Commercial property - accurate lease agreement essential

As the Consumer Protection Act (CPA) continues to change the nature of lease agreements in South Africa’s real-estate rental market, commercial property landlords need to keep abreast of the interpretation of the Act.

“The CPA is a fair legislative attempt by government to protect the rights of the consumer,” says Michelle Dickens Managing Director at TPN Credit Bureau, South Africa’s only specialist property credit bureau. “However, because the CPA is a broad piece of legislation regulating all consumer transactions there have been some unintended consequences for certain industries.

The rental property industry might feel they have a strong argument for an exemption from certain sections of the CPA or for specific regulations for the property industry. However in the absence of such an exemption, commercial property landlords should make certain they understand when and to what extent the CPA applies to their tenant.”

Essentially all property landlords who enter into leases with natural persons and sole proprietors face having to comply with the CPA which includes section 14 of the Act. Essentially this provides a gap for tenants to cancel the lease agreement with only 20 business days’ notice. Commercial property landlords might elect to protect themselves by only selecting tenants who are juristic persons. But this discrimination itself could be a breach of the CPA. The CPA also has applicability to juristic persons acting as tenants with a turnover and asset value that is less than R2 million. This places an onus on the landlord to identify who the tenant is as well as the turnover or asset value of the tenant – a tenant disclosure should be a mandatory document in the arsenal of all landlords’ lease packs.

Dickens adds, “One of the bigger risks facing commercial property owners is the upfront tenant installation disbursement provided to new commercial tenants moving into the premises. Should the tenant elect to cancel the lease by relying on the CPA’s 20 business days’ early cancellation provision, a well drafted lease agreement which identifies which tenants are eligible and a clearly worded penalty clause might go a long way to recoup the landlord’s damages.”

Fullard Mayer Morrison Inc., a commercial law firm has partnered with TPN Credit Bureau in creating a Commercial Lease Pack. The aim was to produce quality, legal documents that will withstand scrutiny and may be used by both landlords and letting agents with confidence – and not solely within the context of the Consumer Protection Act.

A particularly useful feature of the suite is that the clauses in the standard commercial lease mirror those of the Consumer Protection Act version (adjusted for the requirements of the Act). This makes it easier because a portfolio manager does not have to get to grips with two entirely different leases.

Legal expert William Fullard, Director at Fullard Mayer Morrison attorneys says, “A solid commercial lease agreement should embrace all of the aspects included in TPN’s Commercial Lease Pack: a tenant disclosure form; a comprehensive standard commercial lease agreement; a Consumer Protection Act version of that commercial lease agreement; a tenant resolution; and a number of addendums catering for commonly negotiated variants to the standard lease terms.”

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