Consumer Information

Author: Maryna Botha
29 January 2021

 THE CPA & THE LANDLORD’S RIGHT TO CANCEL A SUBSEQUENT MONTH-TO-MONTH AGREEMENT

Magic Vending (Pty) Ltd v Tambwe and Others (19432/2019) [2020] ZAWCHC 175 (7 December 2020)

The Consumer Protection Act brought about much change in residential lease practice because of the consumer protection provisions that apply to fixed term agreements, such as a lease. A lease that was arranged from inception to operate on a month-to-month basis is different. The landlord may cancel the agreement on the terms agreed to with the tenant, the Act’s prescripts regarding cancellation of fixed term agreements not finding application. In addition, the Court noted that such cancellation provision in an agreement does not otherwise offend the CPA: it is neither unfair nor does it defeat the purposes of the Act.

SUMMARY OF THE JUDGMENT

FACTS

Magic Vending (Pty) Ltd (‘MV’) applied in terms of the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 (‘the PIE Act’) for the eviction of Ms Tambwe and her three minor children from premises owned by MV. Ms Tambwe had been in occupation of the premises for many years, originally in terms of an oral agreement and more recently, since 2014, in terms of a written lease that, according to its tenor, operated on ‘a month to month basis’.

Ms Tambwe fell deeply into arrears in respect of the payment of the rent. After failing to heed a notice to rectify the breach, sent by MV to Ms Tambwe, the lease was cancelled.

In court, Ms Tambwe resisted the application as follows:

  1. She disputed the validity of the cancellation and, on that basis, denied that she was an ‘unlawful occupier’ within the meaning of that term as defined in the PIE Act.
  2. She argued that clause 14 of the lease agreement (presumably by virtue of the fact that it provided for the summary cancellation of the contract if the lessee fell into default) offended against section 51(1)(a) of the Consumer Protection Act (‘the CPA’). (Section 51 (1)(a) provides that a supplier must not make a transaction or agreement subject to any term or condition if ‘its general purpose is to defeat purposes and policy of this Act’.)
  3. In addition, the lease agreement’s cancellation provision was ‘unfair’ – and therefore had to be dealt with as provided for in section 48 of the CPA. (Section 48 of the CPA provides that the supplier must not enter into an agreement with a consumer on terms that are unfair, unjust or unreasonable.)
  4. Ms Tambwe further argued that the fact that the rented premises are her home was a factor that rendered the forfeiture clause unconscionably unfair.
  5. She argued that the Rental Housing Act, correctly applied, required that she be given a calendar month’s notice of the termination of the contract.

Clause 14 of Ms Tambwe’s lease agreement regulated the basis on which the contract could be cancelled in the event of the lessee failing to pay the rent when it fell due. It provided as follows:

CANCELLATION
Should the LESSEE failed to pay any rent on or before due date, or commit a breach of any of the other terms of this lease … the LESSOR shall have the right forthwith and without any further notice to the LESSEE,

14.1 to cancel this lease and to eject or have ejected from the PROPERTY the LESSEE or any other person occupying the property …

ALTERNATIVELY

14.2 …. Should the Consumer Protection Act No. 68 of 2008 (‘the CPA’) apply to this lease, the lessor shall have the right to act in case of a breach of the lease by the lessee as stipulated above in as far as such terms are consistent with the Act, or otherwise, if the Act applies and should the LESSEE fail to pay any rent on its due date, or commit a breach of any of the other terms of this lease, or … the
LESSOR shall have the right to cancel this lease and to eject … from the PROPERTY the LESSEE … after having given the LESSEE due notice in terms of section 14(2)(b)(ii) of Act 68 of 2008 and to claim such amounts from the LESSEE as provided for in section 14(3) of the said Act.”

(‘the cancellation clause’)

HELD

Application of the CPA generally and also specifically section 14 of the CPA

  • The CPA does apply to the lease in this matter:
    o In terms of section 6(1) thereof, the statute applies to services that are supplied in terms of a transaction to which the Act applies unless the transaction is one exempted from the Act by subsections (2), (3) or (4).o ‘Service’ is defined in s 1 of the Act to include ‘access to or use of any premises or other property in terms of a rental’. ‘Rental’ is defined as ‘an agreement for consideration in the ordinary course of business, in terms of which temporary possession of any premises or other property is delivered, at the direction of, or to the consumer, or the right to use any premises or other property is granted, at the direction of, or to the consumer, but does not include a lease within the meaning of the National Credit Act’.

o The lease agreement is not a lease within the meaning of the National Credit Act and the agreement is not one that is exempted from the Consumer Protection Act in terms of s 6(2), (3) or (4) of that Act.

  • Section 14(2)(b)(ii) of the CPA applies only to fixed term consumer agreements and arguably also to monthto-month agreements that have automatically come into being, by virtue of section 14(2)(d), upon the expiry of a fixed term agreement. (Section 14(2)(b)(ii) allows the landlord to cancel a (consumer) lease agreement 20 business days after giving notice of the breach and provided the tenant has not remedied the breach since.  Section 14(2)(d) determines, in turn, that a month-to-month lease can automatically come into operation on the expiry of a fixed term contract, in certain instances.)
  • It is evident from section 14(2)(d), which distinguishes a fixed term agreement from a month-to-month agreement, that the month-to-month lease in place in the current matter was not a fixed term agreement within the meaning of the CPA. The landlord was therefore entitled to enforce the lex commissoria, or forfeiture clause’ as it is commonly called in the context of a lease agreement, and as included in the present lease agreement’s cancellation clause.
    Sec 51 of the CPA
  • The argument that the cancellation clause in the lease offended against section 51(1)(a) of the CPA could not be upheld. The latter section provides that a supplier must not make a transaction or agreement subject to any term or condition if ‘its general purpose is to defeat purposes and policy of this Act’. The purposes and policy of the Act are set forth in Part B of chapter I of the Act. There is nothing in clause 14 which could be characterised as directed at defeating any of the purposes and policy of the Act.Sec 48 of the CPA
  • In the same vein, the lex commissoria in this agreement cannot be said to be unfair within the meaning of section 48 of the Act. (Section 48 of the CPA provides that the supplier must not enter into an agreement with a consumer on terms that are ‘unfair, unjust or unreasonable’.) The contextual indications of what the legislature contemplated by a term that might be ‘unfair’ suggest that it would be one that was exploitative of the consumer. Such a term might, for example, involve an unreasonable waiver by the consumer of any rights that he or she would ordinarily have in the context of concluding a contract of the given nature, or the imposition of an obligation that it would be blatantly unreasonable for a supplier to purport to impose.
  • Forfeiture clauses are, and historically have been, common features of lease agreements. There is nothing lacking in good faith about their incorporation in such agreements. Had it been the legislative intention to override the rich body of jurisprudence that has held them to be enforceable according to their tenor and that the courts have no equitable jurisdiction to relieve a debtor from the effect of them, one would have expected the statute to provide as much unequivocally.In conclusion in respect of CPA application
  • The provisions of the CPA should not be construed so as to purport to invest in the courts a power to refuse to enforce contractual terms on the basis that their enforcement would, in the judge’s subjective view, be unfair, unreasonable or unduly harsh; they should rather be construed as, in certain respects, codifying the established principle that courts will refuse to enforce contractual provisions that are so unfair, unreasonable or unjust that it would be contrary to public policy to give effect to them. Public policy is, of course, by its very nature informed by constitutional values and precepts.
  • Thus, there is nothing unconscionable about a term directed at incentivising punctilious compliance by a consumer with his or her contractual obligations. It is so that some recent judgments, notably the Constitutional Court’s judgment in Botha v Rich (2014), have introduced the concept of proportionality into the assessment of the enforceability of contractual rights of cancellation (although the Court’s remarks in this connection were more recently, in Beadica 231 CC and Others v Trustees for the time being of the Oregon Trust and Others [2020] characterised as obiter dicta (i.e. ‘aside remarks’ and not part of the precedent – setting rules of the judgment.)). But the equitable considerations that weighed heavily with the court in Botha v Rich differ fundamentally from the features of the current matter. It is not as if Ms Tambwe was only a week or two in arrears when MV elected to cancel the contract. She was literally years in arrears with the payment of her rent, and she had not made any tender to purge her default; indeed, it is clear that it would have been beyond her financial means to do so.
  • On the other hand, in Botha v Rich, the cancellation of the contract of purchase of land in instalments was considered inconscionable because the purchaser had at the time of the cancellation already acquired a right to take transfer of the property in terms of the applicable legislation by virtue of having paid about three quarters of the total purchase price. The purchaser also tendered payment of the outstanding purchase price. The Court was heavily influenced in its decision by what it considered to be the objects of the legislation.  Cancellation by the seller in the circumstances would negate the purchaser’s statutory right and undermine the objects of the statute.
  • It is therefore notable, when considering the current case, that the Rental Housing Act 50 of 1999, which has amongst its stated objects the ‘facilitation of sound relations between tenants and landlords and for [that] purpose’ the laying down of ‘general requirements relating to leases’, does not contain anything to suggest that forfeiture clauses should be regarded as contrary to public policy or constitutionally incompatible.Eviction from her home not constitutional
  • Ms Tambwe further argued that the fact that the rented premises are her home was a factor that rendered the forfeiture clause unconscionably unfair. This was to suggest that the foreseeable consequences of any cancellation upon invocation of the forfeiture clause were such as to render it unfair in some sort of undefined constitutional sense. This could not be. The invocation of the forfeiture clause to cancel the contract does not result in the lessee’s summary eviction from the premises. If Ms Tambwe stays on as an unlawful occupier after the cancellation of the lease, as she has done, any ensuing eviction falls to be regulated in terms of the PIE Act. That statute is expressly directed at promoting the right against arbitrary eviction from one’s home that is enshrined in s 26(3) of the Constitution. A court seized of an eviction application in terms of the PIE Act is required to consider all the relevant circumstances and make an order that is just and equitable. Which brings us full circle. These proceedings are brought in terms of the PIE Act. Ms Tambwe had not succeeded in discharging the onus of establishing that the enforcement of the forfeiture clause would be contrary to public policy.Notice period
  • Ms Tambwe also contended that any notice of cancellation was required to give her a calendar month’s notice of the termination of the contract. She sought to rely on section 5(5) of the Rental Housing Act and the judgment of this court in Luanga v Perthpark Properties (Pty) Ltd [2018] in this regard.
  • Section 5(5) of the Rental Housing Act provides that if on the expiration of the lease the tenant remains in the dwelling with the express or tacit consent of the landlord, the parties are deemed, in the absence of a further written lease, to have entered into a periodic lease, on the same terms and conditions as the expired lease, except that at least one month written notice must be given of the intention by either party to terminate the lease. It is plain that the provision is applicable to the termination of a periodic lease that is deemed to have come into being when the lessee remains on in the property with the express or tacit consent of the lessor after the expiration of a pre-existing fixed term lease. It is not applicable in a situation in which a lease containing a forfeiture clause is terminated by the landlord by reason of the lessee’s failure to pay the rent.  The judgment in Luanga, which held that the one month’s notice referred to in section 5(5) denoted one calendar month’s notice, also has no bearing on a landlord’s right to terminate a lease on account of a material breach of contract by the lessee.
  • The City of Cape Town had indicated that it is able to provide Ms Tambwe and her dependent children with emergency accommodation if they are required to vacate the leased premises.

CONCLUSION

The application succeeded and Mrs Tambwe was ordered to vacate the premises.

The Judgment can be viewed here: