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Franchise Lease Termination

Certain TIME-SHARE AGREEMENTS are not “fixed term” agreements as they have no term. 

Lease cancellations:

Section 14 of The Consumer Protection Act No 68 of 2008 (CPA):

In our last blog we looked at the wording of the whole of section 14 of the CPA and also at the full wording of regulation 5.

Today we will concentrate on section 14 (1) of the CPA.

 Section 14 (1) reads as follows:

 “(1) this section does not apply to transactions between juristic persons regardless of their annual turnover or asset value.”

What does this mean?

Firstly; we need to look at an overview of section 14 as a whole in order to understand the background

  1. Section 14 creates a special class of agreement for the purposes of the CPA, that is, a ‘fixed-term agreement’. Even though the implications of the section are significant, the phrase ‘fixed-term agreement” is not actually defined. The characteristics which must be present before section 14 will apply must therefore be examined. A limit is placed on the maximum duration of a fixed-term agreement.The section gives consumers the right to cancel any fixed-term agreement at the end of its term or on 20 business days’ notice. It provides that consumers must be given notice of the termination date. It regulates the termination of fixed-term agreements by (amongst other things) prohibiting automatic renewals; and the unilateral amendment of terms and also provides that a supplier can charge a “reasonable cancellation penalty”.
  2. Section 14, like all the sections in the CPA, must be interpreted against the backdrop of section 3 which sets out the purposes of the Act. Section 3(1) (a)is a broad statement of purpose. It provides that the Act is aimed at the maintenance of a “consumer market that is fair, accessible, efficient, sustainable and responsible for the benefit of consumers generally”. Section 2(1) provides that the Act must be interpreted to give effect to its purpose(s). In addition, section 4(3) provides that where a provision of the Act is capable of more than one meaning, the meaning “that best promotes the spirit and purposes of the Act” must be favoured.

This means that where the Act or its application in a particular factual situation is unclear it is likely that the interpretation which favours the consumer will be followed.  The question is whether an ambiguous provision in the Act should be interpreted in favour of the consumer even where such an interpretation would cause unnecessary hardship to the supplier?

 Such an approach would be an over-simplification of a complex interaction.

 The interests of consumers and suppliers will not always be competing interests. An outcome may favour the interests of a particular consumer in a particular scenario, but the precedent set by the outcome may lead to higher prices or make a particular business model unprofitable, thus limiting the range of products from which a consumer can choose. The latter outcome would be against consumer interests in a broader sense. Courts should take such broader interests of consumers into account by also considering the reasonable interests of suppliers. 

  1. Section 14 has been subject to much criticism, because of its application to lease agreements in particular. 

The next important point is the scope of section 14: 

  1. Section 14 regulates the duration and cancellation of so-called fixed-term agreements. The phrase “fixed-term agreements” is not defined, as stated above. The phrase presumably refers to agreements that will endure until a specified or specific date. Both agreements with specific end dates (ie 1 April 2019) and agreements with determinable dates (ie “for one year”) are examples of fixed-term agreements. It is not as clear as to whether agreements, where the termination of the agreement is connected to a future event of which the date is not certain, are fixed-term agreements. An example would be a lease which will endure for the life of the tenant. On a plain interpretation of the phrase “fixed-term”, and in the absence of a definition, it would be difficult to argue that such agreements are of a sufficiently “fixed” term for section 14 to apply. Another problematic type of agreement are agreements which bind the consumer (and their heirs) in perpetuity such as certain time-share agreements. These are not “fixed term” agreements as they have no term. These problems need to be attended to by the Courts and/or Parliament and clarified.
  2. Section 14(1) provides that the section will not apply to transactions between juristic persons, regardless of their size. Small juristic persons who may be consumers for purposes of the rest of the CPA by virtue of having an annual turnover or asset value of less than the threshold set in terms of section 5(2)(b)( presently R 2 million) will therefore not be able to rely on the provisions of section 14 if the supplier is a juristic person. Where the supplier is a natural person section 14 will always apply, as such a transaction will not be “between juristic persons”. This is probably an unintended effect of section 14(1). 
  3. Examples of fixed-term agreements are cell phone contracts, gym contracts, leases and, initially, it also covered fixed deposits. Section 14 no longer applies to fixed deposits as the Minister of Trade and Industry has since the inception of the CPA exempted banks from section 14.
  4. Section 14 does not apply to franchise agreements. The section only applies to “consumer agreements” which excludes franchise agreements.
  5. Fixed-term agreements are also a bit of an oddity as other parts of the Act will apply to pre-existing fixed-term agreements if the agreement will endure until a fixed date on or after the second anniversary of the general effective date (ie 31 March 2019). The entire Act will not apply to these agreements, only those provisions listed in Schedule 2, item 3(2). Section 14(2) (b) to (d) and section 14(3) are among those sections. 

 In our next blog, we will look at section 14 (2) and also the effect of regulation 5 in the termination of lease agreements.

You can see clearly from the above that you need expertise and professional legal advice in dealing with lease cancellations.

Please visit our website at www.legaladviceoffice.co.za or send us an email to This email address is being protected from spambots. You need JavaScript enabled to view it. and we will respond to your legal queries within 48 hours.

About our author:

Hugh Pollard (Legal Consultant), has a BA LLB and 42 years’ experience in the legal field. 22 years as a practicing attorney and conveyancer; and 20 years as a Legal Consultant.

082-0932304 (Hugh’s Cell Number)

This email address is being protected from spambots. You need JavaScript enabled to view it.

www.legaladviceoffice.co.za

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