Penalty for early cancellation of a residential lease

What rights does a landlord have if a tenant cancels the residential lease, before it ends?

The tenant has the right to cancel the lease at any time (on 20 business days’ notice) in terms of the Consumer Protection Act (subject to payment of a reasonable penalty) for premature cancellation. But what is such a reasonable penalty or cancellation fee?

To determine a reasonable cancellation fee, the CPA prescribes a list of factors which must be taken into consideration. These factors include, among others:

·         the rental amount which the tenant stills owes the landlord up to the date of cancellation;

·         the value of the lease transaction up to the date of cancellation;

·         the duration of the lease agreement as initially agreed upon by the parties;

·         losses suffered or benefits accrued by tenant because of the tenant entering into the lease agreement;

·         the length of notice of cancellation provided by the tenant;

·         the reasonable potential of the landlord, acting diligently, to find an alternative tenant between the time of receiving the cancellation notice and the time of the cancellation;

·         and any general practices relating to the relevant industry.

These provisions are not intended to penalise the tenant, but to recover any actual loss suffered by the landlord because of the cancellation. The following costs could apply:

§  Credit check costs for any prospective replacement tenants (even those who are not accepted);

§  Advertising costs (only the actual amounts on the invoices);

§  Rental – the exact number of days that the unit remains vacant after the tenant vacates.