Is a landlord entitled to include the procurement commission paid to a Rental Agent as part of the reasonable cancellation penalty claimable under sub-section 14(3)(b) of the Consumer Protection Act No.68 of 2008 (“the CPA”);
A landlord is not entitled to claim the commission paid to a Rental Agent, for procuring a tenant for its property, in the reasonable cancellation penalty claimable under sub-section 14(3)(b) of the CPA;1
APPLICATION OF THE LAW:
Procurement Commission part of the reasonable cancellation penalty;
1 Subsection 14(2) (b) (ii) of the CPA provides that a consumer (in this case “the tenant” 2) may cancel a fixed term contract by giving notice in writing to the supplier (in this case “the landlord”3 ), or other recorded manner or form, within 20 business days.
2 The provisions of subsection 14(2)(b)(ii) of the CPA is subject to the provisions of subsections (3) (a) and (b), which provided that:
- (3) Upon cancellation of a consumer agreement as contemplated in subsection (1) (b)-
(a) the consumer remains liable to the supplier for any amounts owed to the supplier in terms of that agreement up to the date of cancellation; and
(b) the supplier-
- (i) may impose a reasonable cancellation penalty with respect to any goods supplied, services provided, or discounts granted, to the consumer in contemplation of the agreement enduring for its intended fixed term, if any; and
(ii) must credit the consumer with any amount that remains the property of the consumer as of the date of cancellation, as prescribed in terms of subsection (4).
3 The use of the word “may” in subsection 14(3) (b) (i) makes clear that the imposition of the reasonable cancellation penalty is discretionary by the landlord, but the subsection continues to list a closed list of items which form the basis of the penalty.
4 From the above, it is clear that the landlord may only include any goods supplied, services provided, or discounts granted, to the consumer in consideration of the reasonable cancellation penalty.
5 The effect of the above is that the landlord would not be able to include damages which do not form part of the above list and, in turn, the landlord would not be able to include the procurement commission paid to the Rental Agent.
6 In further support of the above conclusion, the Minister, in accordance with subsection 14(4) of the CPA4, promulgated the relevant Regulations5 setting out the factors which must be considered when determining the reasonable penalty. These factors are the following:
- the amount which the consumer is still liable for to the supplier up to the date of cancellation;
- the value of the transaction up to cancellation;
- the value of the goods which will remain in the possession of the consumer after cancellation;
- the value of the goods that are returned to the supplier;
- the duration of the consumer agreement as initially agreed;
- losses suffered or benefits accrued by the consumer as a result of the consumer entering into the consumer agreement;
- the nature of the goods or services that were reserved or booked;
- the length of notice of cancellation provided by the consumer;
- the reasonable potential for the service provider, acting diligently, to find an alternative consumer between the time of receiving the cancellation notice and the time of the cancelled reservation; and
- the general practice of the relevant industry.” (my emphasis added)
7 The use of the word “and” in sub-regulation 5(2) (i) again indicates that the listed factors are a closed list of factors.
8 As far as I am able to establish, a procurement commission payable to a Rental Agent by the landlord does not fall within any of the listed factors contained above.
9 Of interest, the net effect of section 14 of the CPA, by allowing the tenant to lawfully cancel a lease agreement prior to the fixed termination date, seems to be to deprive the landlord of any additional damages claim that it may ordinarily have had against the tenant as result of premature termination6.
9.1 Examples of damages seemingly negated by subsection 14(3)(b)(i) are the following:
9.1.1. Procurement commission paid to a Rental Agent7 by the landlord, and
9.1.2. Any actual damages incurred as a result of a new tenant not being secured in respect of the property, despite the amount of time initially thought to be reasonable for the procurement of a new tenant. I.e. if it were thought that it would take two months to procure a new tenant over the property and the reasonable penalty was premised upon the loss of rental for the two months, and subsequent to the imposition of the reasonable cancellation penalty, a new tenant is only procured six months after cancellation, despite all diligent efforts to procure the tenant within the two-month period. Therefore, there would be an additional four months’ worth of rental not received by the landlord (damages) which the landlord is seemingly precluded from claiming as a result of subsection 14(3)(b)(i) of the CPA.
18.104.22.168. A further example of the above can be found in circumstances where the landlord might not be able to procure a new tenant for the property for the entire duration of fixed-term lease agreement and, in turn, his actual damages ordinarily claimable under breach of contract or delict would have been that of the remainder of the period of the fixed term lease. Despite the above, sub-regulation 5(3), provides that a landlord may not charge a penalty which would have the effect of negating the tenant’s right to cancel the fixed term lease agreement 8 .
9.2 Whilst the provisions of subsection 14(3) do not seem to expressly preclude the landlord claiming any additional damages actually incurred subsequent to the cancellation (in addition to the reasonable cancellation penalty), the introduction of a right of lawful cancellation, prior to the fixed termination date, has the effect of negating any claim which would ordinarily be premised upon a breach of contract or a delict. Put differently, a valid cancellation in terms of subsection 14(3) (b) (i) negates any breach or wrongful action that the premature termination would ordinarily have resulted in, and in turn, negates the cause upon which the damages would be claimable under.9
10 In light of the above, I am of the opinion that a landlord is not entitled to claim the commission paid to a Rental Agent, for procuring a tenant for its property, in the reasonable cancellation penalty claimable under subsection 14(3)(b) of the CPA.
It is arguable that the provisions of sub-section 14(3) (b) of the CPA are susceptible to Constitutional challenge in that the provisions may have the effect of arbitrarily depriving the landlord of its right to property. This has yet to be tested in a court of law. The basis upon which I have formed the above opinion is beyond the scope of this opinion.
Please note that I use the terms ‘consumer’ and ‘tenant’ interchangeably as well as that of ‘supplier’ and ‘landlord’ as they would equate to the same thing in terms of the CPA definitions when applied to the application of a residential lease agreement.
“(4) The Minister may, by notice in the Gazette, prescribe-
- the maximum duration for fixed-term consumer agreements, generally, or for specified categories of such agreements;
- the manner and form of providing notices to the consumer in terms of subsection (2) (c);
- the manner, form and basis for determining the reasonableness of credits and charges contemplated in subsection (3); and
- other incidental matters as required to provide for the proper administration of this section.” (my underlining added)
- Regulation 293 of 1 April 2011
- This conclusion is premised upon the assumption that the landlord enjoys a claim that is good in law and is capable of being proven.
- Bearing in mind that the full commission is normally payable upfront upon the Rental Agent securing a suitable tenant for the property (i.e. concluding a lease agreement).
- “5(3) Notwithstanding sub-regulation (2) above, the supplier may not charge a charge which would have the effect of negating the consumer’s right to cancel a fixed term consumer agreement as afforded to the consumer by the Act”
- It is interesting to note that the provisions of subsection 14(3) (b) (i), are seemingly at odds with that of section 76(2) which states that the provisions of the CPA do not diminish any right of the consumer or the supplier to recover interest or special damages in any case where by law, interest or special damages may be recoverable.