What’s the value of a fixed term lease if a tenant can cancel on 20 business days notice at any time?

I’ve often been asked, by both landlords and agents, “Is there any purpose in signing a fixed term lease when a tenant can cancel the lease at any time by simply giving 20 business days notice?”

It does sound a bit contradictory when you need to explain this to landlords.

“Mr &/or Mrs Landlord, although we’re signing a 12 month lease, you need to understand that the tenant may cancel the lease at any time by giving 20 business days notice under the Consumer Protection Act.”

“And,” you carry on, “you may not refuse to accept such notice, and the tenant is not obliged to provide any reasons for cancellation.”

By this time you often have some perplexed faces. This is usually when the question then comes. “What’s the purpose of signing a fixed term lease then?”

How do you answer that?

“Well,’ I usually answer, “there is protection built into the Act for you. If the tenant terminates then you should be entitled to a cancellation penalty which should cover any lost rent. There are some things we need to do to protect this entitlement, but we’re experienced in these matters and we’ll advise you exactly how to protect your interests if we face this situation.”

“So, yes, there’s a definite benefit to entering into a fixed term lease with a tenant.”

I hope and trust you found this information useful. Please feel free to post any questions you have below and please feel free to share this post if you know of anyone else that might also find it useful – or share on Facebook or Twitter by clicking on the share links below.

7 thoughts on “What’s the value of a fixed term lease if a tenant can cancel on 20 business days notice at any time?”

    1. Hi Magreth, I’m assuming that the tenant is still in the fixed terms lease period. If this is the case, then the only way you would be able to cancel the lease to sell the property is if you have a specific clause in your lease that specifically allows the landlord to cancel the lease during the fixed term terms if you sell the property. If you don’t have such a clause in your lease then you will need to sell the property with the lease in place.

  1. Your statement about cancellation penalty is incorrect. No penalty allowed per CPA. Only reasonable costs.

    1. Hi John, in this article I stuck to the wording used in the CPA, namely ” . . . the supplier . . . may impose a reasonable cancellation penalty . . . “. I didn’t go into what could be included as part of this “penalty” as that was beyond the scope of the article, but I agree with you totally that “reasonable cancellation penalty” is not a fixed amount as the word “penalty” would usually apply. The amount of this “penalty” is highly dependant on the situation and also whether the landlord takes steps to mitigate their loss by using their best endeavours to re-tenant the property, etc. In simplistic terms, the penalty may only be for any amount that the landlord is out of pocket as a result of the early cancellation. I hope that clarifies my use of the word “penalty” – I was simply using the same words in the Act to keep things simple.

      1. I agree with Shaun. One is entitled to a cancellation penalty. I always refer to trying to cancel your vodacom to go to MTN…you think Voda are gonna let you break a contract 6 months into a 24 month without charges? I think not.
        We use the TPN lease which is specific about this cancellation penalty…one to three months but must be mitigated at departure… this is a topic for a whole other discussion. Thank you Shaun for you always valuable advice.

        1. You’re always welcome, Loren. You mention a VERY important point – the Landlord (or his/her agent) MUST use their best endeavours to MITIGATE any loss. When I represented a Landlord at Tribunal once in a cancellation penalty dispute, the very first thing the Tribunal asked me for was proof we had advertised the property for rent immediately. So, it’s important that the property is re-advertised IMMEDIATELY and AT THE SAME RENTAL that was being achieved in order to ensure that the Landlord retains his/her right to the cancellation penalty. I’ll be dealing with this in detail in the ‘End of Lease’ procedure as part of my ‘Monthly Rental Procedures and Team Training Subscription’ – https://shaunluyt.co.za/product/monthly-rental-procedures-and-team-training/

  2. Pingback: What’s the value of a fixed term lease if a tenant can cancel on 20 business days notice at any time? – by Shaun Luyt | Real Estate Partners

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