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How to cancel your fixed-term contract in terms of the CPA

7th August 2012

By: Creamer Media Reporter

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Section 14 of the Consumer Protection Act 68 of 2008 (the “CPA”) limits the duration of a fixed term agreement to 24 (twenty four) months. However, unlike many other provisions of the CPA, section 14 of the CPA does not apply to transactions between juristic persons; to transactions where the consumer is a juristic person (irrespective of their annual turnover) or to transactions with Banks . This section supersedes any clause to the contrary in a consumer agreement and applies retrospectively.

Within the scope of section 14 a consumer is entitled to cancel a consumer agreement upon its expiry of its fixed terms without any penalty or charge or at any other time with 20 (twenty) business days’ notice to the supplier. The form of the notice has been provided in Annexure B to the Regulations of the Act. Similarly the supplier may cancel the consumer agreement with 20 (twenty) business days’ notice to the consumer upon the consumers material failure to comply with the consumer agreement (unless the consumer has rectified same). The supplier is further required to give notice to the consumer of the impending expiry not more than 80 (eighty) and not less than 40 (forty) business days prior to the expiry thereof. This notice must include any material changes that would apply if renewed and all the options available to the consumer. On the expiry of the fixed term agreement the consumer agreement will continue on a month to month basis subject to any material changes unless the consumer has expressly stated to the contrary.

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It is however important to note that upon cancellation of the consumer agreement, the consumer remains liable to the supplier for any amounts owed to the supplier up to date of the cancellation. In addition thereto the supplier may impose a “reasonable cancellation penalty” on the consumer based on various factors determined by the Minister.

Regulation 5 determines the maximum period for fixed term agreements as mentioned above being 24 (twenty four) months. Prior to the Regulations being effected there was a common assumption that a reasonable cancellation fee would be 10% of the value of the remainder of the consumer agreement, however it is important to note that the Regulations have since prescribed guidelines of a “reasonable cancellation penalty” and the following factors should be taken into account when determining such reasonable penalty:

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(a) the amount which the consumer is still liable for to the supplier up to the date of cancellation;
(b) the value of the transaction up to the date of cancellation;
(c) the value of the goods which will remain in the possession of the consumer after date of cancellation;
(d) the value of the goods that are returned to the supplier;
(e) the duration of the consumer agreement as initially agreed;
(f) losses suffered or benefits accrued by the consumer as a result of the consumer entering into the consumer agreement;
(g) the nature of the goods or services that were reserved or booked;
(h) the length of notice of cancellation provided by the consumer;
(i) the reasonable potential for the service provider, acting diligently, to find an alternative consumer between the time of receiving the cancellation notice and the time of the cancelled reservation; and
(j) the general practice of the relevant industry.

Notwithstanding the above criteria the Regulations further provide that the supplier cannot charge the consumer a penalty fee that would negate their right to cancel the fixed term agreement. The above criteria have not been tested yet and it will be important to observe the manner in which the above factors are interpreted practically by our Courts.

We hope the above is of interest to you.

Written and prepared by: Lauren Hastie, email Lauren@bkm.co.za
BOUWER KOBELI MORABE

Please do not hesitate to contact us on +27 11 788-0083 should you have any further enquiries or email enquiries@bkm.co.za.

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