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Are penalty clauses for late rental payments in residential lease agreements enforceable?

The Rental Housing Act 50 of 1999 (“RHA”) regulates all residential lease agreements and provides for provincial regulations regarding unfair practices. Section 15(1)(f) of the RHA states the following:

“The MEC may, after consultation with the relevant standing or portfolio committee of the Provincial Legislature responsible for housing matters in the province, by notice in the Gazette, make regulations relating to – . . .(f) unfair practices, which amongst other things may relate to– . . .”

Under section 1 of the RHA an “unfair practice” means:

“a practice prescribed as a practice unreasonably prejudicing the rights or interests of a tenant or a landlord”.

It is within the framework of these provincial regulations that penalty clauses are dealt with – the RHA itself does not deal with penalty clauses.  However, not all provinces have passed such regulations and in the absence of national regulations the enforceability of penalty clauses may be open to question and will depend on the geographical location of the rental property.

For example, the Western Cape Unfair Practice Regulations P.N 22/2002 (“WC Regulations”) do not prohibit penalties for late rental payments in agreements dealing with rental property situated in the Western Cape.  It appears therefore that penalty clauses are enforceable within the Western Cape.  For a rental property situated in Gauteng, on the other hand, the Gauteng Unfair Practice Regulations 2001 (“Gauteng Regulations”) expressly prohibit a landlord to charge a penalty for late rental payments.

Section 3(3)(a) of the Gauteng Unfair Practice Regulations states:

“A lease agreement must exclude any provision which –

  • imposes a penalty for late payment of rent whether or not the penalty takes the form of administrative charge or any other form other than interest. . .”

Therefore, under the Gauteng Unfair Practice Regulations a residential lease agreement may not contain any provision imposing a penalty for late rental payment.  This includes instances where the penalty takes the form of an administrative charge or any other form, except interest, which may be charged on the late payment.  A penalty clause in a residential lease agreement in Gauteng will not only be unenforceable, but its inclusion would also be in contravention of the Gauteng Regulations.

Section 14(5) of the Gauteng Regulations states:

“Any person who commits and unfair practice is guilty of an offence and liable on conviction to a fine or imprisonment not exceeding two years or to both such fine and such imprisonment”.

Any landlord within Gauteng who contravenes section 3(3)(a) of the Gauteng Regulations would open themselves up to liability for a fine, imprisonment, or both.

In provinces where there are no regulations on penalty clauses, the penalty provision would still be subject to the Conventional Penalties Act 15 of 1962, which allows a contractual penalty to be enforced in any competent court, but also provides for reduction of the penalty to the extent that the court considers equitable in the circumstances, if the penalty is out of proportion to the prejudice suffered as a result of the act or omission for which the penalty was stipulated.  The application of the Conventional Penalties Act therefore requires court intervention, which will be an expensive remedy for the tenant subject to the penalty.

Rental Housing Amendment Act

The Rental Housing Amendment Act 35 of 2014 (“RHAA”), which is not yet in force, is likely to result in a national prohibition of penalty clauses for late rental payments.  The responsible minister is obliged, under section 15(1)(f) of the RHAA, to make national unfair practice regulations, which are likely to be similar to the Gauteng Regulations.  Section 3(c)(ii) of the Draft Procedural and Unfair Practice Regulations, 2008, published for public comment (“Draft Regulations”), include the following clause:

 “A lease agreement must not include any provision which –

Imposes a penalty for late payment of rent whether or not the penalty takes the form of administrative charge or any other form other than interest; . . .”

Section 14 of the Draft Regulations also provides for a fine or imprisonment in the event that the landlord contravenes section 3(c)(ii) of the Draft Regulations:

“Should the landlord or tenant fail to comply with any provision of the Act or the Regulation or a ruling of the Tribunal, and found guilty, a fine may be imposed or imprisonment not exceeding two years or to both such fine and such imprisonment”

Once the RHAA comes into force, the position is likely to be that penalties for late rental payments will be prohibited nationally.

Rental agreements for residential property should therefore be scrutinised carefully by landlords and tenants alike.

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