Consumer Protection Act and Residential Leases: When a Landlord Falls Outside the Ordinary Course of Business

Not every residential lease is created equal, and a standard template may not be good enough…

Many people assume that the Consumer Protection Act 68 of 2008 (“CPA”) automatically applies to residential leases because the Landlord inadvertently “supplies” and the tenant “consumes’. However, the agreement between a Landlord and Tenant does not automatically warrant the application of the CPA. The key question that many landlords and tenants alike must consider, is whether the landlord is letting the property in the ordinary course of business. This distinction is important because it not only affects notice periods but may also affect your termination clause.  However, thanks to recent case law, we have some guidance on how courts approach the Consumer Protection Act and residential lease agreements.

When is a Landlord actually in the business of letting property? The recent SCA judgment of Els v Venter and Another offered some guidance in this regard. The Venters owned a home in Stellenbosch and moved to Australia in 2018. They were unsure the move would be permanent and decided to let the property to Els. The Venters informed Els that the lease would allow the lessor to terminate on three months’ notice – a term to which he agreed. The property was eventually sold, and with vacant possession being a requirement, the lessors gave the necessary notice to vacate. Els, however, argued that Section 14 of the CPA applied and that on his interpretation, termination was only allowed where a material breach had occurred.  

The matter was ultimately brought before the Supreme Court of Appeal where the Court had to consider whether a “rental agreement” constituted an agreement in the ordinary course of business.

The Court’s approach focused on the nature of the landlords’ activities, the Venters were not in the business of letting property. It was not a rental housing stock, but a family home let to protect an asset pending sale. The Court held that the lessor must be in the business of letting premises, and the lease must fall within that ordinary course. The Venters were therefore not “suppliers” and Els was not a “consumer”.

What does this mean? A residential property being let does not, by itself, mean that the landlord is conducting business for purposes of the CPA.

Els v Venter and Another was further applied recently in a Western Cape High Court decision, namely Costa v N.L.D.C.J and Others.

In this matter, the owner let her Camps Bay home on an extended lease. The tenant withheld rent and sublet part of the property without consent. Despite receiving a notice of breach and a further notice of cancellation, the tenants did not vacate. The tenants argued that the CPA applied, and that a 20 business days’ notice was accordingly required.

The Court however held that the CPA did not apply. Interestingly, the fact that the owner intended to use the rental income to pay her children’s school fees did not change the outcome or the interpretation as to whether this was in the ordinary course og business. The important distinction was not simply whether the owner earned an income from the property, but whether she was conducting the business of letting premises.

The aforementioned case law suggests that a once-off letting is unlikely to count as “ordinary course of business” and that private landlords can rely on their contractual termination and breach clauses as agreed upon in the lease. However, this does not mean that a private landlord can terminate a lease whenever they wish. The terms of the agreement must still be considered, and other applicable legal requirements remain relevant. A landlord must also follow the proper legal process if a tenant refuses to vacate.

This is why a standardised lease agreements downloaded from the internet or drafted by certain artificial tools, may prove to be more trouble than it’s worth. These template agreements appear to cover all the essentials but do not necessarily account for the particular circumstances of the intended rental agreement. A landlord letting out a family home temporarily may be in a very different position from a landlord operating a portfolio of rental properties as an ongoing business. The lease should be drafted with those circumstances in mind.

Importantly, neither judgment sets a number or threshold for determining when the letting of residential property constitutes the ordinary course of business. Both cases concerned a single property, leaving the courts yet to determine at what point, if any, the letting of multiple properties, or the ratio of rental income vs other income, causes a landlord to be regarded as conducting business rather than acting in a private capacity. Owning two or more rental properties will therefore not on the strength of these judgments alone automatically determine whether the CPA applies.

The CPA does not necessarily apply to every residential lease, and the distinction between a private letting arrangement and letting property in the ordinary course of business can have significant legal consequences. Before signing your next lease, do not simply assume that a standard template will do the job.

At VST Attorneys, we assist landlords and tenants with residential lease agreements, termination disputes and advice on their contractual rights and obligations. Whether you are a landlord or a tenant, obtaining the right legal advice can help you navigate your obligations and understand the protections available to you.