An essential aspect of the rental market, a lease agreement expressly regulates the legal relationship between a landlord and tenant by specifying the terms and conditions of the leasing arrangement. A fixed-term lease stipulates the agreed date on which a lease terminates. As circumstances change, however, one party may wish to terminate the lease early. This article briefly explores the legal framework regulating the early termination of lease agreements.<\/p>\n
There are innumerable scenarios in which one party may elect to cancel a lease before the agreed date of termination. The landlord may have received an irresistible offer to purchase from a third party. Alternatively, the tenant may have opted to relocate abroad. In either scenario, the notice period will depend on whether the lease expressly incorporates an early termination clause.<\/p>\n
Designed to encourage flexibility, an early termination clause \u2013 or cancellation policy \u2013 enables either party to cancel the lease by notifying the other of their intention to terminate in writing. In practice, the notice period varies between one and two months, and the parties may agree on a longer period. Where the lease makes provision for early termination but does not specify a notice period, the common law applies. Typically, the party seeking to terminate the lease must provide one (calendar) months\u2019 notice, namely on the first day of the succeeding month.<\/p>\n
If the lease does not include an early termination clause, or it has already expired, the provisions of the Consumer Protection Act (\u2018the CPA\u2019) or Rental Housing Act (\u2018the RHA\u2019) may apply to the lease.<\/p>\n
Section 14 of the CPA permits the early cancellation of a lease \u2013 defined as a fixed-term agreement not exceeding 24 months \u2013 by a tenant who is required to give the landlord 20 business days\u2019 notice in writing. Importantly, the tenant remains liable for any payments owing to the landlord under the lease up until the date of cancellation. As a security measure against lost revenue, the landlord may impose a reasonable cancellation penalty.<\/p>\n
The CPA, however, will not apply if the lease was concluded between a landlord and juristic entity, such as a company, close corporation, or trust, or in instances where the landlord is not leasing the property in the ordinary course of business.<\/p>\n
Importantly, section 5 of RHA covers scenarios where leases have expired and the parties have not formalised the extension. Accordingly, if a fixed-term lease has expired and the tenant continues to occupy the property with the landlord\u2019s express or tacit consent, the agreement will continue on a month-to-month basis, unless the tenant expressly agrees to its renewal. In this instance, section 5(5) of the RHA enables either party to cancel the lease by providing one month\u2019s notice.<\/p>\n