Fixed-term contracts are contracts of a definite duration as envisaged in the Consumer Protection Act (the Act). Section 14 of the Act is concerned with the expiry and renewal of fixed-term agreements and specifies that the section does not apply to agreements entered into between juristic persons, regardless of their turnover or asset value.
Juristic persons include body corporates, associations or partnerships or trusts as envisaged in the Trust Property Act. It is however noteworthy that sole proprietorships are not juristic persons. Effectively, the law relating to fixed-term agreements thus only operates where a natural person (including a sole proprietorship) is the subject of such an agreement.
In keeping with the Act a fixed-term agreement must not exceed the maximum period stated in the regulations, which currently stands at 24 months from the date of signature by the consumer.
This 24 month period is however subject to an express agreement to a longer period entered into between the consumer and supplier which can show a verifiable financial benefit to the consumer.
In terms of cancellation, the Act states that regardless of any provision of the consumer agreement to the contrary the consumer may cancel that agreement upon the expiry of its fixed-term, without penalty or charge.
In addition, the consumer may otherwise cancel the agreement by giving the supplier 20 business days’ notice in writing or in another recorded manner and form. This is absolute, and does not envisage any other form of notice such as an oral notice.
The supplier must then credit the consumer with any amount that remains the property of the consumer as of the date of cancellation. The consumer nevertheless remains liable for any amounts owed to the supplier up to the date of cancellation.
The supplier may also impose a reasonable cancellation penalty regarding any goods supplied, services provided, or discounts granted to the consumer in contemplation of the agreement enduring for its anticipated fixed-term.
It is particularly noteworthy that the supplier may not charge a cancellation fee which would have the effect of negating the consumer’s right to cancel a fixed-term consumer agreement. This means that a supplier may not charge a cancellation fee which renders cancellation of the contract more of a financial burden than a reprieve from the contract.
On the other hand, the supplier may cancel the agreement 20 business days after giving written notice to the consumer of a material failure by the consumer to comply with the agreement, unless the consumer manages to rectify the failure within that time. This also applies regardless of any provision to the contrary contained in the consumer agreement.
On the expiry of the fixed term of the consumer agreement, it will be automatically continued on a month-to-month basis, unless the consumer expressly directs the supplier to terminate the agreement on the expiry date or agrees to a renewal of the agreement for a further fixed term.
Suppliers are required to give notice of the imminent expiry date as well as material changes to the contract not more than 80 days and not less than 40 business days before the date of expiry of such a contract.
Despite welcome protection in favour of the consumer, it would have been helpful for the Regulations to the Act to stipulate a maximum cancellation penalty couched as a percentage of the remaining payments rather than the stipulated ‘reasonable cancellation fee’ which leaves the current position open to abuse.
Written by Molisa Cheda.