 Good day everybody. I am Solma Stain. I am the managing director of SSLR Incorporated. We are a property law firm specializing exclusively in rentals and evictions, which I suppose is a very interesting field of specialization. And I am honored today to share this webinar with you as property practitioners about the things we currently seeing in the industry that might be extremely relevant to you. So the focus of my session today is simply around something that we are currently seeing in the industry. We are seeing a lot of cancellations of lease agreements. And you might be thinking for you as a property practitioner, how does this impact you? Obviously, not just the frustration of landlord cancelling a lease agreement and how does that work? How do you explain that to the tenant and what's the effect on the tenant? Or if a tenant does an early cancellation in terms of section 14 of the CPA, how does that impact you? What does that look like and how should you handle that? Not just that. Actually, more importantly, let's all talk about the bottom line. How does that impact your income? How does that impact your commission, your revenue stream? If the tenant or the landlord does an early cancellation for which ever reason? So let's start at the beginning. I find that that's usually a very good place to start. Let's start at the beginning. What does cancellation look like and why are we currently seeing a lot more cancellations of lease agreements? And what's the reason for these cancellations? So obviously at this stage, the economy is strained. We all know about this. We've all experienced this. And we do know this is not just coming out of COVID and the effect COVID had on our economy, but a lot of other factors. And we can definitely talk about low trading and the effect of the economy on the economy of low trading. And we are currently in a strained economic system. So a lot of tenants will have to cancel their lease agreements because they simply can't afford the rental. Or on the other hand, a lot of landlords cancel lease agreements because they simply cannot afford to hold that secondary property. They can't afford the bond cost, their rates and taxes and things like that. So what does that look like for us? How does this work and what is the impact of this on our situations? Cancellation by the tenant. Very important. This is in terms of the Consumer Protection Act. If the Consumer Protection Act does not apply to a lease agreement, a tenant does not have the right to do this early cancellation. When will section 14 of the CPA apply, this is absolutely crucial to be aware of. There's a perception in the industry, especially under tenants as well as property practitioners, unfortunately, that a tenant can cancel at any time. And it's almost as if the application of section 14 of the CPA goes completely out of the window and people just assume a tenant can cancel early. That is not the case. The only time a tenant will have the right to do an early cancellation is in a situation where, first of all, there must be a fixed term lease agreement in place. A verbal agreement is valid and highly enforceable. Remember, the Rental Housing Amendment Act has not been promulgated yet. So all lease agreements may very well be verbal lease agreements that are equally enforceable. Important to be aware of in this circumstances is if you have a verbal agreement or if you have a written lease agreement and it ran out of the fixed time period and it's now on a month to month basis. Those lease agreements can never be fixed term agreements. They are all periodic leases, they are month to month agreements. So whether there was a lease written agreement in place in the past or whether there was nothing in place, all of this has always been verbal agreements. These agreements can never, ever, ever be governed by section 14 of the CPA. So for the very simple reason that obviously the first requirement for section 14 of the CPA to apply is that it must be a fixed term consumer agreement. This is absolutely essential. It's important to be aware of this. If you now have a fixed term lease agreement, important to know the next requirement centers around the parties to the agreement. There is a misperception in the industry that if your landlord is a natural person and the tenants a juristic entity, in that case section 14 of the CPA will not apply that's incorrect. You will have to look at the landlord in a bit more detail but for safety's sake, and I would apply this across the board. If either one of the parties be the landlord or the tenant is a natural person, so in their personal capacity, rather to save the site and assume that section 14 of the CPA will apply. If it doesn't and there is a situation where the landlord asset value or Hamilton over could be more than the threshold of 2 million rent per annum. Please make sure to pick up the phone call SSLR. You're always welcome to make contact with us. Promise you weren't there for a quick checkup like that. Have the conversation find out before you assume second 14 does not apply. So what I'm saying fixed term agreement and both parties are juristic entities section 14 of the CPA will not apply. Fixed term agreement, either one of your parties is natural person be it landlord or tenant to save the site and assume section 14 will apply only in these circumstances. So only we are fixed term agreement natural person in the transaction. If it's the tenant, it's a given that section 14 will apply. Then the tenant does have this right set out in section 14 of the CPA. If a consumer agreement is for a fixed term and despite the provisions of the agreement to the contrary. So even if the lease agreement says the tenant may not cancel midterm or the tenant may cancel the agreement but only on three months written notice the access we don't care what the lease agreement says. If it's a fixed term agreement, then the consumer being the tenant will have the right to cancel the agreement at any time by giving the supplier 20 business days notice. This is crucial. What we see often is tenants doesn't want to take occupation so he signed the lease everybody was happy. And suddenly when he gets to the property when he's supposed to take occupation he says no, no, no, no what I don't want to take occupation anymore or three months into a 12 months lease agreement suddenly gives a two week notice and he says I am out. I am enforcing my rights in terms of the consumer protection act to cancel the requirements very clear that the consumer so the tenant must give the supplier the land or 20 business days notice. Immediate cancellation or a cancellation on a notice period shorter than 20 business days isn't in terms of this clause. And that means that the land will be able to claim all the damages he suffers without a limitation to that every actual damage that he suffers that he can prove he will be able to claim. It's only in his circumstance when a tenant gives clear 20 business days notice of cancellation that he would be entitled to now only pay the early cancellation penalty. What is this early cancellation penalty? How much? What is the story around this? There is no limitation on the early cancellation penalty. There is no prescribed limitation in terms of the CPA. Industry wise at this stage, average seems to be between two and four months rental, but remember the conventional penalty act gets in and it also says you're not allowed to claim a penalty that is greater than the actual damages suffered. So if you say for instance your negotiation range for your early cancellation penalty is between two and four months rental. Fantastic property practitioners. Please keep in mind that your commission or the pro rated commission that you know that the landlord doesn't have a benefit of that claim is exclusively in the landlord's hands. You as the property practitioner, you have a written mandate, I hope, and your written mandate will now say what happens when the lease agreement gets cancelled. You will be entitled to your procurement train, your procurement commission, but obviously your management commission, you won't be able to play management commission if there isn't a tenant to manage in the property. So your procurement commission is still payable. But by the landlord. So the landlord has to pay it and the landlord now has the right to reclaim that amount that he pay to you as the property practitioner back from the tenant. Whether the money actually exchanged hands or not at the time of cancellation is irrelevant. It's all based on your mandate agreement because at the point of cancellation and we'll talk a lot about that a little later in the session. The landlord must pay you your full procurement commission, even if he didn't have a tenant at that time. And for that reason, he will have a claim against the tenant. So please make sure your lease agreement doesn't say something like the early cancellation penalty will only be one month's rent because what if you can't find a tenant in that month, and there is pro rated commission that the landlord will have to claim. So if you've limited yourself to one month's rent and the damages that the landlord suffer might very well be greater. You will know from the most use, why, why this juice lease, currently in South Africa, you know, that there is typically a negotiation. It's a time period so it says the minimum cancellation penalty and the maximum cancellation penalty. And typically what we completely at this stage is minimum two months maximum 46 months depending on your area. If you're in an area like Cape Town right now where stock is actually pretty low. As soon as the property opens up you have place a new tenant, even if that is the case, make sure you don't say one month minimum one month and a maximum of two months that limits your yourself too much. Rather than stick to something like a maximum of three months, but still keep your minimum at a minimum of two months. So even in an area where stock is moving very slowly and there's almost an oversupply of rentals of rental properties. Leave yourself some negotiation room well the landlord some negotiation room, and rather say a minimum of two months early cancellation penalty and a maximum of six months because the landlord is entitled to claim the full damages that he is suffering due to the tenants early cancellation but limited to the maximum cancellation penalty that we agree to in terms of the lease agreement very important in this conversation is the early cancellation penalty that does deal with things we need to consider and things we need to keep in mind in determining what a reasonable early cancellation penalty would look like. Importantly, if the lease agreement says we agree that this early cancellation penalty is in fact a fair penalty and we give it a negotiation range. The chances that somebody could come back and say no no no but that's not fair would be silly because the tenant agreed this scope two to four months or two to six months would be a reasonable scope. If that is the case, obviously the tenant won't be able to say but that wasn't reasonable you agree at inception of the lease agreement that that would be fair. You invoice this early cancellation penalty at the point of cancellation but remember the tenant is liable for all the costs up to the point of cancellation so he's paying ring during the notice period the notice period even if it's longer than 20 business days. The tenant is still liable to pay rent during that time period. The cancellation penalty is only charged at the point of cancellation so even if it gives two or three months rent notice and he still has to pay rent in that time. It doesn't mean that he doesn't have to pay the early cancellation penalty. It does mean that the landlord has a longer time period to mitigate these damages and the landlord does have an obligation to start marketing the property immediately when you receive the notice. But a longer than 20 business days time period does not take the tenant's obligation to pay the early cancellation penalty away. If, say for instance, the tenant gave two months notice and he paid rent during the notice period at the point of cancellation. The landlord invoice or the property practitioner invoice for the early cancellation penalty, but you are able to place a tenant immediately when the previous tenant exits. In case the landlord's damages would be less, but he will still suffer damages because he had to pay procurement commission for the entire time period. So you can't claim the new tenants placement commission from the exiting tenant, you're going to claim the full period procurement commission for the exiting tenant, but importantly, yeah. Because you were able to place a new tenant landlord's not going to suffer a loss of income so you can't claim those months rental. But what you can do is the pro rated procurement commission that the landlord paid to the property practitioner that can still be deducted and the landlord will have to refund the tenant from the early cancellation penalty for the time period. That he actually doesn't suffer damages so you only allowed to claim the actual damages suffered, whether that's loss of income, whether that is procurement commission pro rated procurement commission where you didn't have the tenant. Actually in the property for the commission that you paid. It's important to know that even though you're able to place a tenant as soon as the cancelling tenant exits the property, the landlord will still suffer damages and he is very much allowed. To claim that you won't claim the loss of income, but he is entitled to claim the pro rated procurement commission. So that's cancellation by the tenant was a long heavy part of the session and if you think that was long and heavy, watch this part coming your way now. Cancellation by the landlord. So there's a massive conversation going on in the industry right now around, can a landlord cancel a lease agreement matter. Yes, most definitely can. Section 14 of the Consumer Protection Act does not say that a landlord may only cancel a lease agreement should the tenant be in breach of the agreement. A landlord can only cancel in terms of section 14 of the Consumer Protection Act when a tenant is in breach of the lease agreement that is very true and the landlord will have to give the tenant 20 business days to remedy his bridge. And only if the tenant doesn't with the landlord be allowed to cancel that lease agreement. The landlord can't give a tenant 20 business days notice of cancellation when the tenant already remedied his bridge. Most definitely I agree with that 100%. But there's another act with that's very relevant. And that is the rental housing act. The rental housing act and the Consumer Protection Act runs side by side and it governs different elements of our transaction. Yes, section 14 of the CPA says when a tenant is in breach of a lease agreement. This is the way we need to handle that situation need to give him 20 business days notice to remedy his bridge before we can cancel very important. However, we do have section four subsection five subsection C of the rental housing act. Very important guys please keep in mind these acts. They they're not contradicting one another not at all. They just catering for different scenarios in this particular instance. This is a scenario where the landlord will have to cancel the lease agreement. So during the subsistence of the lease, when the tenant is not in breach of the lease agreement for a few specific reasons. Now, the reason why the rental housing act does this is, yes, a tenant wants to be in occupation of a property for a very specific time period. It's very important that he does have the right to remain in occupation for that time period. But the latest later, recognize the need for a landlord to sometimes be able to cancel that lease agreement, even in a situation where the tenant is complying with his obligations. The next tenant you've ever seen, does the maintenance look after the property perfectly pays his rent on time. Everything is perfect, but there is still a need for the landlord to cancel this lease agreement. And he can, even if section 14 of the CPA applies this piece of legislation applies at the same time it's not contradicting anything. It's not contradicting the CPA and it is very much not contradicting the principle of your hot foot clip, which by the way is still very much an enforceable legal principle where it says, when there's a lease agreement in place a property gets sold on transfer from the landlord that is very much still a very recognized thing in our law. It's common law principle so you can contract out of that. It's not the wisest thing to contract out of it because you do have section 45C of the rental housing act catering for a situation where the landlord has a lease agreement midterm. So section 45C says the landlord's right against the tenant includes his or her rights to and you will see from sub section a all the way through to e deals with these rights that it landlord has against the tenant. Remember section five of the rental housing act deals with the relationship between the landlord and the tenant. This one specifically deals with the landlord's rights against the tenant. And it says that the landlord has the right to terminate please note the word terminate not cancel yet this is very relevant. Section is usually on the back of bridge termination is this brings this lease agreement just to an end calmly and peacefully. The landlord has the right to terminate the lease agreement is in respect of a rental housing property on grounds that do not constitute an unfair practice, and are specified in the lease. So two requirements that we see. First of all, if this provision is not in your lease agreement if the lease agreement does not allow the landlord to cancel the lease agreement during the subsistence of the lease, the landlord cannot rely on this particular clause. If the tenants and please property practitioners ensure that your lease agreement does contain a clause that allows for cancellation by the landlord, even in a situation when a tenant is not in breach of the agreement. Very importantly now it says the reason for cancellation may not constitute an unfair practice. The landlord may never cancel a lease agreement in a situation where he just wants higher rent or he just doesn't want to follow the correct process to get a nonpaying tenant out or he just doesn't like the tenant whatever the case might be. The only real reasons that would not constitute an unfair practice would be in a situation where the landlord has to sell the property. He would not be able to get the purchase price that he needs if the tenant is in place so it might be a property that's not in a high investor area. And it is actually a property that has to be sold as a primary residence. In that situation there is very good grounds for the landlord to cancel or in a situation where the landlord will have to take occupation of the property. But for instance it's a couple that had two properties they were married they are going through divorce one of the parties will have to take occupation of that property. The landlord had multiple properties and he can't afford it something bad happened economy hit him in the wrong direction and he has to take occupation himself of this property. But this reason is real it does not constitute an unfair practice. The landlord would have to write to cancel the lease agreement met him, even with a tenant is not in bridge these two pieces of legislation is not contradicting one does not take Christian over the other the consumer protection act does take Christian to other legislation but these two pieces of legislation are in contrast. One deals with cancellation with the tenant is in bridge and the other deals with the landlord's right to cancel the agreement, even when the tenant is not in bridge so I hope that makes sense. And very important you will note from this piece of legislation, the Act does not give a specific time period so it's crucial for the parties to agree to that. I personally feel it's fair and reasonable and reports seem to agree with me on this one on two months notice, but please be be mindful of the fact that the Act does not require a specific time period. Your lease agreement must must must must cater for that property practitioners, please keep in mind, if you remove a clause that gives it in a landlord this right to cancel the lease agreement. If you do not have the conversation with the landlord you do not get an instruction in writing to remove that right from the landlord. It is unfortunately unprofessional conduct, because you are mandated on behalf of the landlord you representing the landlord. For the property practitioners access we need to consider the rights of both parties. That doesn't mean we can take a right away from one of the parties, especially the party you're mandated by without the landlord's written instruction. If you do that and the landlord has to cancel and he can't because you have unilaterally removed that clause. Unfortunately, that is definitely unprofessional conduct to be very mindful of this. But why is this relevant. And what does this look like to you and your commission as a property practitioner. The effect of sale or cancellation on your mandate agreement as much as the principle of your heart for quick says that the lease agreement continues to remember you as the property practitioner is in fact not a party to the lease agreement you can never be as much as your lease agreement need to warrant that you do have a valid ffc in terms of section 67 of the property practitioners act. You're not a party to the proceeding you're not a party to that contract. As much as the lease agreement continues the mandate agreement unfortunately doesn't. Soon as the property is sold. The purchase that may now elect to terminate a well that the mandate will automatically terminate, but the purchase and may elect to remand eight you, or to not mandate you or mandate a random other agency is 100% entitled to that. If your sale agreement or your lease agreement forces the purchaser to keep you on on a management mandate. Unfortunately, that is unenforceable and at the best of times, contrary to so so many laws. So, the purchase is very much allowed not to mandate you mandate his own agent or manage his own property. Very important. When a lease agreement is cancelled obviously you, you were paid you supposed to have been paid your procurement commission at the time of inception of the contract we know that very often property practitioners absorb the procurement commission into the the management commission into the procurement commission or procurement commission into the management commission guys, I am begging you, mandate agreements, long disputes around shouldn't be inviting shouldn't need only soul mandates. The truth is, this is the basis of your relationship between you as the property practitioner and the landlord. If you do not have this document in writing. It's basically relying on somebody to pay you without actually having an agreement governing that it's important guys to have your mandate agreements in writing, whether we have this argument around, does the act require us to have it in writing or not. It's irrelevant. It is your income to salary and to be honest, I wouldn't be working for a company if my employment contracts not in writing. So I don't know about you, my mandate agreement. The property practitioner would definitely be inviting. If you have this, and you have procurement commission and management commission and you absorbing one into the other. Please make sure that you quantify your procurement commission why on sale where your mandate gets ended on cancellation of the lease agreement where your contract strictly ends. If you've absorbed one into the other, you won't have a proper clear claim against the land. The landlord without that claim doesn't have a clear claim against the tenant on cancellation. That's a very important cost. If you have a placement fee procurement fee, and you have a management fee, and you say to the landlord don't worry Mr landlord you don't have to pay that fee. You just pay me a monthly management amount. Please make sure they have a special condition in your mandate agreement that says, if this mandate agreement comes to an end for whichever reason, obviously, unless you as the property practitioner manage of the agreement, very important to keep in mind that you need to be able to say, if this happens, and my mandate comes to an end, you Mr landlord will have to pay me my full procurement fee. Also, if you cancel my mandate, and you continue to manage the relationship between you and the tenant yourself. Every renewal, I am entitled to my renewal procurement commission. If you don't have that in your mandate, you won't be able to claim that money from the landlord. Yes, you would. It's easy enough to prove effective course. But do we really want to litigate on these things? Doesn't make sense at all to go to court just because you can win something in court. Doesn't mean it makes financial seems to go through a two, three year litigation to prove that you were entitled to this, whatever the amount is claim on sales. It makes a lot more sense on rentals. Guys, let's be clever about this. Keep our mandates in writing. Make sure that when the lease agreement comes to an end for whichever reason, when your mandate comes to an end for whichever reason, you have actually secured your procurement commission. And you will be able to carry on collecting that money from the landlord for the work that you've done because the work that you've done was to bring this relationship into being between the landlord and tenant, and you are most definitely entitled to your commission on that. I hope I have touched on a few important points for you. I really hope that it's of value to you. And I really hope that thinking about our mandate agreement, thinking about how we actually make money as property practitioners, that it is not just fair and reasonable to the landlord, but to you as well as property practitioners, you guys work extremely hard. And there is no reason in this world for you not to be entitled to collect your reasonable commission, even in a situation where the tenant or the landlord cancels the lease agreement, or when the landlord sells the property, and sorry, low shedding, and in a situation where you are then in a position where the purchaser doesn't carry on with the mandate agreement, you should be entitled to collect that money for the work that you have done. Like I said, I am still not staying from SSLR Incorporated. We are always there for the industry, very happy to help pick up the phone, contact us, if you have any questions, we are there to support the industry. And I hope you guys have a lot of happy rental stories coming out of this. Have a fantastic day.