Getting Out Of a Fixed Term Business Lease Agreement As An SME

business lease agreement sme south africa
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business lease agreement sme south africa

Are you locked in a fixed term lease agreement and have no clue how to ‘get out of it’? The Good Lawyers Network provides below a simple concise explanation of the protection afforded to you by the law in such circumstances.

What is a fixed term lease?

A fixed term lease is a lease binding the parties (landlord and tenant) to each other for a specified period of time, such as a month or a year. The tenant is required in terms of the lease to make periodic payments to the landlord in exchange for the use of a specified property.

Small and Medium Enterprises (SMEs) from time to time enter into fixed term lease agreements without necessarily scrutinizing the agreement or negotiating certain essential terms such as the right to cancel the agreement on written notice. Consequently, SMEs find themselves locked in a contract for that specific period.

Ordinarily, being ‘locked in’ means if you cancel a contract before its date of expiration, the landlord would be entitled to claim damages from you for early cancellation.

Is the Consumer Protection Act applicable to such fixed term lease agreements?

Most SMEs are not aware of the protection afforded to them by the Consumer Protection Act. The Consumer Protection Act applies to every transaction in the Republic of South Africa except where a consumer (tenant) is a juristic person whose asset value or annual turnover at the time of the transaction equals or exceeds R2 million (the threshold determined by the Minister from time to time).

In terms of the Consumer Protection Act, a tenant falling under the above mentioned category, may cancel a fixed term lease agreement at any other time by giving the landlord 20 business days’ notice in writing.

Do I have to pay any penalties for cancelling the lease before it expires?

The tenant remains liable to the landlord for any amounts owed to the landlord in terms of the fixed term lease agreement up to the date of cancellation. In other words, the tenant is still liable to the landlord for outstanding rental amounts and any other amounts owed up to the date of cancellation.

The landlord may impose a reasonable cancellation penalty and must credit the tenant with any amount that is the property of the tenant as at date of cancellation (for example rental deposit paid at the inception of the fixed term lease agreement). A reasonable penalty will include services already rendered and among other things actual costs associated with cancellation.

The business environment can be very volatile and as such SMEs are required from time to time to review their strategic direction and adapt. This sometimes includes having to change your business location, operate from home or move your business to another address. It is therefore important that contracts that are entered into by SMEs should consist of clauses that enable them to do so. The Consumer Protection Act offers SMEs falling under the category specified above exactly that.

*The above article is intended for information purposes only and does not constitute legal advice. Readers are encouraged to seek legal advice for their specific situation. Visit The Good Lawyers Network platform (www.thegoodlawyersnetwork.com) for more insights from our members.

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