Lease Agreement Red Flags

10 Clauses That Could Sink Your Property Investment.

“These invisible clauses cost one Potchefstroom buyer R500,000 in lost rent—don’t let it happen to you.”

Buying a tenanted property in South Africa is like navigating a legal minefield. While lease agreements might appear routine, hidden clauses can make your investment a financial disaster. Under South African law, ignorance of these terms is no defence.

Here are 10 red flags to watch for—and how to protect yourself.

1. Automatic Renewal Clauses

What’s Dangerous:

A clause stating the lease renews automatically unless terminated by the tenant (e.g., “renews indefinitely unless 90 days’ notice is given”).

Real-World Example:

A Potchefstroom buyer inherited a commercial lease that auto-renewed for 5-year terms. The tenant paid 30% below market rent, costing the owner R500,000 in lost income over a decade.

Legal Reference:

The Consumer Protection Act (CPA) allows tenants to cancel fixed-term leases with 20 business days’ notice (Section 14), but landlords lack equal power if the lease is poorly drafted.

Tip:

Insist on a termination window that applies to both parties.

2. Below-Market Rent Caps

What’s Dangerous:

A clause freezing rent increases below inflation (e.g., “annual increases capped at 3%”).

Real-World Example:

A Pretoria landlord discovered their inherited lease limited rent hikes to 5% annually—half the current inflation rate—slashing projected income by 40%.

Legal Reference:

While the Rental Housing Act permits negotiated increases, courts may void “unconscionable” terms under the CPA (Section 40).

Tip:

Demand a market-linked escalation clause (e.g., CPI + 2%).

3. Triple Net (NNN) Leases

What’s Dangerous:

Tenants pay “net” costs like property taxes, insurance, and maintenance, common in commercial leases.

Real-World Example:

A Cape Town buyer inherited a NNN lease where the tenant skipped municipal payments, leaving the owner with R200,000 in arrears and interest.

Legal Reference:

The Alienation of Land Act requires annexing leases to the sale agreement. If omitted, the buyer can void the contract.

Tip:

Verify municipal accounts are up-to-date before transfer.

4. Indefinite Occupancy Rights

What’s Dangerous:

Phrases like “tenant may occupy until termination by mutual agreement.”

Real-World Example:

A Johannesburg buyer couldn’t evict a tenant whose lease converted to “month-to-month” indefinitely. Eviction took 18 months and R80,000 in legal fees.

Legal Reference:

The Rental Housing Act permits indefinite occupancy if no fixed term exists, forcing landlords to follow lengthy court processes for eviction.

Tip:

Ensure leases have fixed end dates.

5. Maintenance Responsibility Shifts

What’s Dangerous:

Clauses making landlords responsible for minor repairs (e.g., “owner covers all plumbing costs”).

Real-World Example:

A Port Elizabeth owner paid R45,000 for tenant-caused geyser damage because the lease didn’t specify tenant liability.

Legal Reference:

The CPA (Section 51) allows tenants to demand repairs, but leases can assign responsibility for tenant negligence.

Tip:

Clarify “wear and tear” vs “tenant liability” in writing.

6. Unrestricted Subletting Rights

What’s Dangerous:

Tenants can sublet without landlord approval.

Real-World Example:

A Bloemfontein homeowner found her property illegally converted into a backpackers’ lodge, violating zoning laws.

Legal Reference:

The Rental Housing Act requires landlord consent for subletting—unless waived in the lease.

Tip:

Add: “Subletting requires prior written consent.”

7. Early Termination Penalties

What’s Dangerous:

Tenants can exit early with minimal penalties, leaving you with vacancies.

Real-World Example:

A Nelspruit landlord lost 8 months’ rent when a tenant invoked a clause allowing exit with 1 month’s notice and R5,000 penalty.

Legal Reference:

The CPA permits tenants to exit fixed-term leases early (Section 14), but penalties must be “reasonable” (Section 15).

Tip:

Tie penalties to actual losses (e.g., 3 months’ rent).

8. Exclusive Use Overreach

What’s Dangerous:

Tenants claim exclusive rights to amenities like parking or storage.

Real-World Example:

A Durbanville complex lost 20% of its value when a tenant’s “exclusive parking” clause blocked visitor access.

Legal Reference:

The Sectional Titles Act prohibits exclusive use unless registered—unenforceable if not legally recorded.

Tip:

Audit title deeds for exclusive use rights.

9. Verbal Amendment Permissions

What’s Dangerous:

“Verbal agreements may amend this lease.”

Real-World Example:

A seller’s undocumented promise to reduce rent led to a R300,000 dispute.

Legal Reference:

The Alienation of Land Act requires lease amendments to be in writing.

Tip:

Add: “No oral modifications are valid.”

10. Missing Municipal Compliance Clauses

What’s Dangerous:

No tenant obligation to comply with bylaws (e.g., noise, waste).

Real-World Example:

A Cape Town landlord faced fines when tenants ran an illegal car workshop.

Legal Reference:

Leases must align with the Municipal Systems Act (Section 118).

Tip:

Include: “Tenant must comply with all municipal laws.”

The Bottom Line

South African law grants buyers the right to scrutinise leases upfront (CPA Section 9). Use a property attorney to dissect every clause and annexe the lease to your OTP (Alienation of Land Act Section 2). As seen in Odendaal v Ferraris, courts side with buyers when sellers hide material terms.

Don’t gamble on ignorance. That “bargain” property could cost you six figures in invisible traps.

Disclaimer: This article is for informational purposes only. Consult a qualified property attorney before signing any agreement.

Here are the key South African laws referenced in the article, with official sources for further reading:

1. Consumer Protection Act (CPA), 2008 (Act 68 of 2008)

• Relevant Sections:
  • Section 9: Right to information and fair contracting
  • Section 14: Early termination of fixed-term leases by tenants
  • Section 15: Reasonableness of penalties
  • Section 40/41: Unconscionable conduct and disclosure requirements
• Source:
• Full CPA Text (SA Government)

2. Rental Housing Act, 1999 (Act 50 of 1999)

• Relevance: Governs tenant-landlord relationships, rent increases, and eviction procedures.
• Source:
• Rental Housing Act (SAFLII)

3. Alienation of Land Act, 1981 (Act 68 of 1981)

• Key Provision:
  • Section 2(1): Requirement to annexe material documents (e.g., leases) to sale agreements.
• Source:
• Alienation of Land Act (Law Library of SA)

4. Municipal Systems Act, 2000 (Act 32 of 2000)

• Relevance: Compliance with municipal bylaws (e.g., zoning, utilities).
• Source:
• Municipal Systems Act (SA Government)

5. Sectional Titles Act, 1986 (Act 95 of 1986)

• Relevance: Rules for exclusive use areas (e.g., parking) in sectional title schemes.
• Source:
• Sectional Titles Act (SAFLII)

6. Property Practitioners Act, 2019 (Act 22 of 2019)

• Relevance: Regulates estate agents’ duty to disclose material facts (e.g., lease terms).
• Source:
• Property Practitioners Act (PPRA)

Case Law

• Odendaal v Ferraris (2009): Precedent on disclosure of material lease terms.
• Source:
• SAFLII Case Law Database

Additional Resources

1. Law Library of South Africa:
2. lawlibrary.org.za
3. SA Legislation Portal:
4. www.gov.za/documents
5. Property Practitioners Regulatory Authority (PPRA):
6. www.theppra.org.za

Note: Some links direct you to portals where you can search for specific sections. For full legal certainty, consult a property attorney or access hard copies via the Government Gazette.