When it comes to residential leases, the "right" answer matters less than understanding why the answer is what it is. Below is a concise guide to the legal framework, followed by some practical pointers for both landlords and tenants.
Does the lease fall under the Consumer Protection Act (CPA)?
The CPA protects consumers where there is unequal bargaining power. A residential lease qualifies as a "service" and, if it is for a fixed term, as afixed-term contract.
However, the CPA applies only if:
- the landlord leases the property in the ordinary course of business (i.e. as a regular commercial activity), and
- the tenant is a natural person.
If, for example, a private homeowner rents out a single flat occasionally, the CPA will not apply.
How long may a fixed-term lease run?
Under the CPA a fixed-term consumer agreement may not exceed 24 months, unless the parties agree – in writing – to a longer period and the landlord can show a good commercial reason. In practice, most leases are capped at two years, after which they can be renewed by addendum.
How may a tenant cancel early?
Section 14 of the CPA lets a tenant terminate a fixed-term lease on 20 business days' written notice. That notice period is minimum, not maximum. If both sides prefer three months' notice, that is perfectly lawful – the key is that the period cannot be shorter than 20 business days.
Is the landlord's "early-cancellation fee" a penalty?
Strictly speaking, no. The CPA allows a landlord to levy a "reasonable cancellation penalty" to cover losses caused by early termination. To decide what is reasonable, the Regulations direct us to consider, among other things:
- Outstanding liability at the date of cancellation (e.g. was the lease ended in month 1 or month 20 of 24?).
- Initial term agreed by the parties.
- Nature of the service and likelihood of reletting the property swiftly.
- Length of the tenant's notice (was it the full 20 business days—or more?).
- Steps the landlord took to limit loss, such as advertising the property promptly.
- Industry practice for comparable rentals.
A fee that merely recoups actual, unavoidable loss will almost always be viewed as "reasonable"; a fee that looks punitive will not.
Our practical recommendation
Talk early and often. Most rental disputes resolve amicably once both sides understand their rights and obligations.
- Tenants: Give as much notice as you can and keep records of all correspondence.
- Landlords: Act quickly to re-advertise the property; doing so limits your loss and strengthens your case for any cancellation fee.
In many matters we see, the parties agree to extend the notice period until a new tenant is found, eliminating the need for a cancellation fee altogether.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
