There is a perception amongst South African landlords that the Consumer Protection Act does not apply to commercial property leases, says Jason Lee, Head of Rawson Properties’ Commercial franchise division. 

“This new South African law makes it clear that if the consumer/tenant is a juristic person and if neither his assets or his annual turnover exceed R2 million, he is eligible for the same rights and privileges conferred by the act on an ordinary individual,” said Lee.  “In the current recessionary times R2 million is a high turnover threshold for tenants with no assets and landlords may be surprised at how many of their tenants fall under the protection of the CPA.”

So – what can the landlord who signs on such a tenant do to protect himself from running foul of the many consumer friendly clauses in the new act?

“First, he must verify the tenant’s position in relation to the act, i.e. he must check his turnover and his assets – do not just take tenant’s word, verify the facts by asking for copies of the tenant’s financials,” said Lee.

Secondly, the landlord should employ a lawyer (preferably one who has on his team an expert in the new Act) to go through and reword his lease documents.

“Traditionally,” said Lee, “leases have contained highfalutin phrases and legal terms which are possibly difficult for the ordinary man with no legal background to understand.  In terms of the new act these are no longer acceptable:  today’s documents have to be in simple language.  Furthermore, the Consumer Protection Act stipulates that the ‘supplier’ (in this case the landlord) must always go through the entire document with the ‘consumer’ (in this case the tenant) and get him to sign that he has understood the contract.”

In addition, said Lee, any clause placing an obligation on the tenant, e.g. the paying of service accounts, must be accompanied by a separate signatory box in which the tenant signs to indicate that he has understood this clause.  Furthermore, any defects in the building, e.g. floor cracks, rising damp, leaks in the roof or unreliable electrics have to be listed prior to the lease being signed.

The Consumer Protection Tribunal, added Lee, has the power under the new act not only to demand compensation for any inconvenience experienced by the tenant as a result of failure to adhere to its procedures but might even go so far as to declare the entire contract null and void.

Lee also issued a warning on utilities (water, light, electricity and refuse removal) payments.  These, he said, in most leases have to be paid by the tenant.  However they still remain the responsibility of the landlord.

“Regrettably,” said Lee, “there have regularly been cases where service charges have not been paid to the relevant suppliers over a period of months or years.  If and when the owner then tries to sell the property he finds that transfer is blocked because of these outstanding sums – of which he knew nothing – because the bills were sent to the premises and because the Council has no system in place for advising the landlord if and when the sums charged are not paid.”

Asked how Rawson Commercial Division franchisees cope with this situation, Lee said that they now insist on a separate, fairly large utilities deposit being paid upfront – along with the usual deposit to cover damages and possible unpaid rent.

In cases where a tenant consistently does not pay his rent and it is clear that the lease will have to be cancelled, said Lee, it is essential that the landlord at an early stage applies to the courts for a hypothec order over the goods on his premises.

It this is not done timeously, said Lee, certain tenants have been known to remove most of their goods from the rented premises once it is clear that legal action is about to be taken.   In these situations the hypothec order does not cover goods taken from the premises and kept elsewhere.  The landlord then can quite possibly find himself with a bankrupt tenant who apparently has few or minimal assets which can be attached and whom it is therefore probably pointless to sue.

Rawson Commercial Division franchisees, said Lee, tend to be adept at avoiding tenant problems because they are coached in how to go about in-depth credit checks and on the importance of contacting not just one but two, three or more of the tenant’s previous landlords (particularly if the tenant has moved around frequently).

“Certain small businesses have an unfortunate tendency to go belly-up in bad times,” said Lee, “Often this is because in the good times they have failed to build up their reserves.  Landlords’ pre-lease checks should wherever possible go back ten or 15 years and if the business is a new one especial care should be taken to assess its viability and if possible guarantors should be put in place.”