Introduction to the Contract
A lease contract, also known as a rental agreement, is a legal document between a lessor (landlord) and lessee (tenant). It refers to the renting or letting of property from one person to another. These two parties can either be natural or legal persons. The lease agreement may specify a monthly fee to be paid, or the lessee may be required to provide some good or service in exchange for the use of the property.
The lease contract will usually consist of a rent amount (monies, or services) , a period of agreement and property details. Any default of this agreement then becomes a breach of contract (as stated in the Consumer Protection Act 68 of 2008).
The Consumer Protection Act defines "lease" as the letting, hiring, or franchising out of an asset. Leases relate to the leasing of land, buildings, machinery, and various other products.
Most landlords will request that an individual signs a lease contract before renting out their property. This protects the landlord in the event of any default by their tenant. Most sales of land usually require the signing of a contract, which is when a lessor and lessee will usually agree to the terms and conditions.
The Elements of a Lease Agreement
South African law requires that a written lease agreement be concluded in order to avoid any dispute regarding its terms. It is advisable that the agreement records the following information:
Duration of the Lease
The circumstances under which the lease can be terminated depend on how long it was intended to run. If the lease is for a period of 10 years or longer, it will need to be registered against the title deeds of the property in question to have effect. These types of agreements will need to be recorded in writing.
Rent Amount
In terms of the Rental Housing Act, the owner of the property cannot collect rent without first informing somebody in writing what the rent will be.
Deposit
The amount of the deposit cannot be more than double the one month’s rent and must be paid back to the tenant within 21 days after the conclusion of the lease or the tenant vacating the premises.
Obligations of the Tenant
The tenant will be required to make rental payments on time, pay utilities, report maintenance issues, keep the property clean, and not cause damage.
Obligations of the Landlord
The landlord must ensure that the dwelling is fit for occupation and is kept in good condition. The landlord also has a duty to ensure public safety with regard to the premises, give notice of rent increases, and inform tenants about the reason for terminating the lease.
Legislative Requirements and Compliances
In practice the specifics of the lease agreement will vary in accordance with the parties involved and/or the type of premises being let. However, the fundamental legal requirements in terms of South African law that must be complied with in the drafting of a contract of lease, are as follows: All commercial leases must take the form of a written and signed document. Upon request by the tenant, the landlord is obliged to provide a written copy of the lease to the tenant within 21 days. These provisions are found in the Rental Housing Act 1999 and apply to residential leases. Any person violating the above legal requirements may face a fine and/or a term of imprisonment of not more than two years. The lease may also be declared null and void. Compliance with the above provisions is therefore essential.
The Rights and Obligations of the Parties
The contract of lease creates reciprocal obligations between the parties. Tenants do not have an absolute right to withhold from paying rent if repairs have not been carried out at the premises.
Essentially, the tenant has a positive obligation but no right to demand the landlord carry out repairs. The landlord will be obliged to effect such repairs as are necessary for the beneficial occupation of the premises.
The tenant will be obliged to use and take care of the premises. The tenant may not make structural alterations without the landlord’s permission. If repairs are required by the tenant, the landlord is entitled to revert to overholding if the tenant fails to carry out such repairs.
The tenant will be entitled to enjoy undisturbed use and occupation of the premises. The owner may not damage or alter the premises. The owner must not disturb the tenant in the enjoyment of the property. The owner can evict the tenant on notice for breach of contract.
Tenants are protected for unjust actions by landlords in terms of the Rental Housing Act. Where it is unfair for a landlord to evict a tenant, the tenant must vacate the premises within a reasonable time. The rental housing act will not be enforced where the tenant has committed a breach of the lease. If there are problems with maintenance or repair, the tenant must report this to the landlord. The tenant must give a reasonable opportunity for the landlord to remedy the problems. The tenant will not be able to look to the tenant for maintenance issues if they are aware of the issues when entering into the lease agreement. Where a tenant has rights created by statute, the landlord may be liable if they breach those rights.
Termination and Renewal of a Lease Agreement
A contract of lease may be terminated by mutual consent or by cancellation. The notice period which must be given by either party will generally be stipulated in the agreement. The most common circumstances under which a lease may be cancelled are: A party intending to cancel for any other reason will need to ensure that the reason complies with the relevant legislation (if applicable) and is properly proven to the other party prior to actual cancellation. It is also important to ensure that the correct cancellation procedure is followed. Parties should always agree, at the outset of the lease, whether or not the lease will be extended after the lapsing of its term . A lease may be renewed by mutual consent, although it is common for a lease to contain an option to renew. An option to renew usually provides for either: If properly invoked, an option gives rise to a new agreement and only requires the signature of the party exercising the option. An option is generally only valid for those periods agreed upon by the parties and the aggrieved party cannot unilaterally extend the period of the option. If no period is stipulated in the lease for the exercise of an option to renew the lease, the lease will be renewable for the same period as it was initially entered into. Once again it is important to comply with the requirements of the relevant legislation regarding the renewal of a lease.
Dispute Resolution and the Courts
It is often said that the best laid plans of mice and men go awry. Therefore, it is common that disputes arise between the parties to a contract of lease. It is mandatory and a requirement of the Consumer Protection Act 68 of 2008, that any dispute or grievance must be brought to the attention of the landlord or lessor prior to any civil legal action being instituted against the other party to the agreement.
Most standard form agreements for lease contain a clause that provides for mediation, adjudication or conciliation. Upon breach or a dispute arising relating to the breach, the aggrieved party is therefore required first to refer the matter to mediation, adjudication or conciliation. If the aggrieved party experiences disputes with the landlord or lessor, the party in breach is required to submit the dispute against the aggrieved party to mediation, adjudication or conciliation and the party must comply.
If the aggrieved party or tenant are not satisfied with the outcome of an adjudication or conciliation, they must then seek recourse in the courts within a specified period from the date of the adjudication or conciliation. It is also possible for parties to approach the courts directly and to forego or bypass the mediation or adjudication process. Although this can be done, depending on the rights that are asserted to in any dispute, the course of action should be carefully considered in the light of contractual clauses and the provisions of the legislative framework and prior to any legal action being instituted.
Common Pitfalls and How to Avoid them
A common mistake made when entering into a lease agreement is failing to specify the duration of the lease correctly. This could lead to confusion between the parties and result in potential compensation payments being made should the lease be terminated early. Obviously, this is not ideal as you will have to find a new tenant and place restrictions on your property. When a lease expires the lease agreement must be renewed orally or in writing (or tacitly renewed) whichever occurs first. In the event that the parties do not renew their contract as mentioned above, the lease agreement will continue on the same terms and conditions. If you would like to prevent the lease agreement from continuing and is looking to terminate the lease, ensure that you comply with the lease termination provisions.
It is important to get the rental amount right. Both parties should agree upon the amount to be paid and make sure that the rental amount reflects the current market value for rentals, especially in a fluctuating market. Ask your rental agent to advise you on the correct rental value.
A mistake some landlord’s make is not having the rental amount increase annually. This can be damaging especially if the rental market is growing as you will not be able to charge the market value of rental fees. The same applies for tenants, as some tenants forget to request an annual decrease in rent if the rental market is decreasing and they are paying above the market value.
Tenants must make sure that the property they are renting is not already subject to a rental obligation that would prevent them from renting the property. For example, if a couple is married in community of property, each spouse will have to consent to the lease agreement if it stretches beyond the married capacity limit of R 50 000.00 per year or is longer than ten years. Tenants must check whether the property is registered in the name of both spouses or in the name of one spouse who is married in community of property. Failure by the tenant(s) to comply with this legal requirement is dangerous as any transaction (in this example the lease agreement) entered into by the landlord without the necessary consent is deemed void.
Concluding Remarks and Short Practical Suggestions
The Contract of Lease for Residential and Commercial Properties in South Africa are unique agreements with specific terms that can vary widely based on the property type and the agreement. As we have seen throughout this article there are many important clauses and terms in a lease agreement. Notably the rental/price, duration , breach clause, and the tenants usage of the property as the lessor may impose restrictions or conditions on the manner in which the property is used. It is a good idea to seek legal advice when drafting or reviewing a contract of lease for South Africa especially in complex or unique cases or with regard to commercial property.
