Fair penalty for cancelling a residential lease

How must a landlord determine a penalty for a tenant who leaves before time?

Rental agreements are never cast in stone. A tenant could need to move because of work, change in relationship status or just because they can no longer afford to live at the current home. These are not foreseen months before and a decision to cancel the lease is taken.

The Consumer Protections Act (CPA) protects both the landlord and tenant by stipulating that a lease may be cancelled on 20 business days’ notice and a reasonable penalty may be charged for this. What is the benchmark for a reasonable fee?

The CPA prescribes considerations and factors that help determine a reasonable penalty cancellation fee:

• The length of the cancellation notice given by the tenant
• The rental amount, if any, owed by the tenant to the landlord up to the cancellation date
• The initial agreed upon length the lease was valid for
• The potential for the landlord to find an alternative tenant to take over the lease after notice has been given by the existing tenant

Before signing the lease, the tenant should ensure that the agreement includes a cancellation clause. This is what validates an early cancellation and without it, cancelling a lease early could be considered as a breach of contract. This allows for the landlord to hold the tenant liable for rent due for the rest of the agreed upon lease period and a possible loss of the deposit.

There are other factors to determine the fee, however the above are a good foundation to serve as guidelines. Each cancellation penalty fee will differ in every case but still be measured against the above factors.

References:

• Bregmans. (2018). Penalty for early cancellation of a residential lease - Bregmans. [online] Available at: https://www.bregmans.co.za/penalty-for-early-cancellation-of-a-residential-lease/ [Accessed 12 Jul. 2018].
• Phinc.co.za. (2018). What is a reasonable cancellation fee when cancelling a lease agreement?. [online] Available at: http://www.phinc.co.za/NewsResources/NewsArticle.aspx?ArticleID=205 [Accessed 12 Jul. 2018].