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Tips, advice, and information for South African business owners

27 Aug

How To Cancel Your Lease Without Penalties

As your business grows or shrinks, you may need to move premises to fit your needs. For the agile small business, that might mean cancelling your lease early instead of waiting for it to expire. If money is tight, you’ll want to trim your expenses ASAP, re-directing your cash to keep trading and survive the downswing.

As your business grows or shrinks, you may need to move premises to fit your needs. For the agile small business, that might mean cancelling your lease early instead of waiting for it to expire. If money is tight, you’ll want to trim your expenses ASAP, re-directing your cash to keep trading and survive the downswing.

But when cancelling a lease early, unfortunately, your landlord could make life difficult. For a few of my clients, their landlords withheld their deposits as a penalty for the rent they’re no longer receiving. One even tried claiming the full rental fee for the remaining part of the unused lease! That’s not only unpleasant, it’s also not legal.

According to MHI Law, the Consumer Protection Act (CPA) allows a tenant to cancel a lease early with at least 20 business days’ notice. (Tip: work on roughly 1 calendar month to be safe). In such cases, the landlord is entitled to recover costs to replace the tenant, or other “reasonable” costs if the tenant can’t be replaced. What the landlord may not do is withhold the deposit or charge rent for the unused remainder of the lease. And he definitely can’t “charge a ridiculous and unreasonable cancellation fee.”

So if you’re stuck with a landlord who is out for revenge or who’s just a legal idiot, how do you enforce your rights? One solution is to tackle the problem yourself by approaching the National Consumer Tribunal. (For residential property rentals, you could approach the Rental Housing Tribunal.) These institutions can suck your time, so I recommend you rather hire an attorney who would not only save you time, but probably also be more effective.

Typically though, if you’re downsizing in a hurry, attorney’s fees might be unpalatable. So, better to avoid this situation in the first place: have an attorney review your lease before signing it. A good attorney will easily spot unfair clauses. While some penalty clauses may appear to be reasonable, the layman might not recognise how they contravene your CPA consumer rights, in which case that’s a clear sign you’d have a fight on your hands if you need to cancel your lease early.

Then, if you can’t negotiate a fair and legal lease, rather find a different landlord and avoid the risk of the headaches and costs of fighting a belligerent landlord.

Because, as an entrepreneur, wouldn’t you rather give your energy to making a profit and building your wealth?

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