A tenant^* may cancel the lease early; but the landlord or Property Practitioner may charge a reasonable penalty.

In determining the reasonable penalty, the landlord or Property Practitioner will consider loss of rent; commission paid, or marketing costs.

The landlord / Property Practitioner would have to indicate to the tenant how the penalty is calculated i.e. loss of rent, commission, or advertising costs.

Example: the landlord would not be able to charge the tenant for loss of rent if a suitable replacement tenant was placed with no rent lost by the landlord.

*Note the exclusions:

• Leases or renewals entered into prior to 1^st April 2011
• Where the tenant is:
• the State,
• a juristic entity whose asset value or annual turnover is greater than R2 million,
• where both the landlord and tenant are juristic entities

* This means that the 20 Business Day rule only applies to lease agreements signed after the 1st April 2011 and only where the tenant is a natural person. If the tenant is a juristic person (trust, company or close corporation) then the tenant does not have right to early cancellation of a fixed term agreement.

Consumer Protection Act

Section 14:   Expiry and renewal of fixed term agreements

(2)

  (b)

     (i) the consumer may cancel that agreement-

       (bb) at any other time, by giving the supplier 20 business days’ notice in writing or other recorded manner and form, subject to subsection 3 (a) and (b);

 (3) Upon cancellation of a consumer agreement as contemplated in subsection (2)(b)-

   (a) a consumer remains liable to the supplier for any amounts owed to the supplier in terms of that agreement up until the date of cancellation; and

   (b) the supplier-

         (i) may impose a reasonable cancellation penalty…

 (4) The Minister may, by notice in the Gazette, prescribe-

  (c) the manner, form and basis for determining the reasonableness of credit and charges contemplated in subsection (3)

Regulation

Section 5: Maximum duration for fixed-term consumer agreements

(2) For the purpose of section 14 (3), a reasonable credit or charge as contemplated in section 14 (4) (c) may not exceed a reasonable amount, taking into account-

   (a) the amount which the consumer is still liable for to the supplier up to the date of cancellation;

   (b) the value of the transaction up to cancellation;

   (c) the value of the goods which will remain in the possession of the consumer after cancellation;

   (d) the value of the goods that are returned to the supplier;

   (e) the duration of the consumer agreement as initially agreed;

  (f) losses suffered or benefits accrued by the consumer as a result of the consumer entering into the consumer agreement;

   (g) the nature of the goods or services that were reserved or booked

   (h) the length of notice of cancellation provided by the consumer;

   (i) 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; &

   (j) the general practice of the relevant industry

 (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

Watch a video on the Consumer Protection Act to learn more.

As we know, the provisions of the CPA do not apply to juristic entities with an asset value or annual turnover of more than R2 000 000.00 (Two Million Rand). It is important to note that the Regulations specify that the calculation of turnover is based on gross revenue as opposed to net revenue. In general, most entities that are able to rent commercial property will exceed this threshold, but it is important to establish this benchmark upfront so as to ensure that the correct Lease is concluded.

There is often a lot of confusion around the issue of VAT insofar as the payment of the deposit is concerned. Should VAT at the applicable rate be included in the calculation of the Deposit, or not? The answer is rather complex.  In terms of section 1 of the Value Added Tax Act 89 of 1991 (“the Act”) “consideration” is defined as being any payment made for the supply of goods or services. The section, however, goes on to stipulate that “a deposit (other than a deposit on a returnable container), whether refundable or not, given in respect of a supply of goods or services shall not be considered as payment made for the supply unless and until the supplier applies the deposit as consideration for the supply or such deposit is forfeited”.

It follows that only when the Deposit is utilised, either to repair any damage to the Premises or to recover arrear Rental, will the amount forfeited by the Tenant be subject to VAT at the normal rate. As such, when interpreting the provisions of the Act, the Deposit initially paid by the Tenant should technically not include VAT. HOWEVER, in the event that VAT is not included in the calculation of the Deposit then the Landlord or Agent may end up being be out of pocket should the Deposit, or any portion thereof, indeed need to be utilised to affect repairs or recover arrear Rental. In other words, one must include VAT, at the standard rate, in the calculation of the total Deposit, although this fact need not be stipulated in the Lease.

Whilst directors, members and the like are often hesitant to sign suretyship agreements, in the case of commercial lease agreements, ticking this box is even more important that in the case of residential lease agreements. The reason for this is that the quantum when it comes to commercial lease agreements is generally far higher than in the case of residential lease agreements, thereby exposing the Landlord to significantly more risk. Should a company be unable to pay its debts for any reason and liquidation proceedings commence, then the Landlord stands to lose a significant amount of money. Given the current economic climate, this actually tends to occur more often than one would think. Where suretyship agreements are in place, the Landlord may then immediately claim the full outstanding amount from the sureties in their individual capacity or from a founding company or franchisor in the event that a juristic entity signs as a surety. This issue is covered further in clause 47 of the Lease.

The Permitted Purpose refers to the type of business that may be operated out of the Premises. This is obviously very important given that certain properties may only be suitable for certain activities. In the event that the Tenant attempts to utilise the Premise for purposes beyond the scope of the Permitted Purpose, then this shall constitute a breach of the Lease and the Landlord shall be entitled to cancel the Lease. This is covered further in clause 6 of the Lease.

You will notice that clause 6 in the CPA compliant Lease differs from clause 6 in the non-CPA compliant Lease Agreement. The reason for this is that in the CPA compliant Lease, one needs to take into account the provisions of section 14 of the CPA. These provisions can seem complicated, but in a nutshell are quite simple. In the event that the Tenant is a NATURAL PERSON (The provisions of section 14 do not apply to juristic entities, regardless of the threshold values, hence these provisions will only apply where the Tenant is an INDIVIDUAL) then:

The Landlord may cancel the Lease on 20 (Twenty) Business Days’ notice to the Tenant in the event that the Tenant is in breach of its obligations in terms of the Lease.

The Tenant may cancel the Lease at any time on 20 (Twenty) Business Days’ notice to the Landlord, subject to a reasonable penalty.

 When the Initial Period of a Lease comes to an end and the Tenant has not communicated the desire to either renew or terminate the Lease, the Lease will automatically continue on a month to month basis. The implication of this is that the Lease will no longer be deemed to be a fixed-term contract and will rather be a periodic lease. As such, section 14 of the CPA will no longer apply, the 20 business days’ notice provision will fall away and either party may cancel the Lease on one Calendar Month’s notice to the other party. Alternatively, the Tenant may communicate the desire to terminate the Lease upon expiry of the Initial Period, or to renew the Lease for a further fixed-term period.

 Given that section 14 obviously does not apply to the Non – Consumer Protection version of the Lease, this Lease provides only that the Lease will terminate on the Termination Date unless terminated earlier by the Landlord. There is no provision for the Tenant to cancel the Lease early.

Finally, clauses 5.5 and 5.6 of both versions are essential clauses. In the event that a Tenant refuses to vacate the Premises, the Tenant will be obliged to make payment of Rent for the period that the Tenant continues to inhabit the Premises BUT this will not preclude the Landlord from instituting eviction proceedings against the Tenant. Thus, the Tenant will not be able to raise the fact that it is continuing to make payment of Rent as a defence in any litigation proceedings which obviously strengthens the position of the Landlord.

Specifying a narrow Permitted Purpose is very important given that certain Premises may only be utilised for very specific purposes. Title Deeds and Town Planning Schemes may in some instances impose stringent restrictions relating to the use of certain Premises and certain areas may only be zoned for certain activities i.e. manufacturing verses retail activities. Whilst clause 6.3 in both Leases may seem to be a very obvious clause, it is a very important one. In this regard, it should be brought to the Tenant’s attention that “illegal activity” need not only refer to something as obviously serious as, for example, manufacturing drugs. Something as simple as storing counterfeit goods can have serious implications for a Landlord given that, in terms of the Counterfeit Goods Act 37 of 1997 (“the Act”), any person who is involved in dealing in counterfeit goods, or who aids and abets other persons to do so, can be held liable for any actions relating to such goods.  Landlords who, knowingly or not, facilitate or enable other persons to deal in counterfeit goods can face serious consequences in terms of the Act. Landlords who rent out storage facilities are particularly at risk. The Tenant’s attention should be brought to the fact that should the Landlord become aware of any criminal activity being conducted out of the Premises, such activity will immediately be reported to the applicable body and the Lease will immediately be cancelled.

In order to enforce any conduct rules, the Tenant is obviously required to be familiar with such Rules and as such, it is advisable that such rules initially be annexed to the lease agreement and that the Tenant be made aware of the fact that the Landlord or its letting or managing agent may publish updated rules from time to time, which rules will be distributed to the Tenant.  This requirement is unfortunately often overlooked or not brought to the attention of the Tenant. If a Tenant has not had sight of the rules, he or she obviously cannot be expected to comply with them.

It is essential that there is no ambiguity regarding the date and manner in which Rental is to be paid by the Tenant. Generally, it is advisable to clearly stipulate that Rent must CLEAR in the Landlord’s nominated bank account by the date specified in clause 1.12 of the Schedule. If this is not specified then Tenants would be able to effect payment on the date specified in clause 1.12, but the funds would potentially only clear a few days later or, thereby prejudicing the Landlord. Unlike in the case of Residential Leases, Rent generated in respect of Commercial Leases does attract VAT. As a general rule, the rate applicable will be 14%, but there are certain exceptions in the Income Tax Act 58 of 1962, hence the provision for this rate to be altered in clause 1.16 of the Schedule.

When it comes to Commercial Leases, in many instances more than one Tenant will inhabit the Premises. 

In such an instance, the Tenant will obviously only be responsible for the payment of a portion of the Rates and Taxes and, in the case that no sub-meters have been installed, a portion of the Utilities. 

These portions will be calculated based on the Tenant’s Participation Quota, as stipulated in clause 1.19. One would therefore need to multiply the total amount of Rates and Taxes (and Utilities, if applicable) by the percentage stipulated in clause 1.19. This percentage is calculated by dividing the area in square meters actually occupied by the Tenant by the total area of the Immovable Property in question as a whole. It stands to reason that a small business occupying ¼ of a building should not be liable for the same amount as a large business occupying a full floor. 

It is also important to note that, in terms of clauses 10.5 and 11.4, the Landlord is obliged to present the Tenant with an invoice in respect of Rates and Taxes and Utilities. Many disputes arise where Landlords merely capture an amount on, for example, an Excel Spreadsheet. This provision is therefore an important one for the Landlord to take note of.

The Lease clearly states that Rent must be paid by Electronic Funds Transfer. The reason for this is that, in the case of cheques, there is obviously more of a risk of the payment being delayed or the cheque not clearing. This therefore increases the Landlord’s risk of not being paid. In the event that a Tenant pays Rent late, the Landlord shall be entitled to charge interest on such outstanding amounts, at the rate specified in relation to incidental credit agreements in the National Credit Act 34 of 2005. This rate is currently 2% (Two Percent) per month up to a total of 24% (Twenty Four Percent) per annum – in other words, the interest is compounded interest. This clause is important because, should it not have been included in the Lease then the Landlord would only be able to charge interest at the rate specified in the Prescribed Rate of Interest Act 55 of 1975. On large amounts, the difference between 15% (Fifteen Percent) and 24% (Twenty Four Percent)can be substantial.

The Deposit may be any amount that the parties agree to and need not only be the equivalent of 1 (One) month’s Rent. If there is any doubt as to the integrity of the Tenant, a larger Deposit should be taken. The Deposit must be held in an interest bearing. Unlike in the case of a Residential Lease, where use of the Deposit during the subsistence is prohibited in terms of the Rental Housing Act 50 of 1999, in the case of a Commercial Lease the Deposit may be utilised to cover arrear costs during the subsistence of the Lease. In such an event, the Tenant must, however, IMMEDIATELY reinstate the Deposit to the original amount. The reason for this is twofold, firstly because by utilising the Deposit early, the amount of interest generated will be affected and secondly because if the Deposit is whittled away during the subsistence of the Lease, there is no guarantee that there will be any funds left upon termination of the Lease to cover damage to the Premises, further arrear Rental, lost keys and the like. At the end of the Lease Agreement the Deposit, less any deductions must be refunded to the Tenant. For the reasons stated in clause 1.1, when calculating the Deposit amount, one must take into consideration VAT.

Whilst ingoing and outgoing inspections are not a legal requirement insofar as Commercial Leases are concerned, such inspections are nevertheless advisable. The purpose of the inspection is obviously to ascertain the existence of any defects so as to ensure no ambiguity when the Lease comes to an end.  At the very least, the Tenant must within 10 (Ten) days of the Commencement Date notify the Landlord in writing at the Landlords nominated address of any defects that the Tenant has managed to identify. Failure to provide such notification within this period will result in the Tenant being deemed to have accepted the Premises as is.

It is obviously essential that any Alterations to the Premises be approved by the Landlord in writing prior to such Alterations being affected. This is obviously important from a quality control perspective. This clause provides that upon termination or cancellation of the Lease the Landlord may require the Tenant to either remove the Alterations and repair any damage to the Premises, or to leave the Alterations as is, subject to them being restored to good order. It is important to note that clause 15.7 specifically states that the Landlord shall not need to compensate the Tenant for any approved Alterations to the Premises. This clause is important because disputes often arise around this particular issue. This clause makes the Tenant’s position clear and unambiguous from the outset.

Clauses 16 and 17 set out the various obligations of the parties insofar as maintenance is concerned. In a nutshell, the Landlord shall be obliged to maintain the exterior of the Premises, while the Tenant shall be obliged to maintain the interior of the Premises. Upon termination or cancellation of the Lease, the Tenant is required to restore the Premises to the same good order as they were in as at the Commencement Date. In the event that the Premises are not restored to their original good order upon termination or cancellation of the Lease, then the Landlord shall be entitled to either require that the Tenant restore the Premises post the termination date, or to restore the Premises itself and hold the Tenant responsible for the costs of any repairs. Importantly, clause 17.6 clearly stipulates that where the Premises need to be restored after the Lease has been terminated or cancelled, the Tenant shall be responsible for the payment of additional Rent until such time as the Premises are fully restored to their good order and state. This clause should be carefully explained to the Tenant so as to ensure that the Tenant is fully aware of what its liability may be.   

This clause stipulates that the Landlord and/or its agents must be granted access to the Premises at all reasonable times to inspect the Premises, repair any damage, ensure that the Tenant is complying with all of its obligations in terms of the Lease and show the Premises to potential purchasers or Lessees. In the event that the Tenant is inconvenienced by the Landlord needing to access the Premises (usually in the instance of needing to make alterations or affect repairs) the Tenant may NOT withhold the Rent or any portion thereof. This is an issue that crops up often and thus this clause should be clearly highlighted to the Tenant.

This clause is relatively standard and obviously provides that the Tenant may not sublet the Premises without or permit a third party to occupy the Premises without the prior, written consent of the Landlord. In Commercial Leases this sometimes occurs in the case of the Holding Company/Subsidiary relationship or the Franchisor/Franchisee relationship. Clause 20.7 specifically provides that where the Landlord consents to the subletting of the Premises, the Landlord shall be entitled to benefit from any profit made by the Tenant in respect of such sublease. This amount would obviously need to be agreed upon between the parties, in writing, when the Landlord gives its consent to the Tenant to sublease the Premises.

You will note that the provisions of this clause differ in the Consumer Protection Act Version of the Lease and the Non-Consumer Protection Act Version of the Lease. The reason for this is that the CPA specifically prohibits warranties that favour the supplier (in this case the Landlord) and not the consumer (in this case the Tenant). As such, for obvious reasons, the Non-Consumer Protection Act Version of the Lease provides far more protection to the Landlord than the Consumer Protection Act Version of the Lease.

This clause may seem confusing given the language utilised, but it is actually rather simple. Vis Major and Casus Fortuitus are legal terms used to describe a "superior force or chance occurrence, essentially a so called “act of God”. Such occurrences include all the items referred to in clause 22.1.1.1 to 22.1.1.5 as well as occurrences such as hurricanes, wars, earthquakes and the like.   This clause is simply stipulating that the Landlord will be freed from performing any of its obligations in terms of the Lease in the event that any such events occur. It is important to note that the Landlord’s obligations will not be suspended indefinitely, but only for the period that the event in question continues.   

This clause simply gives the Landlord two options in the event that more than one Tenant signs the Lease Agreement. In such an instance, should Rental not be paid, the Landlord has the option to either take action against one of the Tenants for the full amount, or both of the Tenants together in whatever ratios he deems appropriate.  This clause means that the Landlord is not obliged to split the arrear Rental between the parties in equal proportions, which is particularly important when it becomes obvious that one of the Tenants is experiencing financial difficulty.

Vicarious Liability is a common legal principle whereby a principal is automatically responsible for the actions of the principal’s employees, agents, servants and invitees – basically any person acting on behalf of the principal. It commonly arises in the employer/employee relationship, where the employer will be liable to third parties for any damages sustained as a result of the actions of an employee. This clause therefore precludes the Tenant from denying liability for any breach committed by the party representing the Tenant, even where such party was acting beyond the scope of the powers granted to it by the Tenant. An example would be that the person concluding the lease did not have the authority to do so. By virtue of the provisions of this clause, the Tenant would not be able to escape liability to the Landlord, even if the person signing the Lease did not have the authority to do so. This should, in any event, not occur if a valid Resolution has been requested by the Landlord.

It is vitally important that you get all the relevant documentation form foreign nationals. All copies of passports should be certified, the originals should be presented and copies of the relevant visa documentation should be requested and provided on a yearly basis.

It is important to take these steps so as to ensure that your risk is minimalised as in terms of Section 42 (1) of the Immigration Act 13 of 2002: “save for necessary humanitarian assistance, no person shall aid, abet, assist, enable or in any manner help an illegal foreigner including but not limited to harbouring him or her, which includes providing accommodation or letting or selling or in any manner making available any immovable property in the Republic to him or her”

This clause sets out all the circumstances in which the Landlord may cancel the Lease. You will note that clause 29.1.3 in both lease agreements stipulates that a Landlord may cancel the Lease in the event that a Tenant fails to remedy a breach within 7 (Seven) days of receipt of written notification from the Landlord requiring the Tenant to do so. This often causes confusion, given that the 20 (Twenty) Business Day Rule in the event of breach is drummed into us so hard. The reason that 7 (Seven) days has been stipulated in both agreements is due to the fact that in 99% (Ninety Nine Percent) of Commercial Leases, the Tenant will be a juristic entity i.e. a Company, Close Corporation, Body Corporate or Association. As stated above, while the other provisions of the CPA may apply depending on the entities threshold value, the provisions of section 14 do not apply to juristic entities – ever! As such, the 20 (Twenty) Business Day Rule is unlikely to apply. In the event that the Tenant is indeed a natural person acting in his individual capacity, then this clause needs to be amended to reflect 20 (Twenty) Business days, Obviously, an individual signing on behalf of a juristic entity, such as a director or a member, is not considered an individual for the purposes of this clause.

This clause protects the Landlord from any injury or loss that may occur to property situated on the Premises or the Immovable Property, and ties in with clause 22. You will note that clause 3.2 is not applicable to the Consumer Protection Act Version of the Lease. As stated above, the reason for this is that the CPA specifically prohibits limiting the liability of the supplier (in this case the Landlord) and not the consumer (in this case the Tenant).

As we know, diplomats throughout the world are afforded special rights and granted special immunities, and South Africa is no exception to this rule. This clause ensures that in the event that a Tenant is a diplomat and any claim arises out of the beach of the provisions of the Lease by the Tenant, the Tenant will not be able to raise the defence of diplomatic immunity in order to escape sanction or demand special treatment. Normal legal process will thus be followed in order to resolve any dispute between the parties.

The word version allows you to upload your own logo and make amendments to your documents.

As a word subscriber, we have also given you access to a free digital signature platform called eSign. eSign allows you to send the TPN LeasePack documents out for electronic signature. 

Click here for to find out more about accessing eSign.  

When using an apple product like a mac, ipad or iphone the word version of the document may not pull through the correct formatting, this is due to Apple iOS not having Microsoft installed and defaulting the word document to open using Pages. 

You are able to bypass this by using the editable PDF supplied in the shop or using the eSign system to complete the document. 

Alternatively change your default for .docx documents to open on Microsoft Word if you have it installed. 

As we know, in terms of the National Credit Act 34 of 2005, prior to a credit enquiry being performed, the written consent of the consumer in question must be obtained. As such, this clause is absolutely essential for obvious reasons.

As stipulated above, Commercial Rent is subject to VAT. The amounts stipulated in the Lease will not include VAT, but VAT at the applicable rate will need to be added on to any amounts appearing on any invoices furnished to the Tenant. Furthermore, as highlighted in clause 1.1, it is essential that VAT at the applicable rate be added in to the total Deposit payable by the Tenant so as to ensure that the Landlord is not out of pocket upon termination or cancellation of the Lease Agreement for any reason.

A suretyship clause or document is very important because it provides the Landlord with security in the event that Rent is not paid. Importantly, when a surety signs as both a surety and a co-principle debtor, as is provided for in the TPN Suretyship Agreements, the Landlord’s rights are even further protected because the Landlord need not even claim amounts owing from the Tenant first, but may rather proceed directly against the surety for any outstanding amounts. Legally, this is termed “renouncing the benefit of excussion” and is particularly beneficial in an instance where, for example, a company is not generating enough profit to pay Rent. In such a case the Landlord would be able to claim the Rent directly from the directors of the company in their personal capacity. In terms of the TPN Suretyship Agreements, the directors will be bound jointly and severally. This means that the Landlord can elect to split the outstanding amount between the sureties or simply claim the total amount from one surety alone. The provisions of the various suretyship agreements and their implications will be dealt with in a separate WIKI.