The Consumer Protection Act stipulates that fixed term agreements are contracts of a definite duration. Cellular phone contracts, gym contracts, armed response / security contracts, educational institution contracts and property leases are all examples of fixed term agreements.
Section 14 of the Consumer Protection Act dealing with the expiry and renewal of fixed term agreements does NOT apply to agreements entered into between juristic persons, irrespective of their turnover or asset value. (This is likely to exclude application of the Section 14 provisions for most, if not all, commercial lease agreements.) A juristic person is defined as a body corporate (company, close corporation, etc.), a partnership or association or a trust as defined in the Trust Property Act, 57 of 1988. Please note that a sole proprietorship is NOT a juristic person. The rules relating to fixed term agreements thus only apply where a natural person (including a sole proprietorship) is the subject of such an agreement.
The Act provides that fixed-term consumer agreements must not exceed a certain maximum period. The regulations currently prescribe 24 months from the date of the consumer’s signature as the maximum period, unless such longer period is expressly agreed with the consumer and the supplier can show a demonstrable financial benefit to the consumer. The Act also empowers the Minister to prescribe different maximum periods for different categories of agreements by way of regulation or as provided for in approved industry codes.
A consumer may cancel such an agreement before the agreed expiry date by giving the supplier 20 business days written notice.No reasons for the cancellation are required. A supplier may also terminate the agreement prior to the expiry date if the consumer fails to remedy a material breach on his part, after having been placed on 20 business days terms to do so. Consumers should make use of the form contained in Annexure B of the Regulations when giving notice of early cancellation to a supplier.
Where an agreement is cancelled by either the consumer or supplier in terms of the above:
- the consumer remains liable to the supplier for amounts owed up to the date of cancellation [airtime used]; and
- the supplier may impose a reasonable penalty or charge for any goods supplied, services provided or discounts granted to the consumer in contemplation of the agreement running for its intended fixed term [discounted or free cellular phone]; and
- the supplier must credit the consumer with any amounts that remains the property of the consumer as of the date of cancellation [prepaid and unused airtime].
The following must be considered by the supplier in determining the reasonable cancellation charge or penalty:
- the amount which the consumer is still liable for to the supplier up to the date of cancellation;
- the value of the transaction up to cancellation;
- the value of the goods which will remain in the possession of the consumer after cancellation;
- the value of the goods that are returned to the supplier;
- the duration of the consumer agreement as initially agreed;
- losses suffered by or benefits accrued to the consumer as a result of the consumer entering into the agreement;
- the nature of the goods or services;
- the length of notice of cancellation provided by the consumer;
- the reasonable potential for the service provider, acting diligently, to find an alternative consumer; and
- the general practice of the relevant industry.
Notwithstanding the above, the cancellation charge may not have the effect of negating the consumer’s right to cancel a fixed term agreement. In other words, the regulations specifically prohibit charging a consumer the full amount owing in respect of the remainder of the contract.