Rental agents and property brokers were yesterday warned by the South African Property Owners Association (Sapoa) to be careful in relation to lease agreements, until the governement gives clarity on how The Consumer Protection Act may affect leases worth an incredible number of rands.
The Department of Trade and Industry was approached by Sapoa so that they can clarify some of the provisions within The Consumer Protection Act. An area of great concern may be the section in the act, which makes it possible for tenants to arbitrarily cancel rental agreements within 20 working days.
Currently 90% of all industrial and commercial property in South Africa is controlled by Sapoa members. The value of this property portfolio is estimated to be around R150bn. Although the act provide remarkable protection to consumers, there was recently a grave concern by Real Estate Agents that it might impact negatively on the livelihoods.
Although Sapoa fully sports ths additional protection offered to consumers, CEO Neil Gopal said yesterday that the act had "severe implications for landlords, developers and business owners". Landlords could possibly be affected very negatively. The act might have far-reaching consequences for landlords who have existing leases worth huge amounts of rands set up in shopping malls.
One will see a huge impact through the Consumer Protection Act on general lease agreements for property to date. Among the provisions in the process that may possess the biggest effect on landlords is that lease agreement of immovable property is limited to a maximum period of two years. Once the lease agreement expires, a fresh lease agreement can be signed, otherwise the lease continues on a month-to-month basis.
Mr Gopal said that banks won't give start-up credit to businesses if a lease agreement was signed for a limited period of 2 yrs. The main reason for this is that a two-year period is insufficient time for customers to recoup start-up costs for the business.
He's also with the opinion that the provisions of the act will create uncertainty for customers because they will never be sure if they could stay on in the premises, following your expiry of the lease agreement. Another point of worry is that busnesses do not want to have to move to a brand new premises every couple of years.
A further onus is put on landlords by The Consumer Protection Act. Landlords must make sure that tenants understood the implications of a lease agreement. This might lead to this situation where tenants can say that they didn't view the agreement, they didn't understand the agreement or the landlord forced them into signing the agreement. The only real way possible to counter this argument is to amment the act and make provision whereby the tenant confirms in his or her own writing that the content of the lease agreement is understood.
A meeting request was sent by Sapoa to the department, which Mr Gopal hopes will be honoured shortly.
Numerous suggestions were provided by Sapoa to the deparment around the draft Consumer Protection Act, ahead of the closing date in January. Sapoa issued a reminder to all its rental agents and real estate professionals working with rental properties to make sure that the new law and its impact is brought under the attention of landlords and tennants.
It would appear that we are set for some quite interesting times in the near future when it comes to rental of property.