instances.

"Though the act affords great protection to consumers, it will introduce uncontrolled and seemingly unfair rights for tenants."

As an example, section 14 of the Act provides for a right for a tenant to terminate a lease either during the currency of a fixed term lease or any time after the fixed term lease has ended on 20 business days notice. This will give a landlord, managing agent or speculative investor no security at all for secured rental.

Another example is an inherent duty on the landlord to have to ensure the tenant understands the lease agreement (section 22 and section 40). Landlords will be faced with tremendous abuse at the hand of the tenant who may claim at inception of the lease or during the currency there that they did not understand the veracity of the agreement, were forced to sign or were influenced to sign.

"Lease agreements will need to be watertight, if this is even possible, and people in the property industry will need to guard against potential tenants who may breach," says Shevelew.

He adds that while there is a Rental Housing Tribunal to regulate residential leases and disputes, no such tribunal exists for retail, commercial or industrial leases which have far greater rentals attached to the tenancies involved.

Article by: Denise Mhlanga - www.realestateweb.co.za