CPA changing the leasing landscape

Viaan Wolhuter, Managing Director at Aximo.

While the CPA (Consumer Protection Act) is setting a new precedent in consumer rights, it will have a dramatic effect on the playing field for property owners.

Viaan Wolhuter, Managing Director at Aximo, leading legal experts in retail property management, says, “One of the major concerns with the CPA is that individuals can effectively exit lease agreements with a 20 business day notice period. 

“This is a concern for most landlords, particularly those within the retail sector because it exposes those properties to a higher risk factor and negatively impacts on the capitalisation/discount rate used to value the property creating a dilution of the asset’s value. Short-term lease agreements make it difficult to predict revenue streams making it that much harder for property owners to seek further investment from the banking sector.

“The CPA has no preceding case law, making accurate prediction and outcome of legal matters relating to lease agreements tough to determine, but it will change the nature of how lease agreements between retailers and tenants will be handled. In order to secure their investments we see landlords pursuing safer options and entering into agreements with businesses rather than private individuals.”

Before, landlords were willing to invest in private businesses, assisting new tenants financially. Often these tenants would get assistance in the form of money or renovation assistance for new shop space, commonly known as a ‘Tenant Installation Allowance’, which the landlord could justify on the back of a long term lease from the tenant. Now landlords might be less willing to take the risk, leaving these small businesses vulnerable.  

Marc Zlotnick, Managing Director at Forsite, a professional company specialising in property leasing, expansion strategies and new market penetration for retail clients says “The variety of stores in shopping centres might shrink as centre owners could shy away from entering lease agreements with natural persons because the risk factor is just too high. While this might not necessarily affect larger national centres, it might have an adverse effect on smaller consumer centres where family run businesses are more prevalent.” 

The question whether the CPA ‘forces’ landlords to conclude agreements with individuals came under the spotlight because of the concerns raised above, this is according to Gideon Pretorius of Gideon Pretorius Inc., a national law firm specialising in advice to retail property owners, investors and managing agents.

Can the legislation force you to do business to your own demise or prejudice?  Although the matter will have to be settled by court if referred there, Mr Pretorius is of the view that if real prejudice is shown, landlords may very well be entitled to refuse to transact with individuals.  Mr Pretorius also stated that “Some projects may simply not be viable, also taking into account adverse lending provisions, should the risks of individual leases be too high.”