Rentals in Lockdown #6 (Mar/Apr 2020) | Early Lease Cancellation – Lockdown Style

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Section 14 of the Consumer Protection Act (CPA) permits Tenant/s in a Fixed Term Lease to cancel their lease at ANY time during the fixed term period by simply giving the Landlord 20 business days notice of early termination.

Subsections 14(1) and 14(2) of the Consumer Protection Act (CPA)

Of course, when reading the above in relation to a lease agreement, ‘consumer’ means ‘tenant’.

Subsections 3(a) and 3(b) referred to in the above subsection read as follows:

Section 14(3) of the Consumer Protection Act (CPA)

The main ‘takeaway’ from this subsection is that the tenant (consumer) remains liable for any amounts owed (in terms of the lease) up to the date of cancellation AND, importantly, that the supplier (read: Landlord) MAY impose a reasonable cancellation penalty.

We’ll get into the matter of cancellation penalties later in the article.

You may well wonder whether, given the above, a fixed term lease in fact holds any benefits for landlords? The definitely do.

Take a look at by blog article: What’s the value of a fixed term lease if a tenant can cancel on 20 business days notice at any time?

Does Lockdown Affect the Tenant/s rights to early termination as per the CPA?

I am not aware of any State of Disaster Regulation that curtails or takes away the Tenant/s right to early termination under s14 of the CPA.

Does Lockdown in itself affect the Landlord/s right to a ‘reasonable cancellation penalty?

Once again, I don’t believe there is anything in the State of Disaster Regulations that curtails or takes away the Landlord/s right to charge a ‘reasonable cancellation penalty’ under S14 of the CPA.

There are, however, obligations placed on Landlord/s to ensure their entitlement to a cancellation penalty, which can be summarised as follows:

the Landlord needs to use their best endeavours to try and mitigate their loss i.e. take all the steps to re-tenant the property ASAP

Under normal circumstances this would require the Landlord, or the Landlord’s Agent, to:

  • Advertise the property for rent ASAP on the same terms and conditions as the current lease, including the ‘current’ rent
  • Deal with enquiries from the advertisement
  • Arrange viewing appointments
  • Show the property to prospective Tenants
  • Accept & process rental applications
  • Sign Lease Agreements & Collect Move-In Costs

So, does Lockdown affect anything at all with respect to early lease cancellation and cancellation penalties?

The simple answer is a resounding YES!!!!

The State of Disaster Regulations prevent the Landlord / Agent from taking some of the steps required for the Landlord to attempt to mitigate their loss!

Are ‘Lockdown Days’ counted as ‘Business Days’ under S14 of the CPA?

The importance of this is whether the days we are under Lockdown will still be counted as part of the cancelling Tenant’s 20 business day notice period, or would the 20 business day ‘clock’ only start ticking after lockdown?

I’ve had a number of queries as to whether the Lockdown Days count as Business Days, so thought I should clarify this here . . . .

The answer is Yes, they do!to my knowledge, at this point

Of course, as we know, the Disaster Management Regulations are continuously updates, which may well change the current status, which is why I included ‘at this point’ in my response above.

The misunderstandings seem to stem from an article that was published entitled “Business Days Extended, what this means for you!”

Many people saw this article (or maybe only read the heading) and understood it to refer to ALL business days, i.e. that ALL Lockdown Days are classed as  Non-Business DaysThat’s DEFINITELY NOT THE CASE!

The article clearly states . . .

The National Credit Act: all business days are extended until after the lockdown ends. Currently, this date is set as the 16th of April but this may be extended further.

Source: TPN Blog

The above extensions affect The Credit Bureau Dispute Process and Blacklisting (Adverse Listings) Process.

The article further clearly states the following:

. . . there has been no communication yet from the Consumer Tribunal to suspend business days as they relate to the CPA; business days are counted as usual for cancelation purposes.

Source: TPN Blog

This is the reason I maintain that when determining the end date for the lease for Tenant/s that have given 20 business days notice of early termination, you need to include the ‘usual business days’ during the Lockdown period.

Let’s look at an example

The Scenario: The Tenant gave 20 business days notice on 31 March 2020. When is their last day under this scenario?

Will the fact that we’re in Lockdown have any effect on the amount of the cancellation penalty the Landlord may claim?

We simply don’t know the answer to that? It’s possible that a court or the Rental Housing Tribunal may take into account the fact that we were in Lockdown and couldn’t do viewings / showings and then argue that the re-tenanting of the property was delayed due to this, and that the Tenant cannot be held liable for any loss of rent the Landlord suffered as a result of the Lockdown period.

Conversely, the court of the Rental Housing Tribunal could well take the approach that the Lockdown restrictions were beyond the control of the Landlord and the Landlord should therefore be compensated for loss in rent incurred as per usual, despite the Lockdown. I would imagine that this reasoning would ONLY be considered if the Landlord used their best endeavours to re-tenant the property, i.e. did whatever they could, and were permitted to to under the lockdown regulations, to find a replacement tenant and mitigate their loss!

My advice is based on the above.

My Advice to Landlords and Rental Agents

Do EVERYTHING that you would usually do AND that is permitted under the Disaster Regulations to find a replacement tenant

WHY?

To ensure that YOU have done ALL you can, under the circumstances, to place you, and your Landlord in the best possible position to have a valid claim for a cancellation penalty – if there is a dispute later

It’s also in the Rental Agent’s best interests

I’m told that agents ARE still receiving applications after ‘virtual’ viewings or ‘video viewings’ – so it IS working!

At the end of this you want to be in the best possible position to get back to as normal an income as possible – as soon as possible!

STEP #1: ADVISE YOUR LANDLORD & SEEK URGENT INSTRUCTIONS

Your Landlord/s need to understand importance of getting the property advertised ASAP to ensure that their entitlement to a reasonable cancellation penalty is protected as much as it can be under the current circumstances

I’ve prepared a draft letter for you to use: L017 – Notice (CPA) Received from Tenant During Lockdown

STEP #2: ADVERTISE

  • Ask the current tenant to take some updated pics for you – and a video if possible
  • Place the ad ASAP!!

When I went to Tribunal once on a cancellation penalty matter, one of the first things I was asked to produce was proof of advertising!

STEP #3: ENQUIRIES

  • Continue to deal with all enquiries – by email, WhatsApp, text or phone
  • Keep a record (preferably the email, Whatsapp,  and text discussions & a log of phone enquiries)

These records could be used (in the case of a dispute) to prove you used your ‘best endeavours’ to re-tenant the property

STEP #4: VIEWINGS

  • If you have a video, then share the video with the interested parties
  • If not, schedule viewings for post Lockdown

Use ‘Outlook Meeting Invitations’, or something similar, so that, once again, you have proof of using your ‘best endeavours’ should you require it.

THE NEXT STEPS: RENTAL APPLICATIONS, PAYMENT OF MOVE-IN COSTS & SIGNING THE LEASE

I won’t go into any further detail on these as I’m sure that most of us will be able to deal with all of these actions remotely as is often the case even in the ‘usual course of business’.

I hope and trust you found this information useful. Please feel free to post any questions you have below and please feel free to share this post if you know of anyone else that might also find it useful – or share on Facebook or Twitter by clicking on the share links below.

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