When dealing with residential lease agreements, getting to the right outcome often depends less on rigid answers and more on understanding the legal reasoning behind them. This overview outlines the relevant legal framework and offers practical insights for both landlords and tenants navigating fixed-term residential leases.

Does the Consumer Protection Act (CPA) Apply to the Lease?

The CPA was designed to protect individuals in consumer transactions, especially where there’s an imbalance in bargaining power. Residential leases fall within the scope of the Act as they are classified as the supply of a “service.” A fixed-term lease is considered a fixed-term consumer agreement under the CPA.

However, not every residential lease is automatically subject to the Act. Two conditions must be met:

• The landlord must rent out the property in the ordinary course of business — in other words, as a commercial enterprise; and

• The tenant must be a natural person (not a juristic entity such as a company or trust).

For instance, if a homeowner occasionally rents out their spare flat, the CPA is unlikely to apply.

What Is the Maximum Duration of a Fixed-Term Lease?

The CPA restricts fixed-term consumer agreements to a maximum duration of 24 months, unless the parties agree otherwise in writing and the landlord can justify a longer period with a sound commercial rationale.

In practice, most lease agreements are limited to two years and can be extended through a written renewal or addendum.

How Can a Tenant Terminate the Lease Early?

Under section 14 of the CPA, tenants may end a fixed-term lease by giving at least 20 business days’ written notice. This is a minimum requirement, parties are free to agree on a longer notice period (e.g., 2 or 3 months) but cannot shorten it.

The intention is to strike a fair balance between giving tenants flexibility and landlords reasonable time to plan for reletting the property.

Are Early Termination Charges Permitted?

Yes,  landlords are entitled to charge a reasonable cancellation fee when a tenant exits the lease before its expiry date. This is not a “penalty” in the strict legal sense but rather a compensatory measure for actual losses incurred.

To determine what is fair, the CPA Regulations provide several factors to consider, such as:

• The remaining term left on the lease when it’s cancelled;

• The original duration of the lease;

• The nature of the property and how quickly it can be re-let;

• How much notice the tenant gave;

• Efforts made by the landlord to mitigate the loss (e.g., advertising quickly);

• Common industry practice in similar situations.

In essence, a fee aligned with actual loss and not used to punish the tenant, will generally meet the CPA’s test of reasonableness.

Best Practice: Communicate and Cooperate

The most effective way to avoid costly disputes is open communication. Many disagreements are resolved amicably once both parties understand their legal rights and responsibilities.

For tenants:

• Notify your landlord as early as possible if you intend to vacate;

• Keep written records of all communications.

For landlords:

• Re-list the property promptly upon receiving notice;

• Cooperate with the tenant to minimise financial loss.

In many cases, parties find a workable solution, such as extending the lease until a new tenant is secured, which avoids the need for any cancellation fee altogether