Let me guess… It is May and your new year’s resolution of going to the gym is not taking off? Especially not after this long weekend. But, you took out a two-year gym membership… Or you threatened to cancel your child’s cell phone contract should his marks not improve – and it has not. What to do? Can you cancel a fixed term contract?

 

What does the law say about fixed term contracts?

A fixed-term agreement is an agreement that comes into existence and operates for a defined period.  Agreements of this nature will, once concluded, continue to operate for a certain defined period of time, at which point they terminate in their ordinary course.  The relevant legislation here is the Consumer Protection Act (the “CPA”), which protects you – the consumer.

Firstly, Regulation 5 of the CPA provides for a fixed-term contract to be a maximum period of 2 years. The parties can however agree on a longer period should it be beneficial for both parties.

Secondly, in terms of section 14 of the CPA, a consumer can give a supplier “20 business days’ notice in writing” to cancel a contract. This will however, be subject to a “reasonable cancellation penalty”, taking into account certain criteria. Individuals therefor gets protection from the CPA in that a supplier can no longer hold them to the full length of the fixed term contract.

CPA Excluding Juristic Persons

The protection and benefits afforded to individuals in Section 14 of the CPA, however do not extend to juristic person-consumers.  A juristic person includes a company, close corporation, a partnership, an association and a trust.

The reasoning behind the exclusion of juristic persons may be that a juristic person does not need the protection that we would want to afford to vulnerable natural persons as consumers. A juristic person will also probably be in a better bargaining position than a natural person.

So, where does this leave a juristic person having concluded a lease agreement, cellphone contract or a rental agreement for a printer/copier?

If a juristic person concluded a fixed term contract and want to terminate pre-maturely, one will firstly have to look at the contract. If there is no clause dealing with early termination, we fall back on general contract law. In terms of our contract law, a juristic person does not have an option to terminate before the contract’s expiry.  The common law principle caveat subscriptor  entails that when an agreement is reduced to writing and signed by the parties, they are bound to its terms as signature signifies assent thereto.

Possible Escape?

In some circumstances, section 14(c), may offer an escape route for juristic persons. This subsection includes an “end user” as a consumer in terms of the act, even if that user is not a party to the contract. Therefore, if a juristic person concludes a fixed-term contract, but the user is going to be a natural person, the natural person will be seen as the consumer, and not the juristic person. This means that the contract was concluded for the use of and/or benefit of the natural person. By way of an example: If a company (the juristic person), enters into a cell phone contract for one of its employees, the contract will be between the company and the cell phone company. The end user will be the employee – a natural person. The end user is defined as a consumer and therefor the employee will be able to give 20 business days’ notice to terminate the contract.

Conclusion

Seeing that juristic persons are excluded from the protection of the 20 business days’ notice period, the contract will have to be adhered to. If the contract does not provide for early termination, it may be argued that no early termination is possible. Therefor it is so important to have a legal professional go through your fixed term contract before signing one.

You are welcome to contact us for all your contractual requirements.