In terms of the new Consumer Protection 68 of 2008 (the Act), an agreement that is stipulated to endure for a particular amount of time is called a 'fixed term agreement', and the agreement therefore is regulated by the provisions of the Act.
Are there examples of a fixed term agreement?
The easiest example of a fixed term agreement is a cellphone contract. Most cellphone contracts are taken out for a period of 2 years (24 months), and as such they are fixed term agreements.
What does this mean for a consumer?
The Act accordingly provides consumers with the right to choose, which right includes (where the consumer is an individual as opposed to a company), the choice to terminate a fixed term agreement.
The right to terminate a fixed term agreement does not require explanation or reason on cancellation by the consumer. The consumer is entitled to cancel a fixed term agreement, either at the expiry thereof without penalty, or at any other time on 20 business days' written notice to the supplier. Notwithstanding the cancellation, all amounts owed to the supplier as at the date of termination must be paid in full.
The supplier is however entitled to charge a 'reasonable' cancellation fee, if the consumer elects to cancel the fixed term agreement, the reasonableness thereof needing to take into account the following:- the amount which the consumer is still liable for to the supply up to the date of cancellation- the value of the transaction up to cancellation- the value of the goods which will remain in the possession of the consumer after cancellation- the value of the goods that are returned to the supplier- the duration of the consumer agreement as initially agreed- the losses suffered or benefits accrued by a consumer as a result of the consumer entering into the consumer agreement- the nature of the goods or services that were reserved or booked- the length of notice of cancellation provided by the consumer- the reasonable potential for the service provider, acting diligently, to find an alternative consumer between a time of receiving the cancellation notice and the time of the cancelled reservation- the general practice of the relevant industry
The supplier's right of determination is not unlimited and the supplier must refrain from levying a charge which would have the effect of negating the consumer's right to cancel a fixed term consumer agreement as afforded by the Act.
The Act has limited retrospective effect and will only apply to certain pre-existing fixed term agreements. Therefore, the Act will apply only to an agreement concluded before 31 March 2011 which will expire after 31 March 2013.
Can a supplier cancel a fixed term agreement?
A supplier is not without rights in terms of cancellation of a fixed term agreement with an individual consumer, however, there must have been a material failure by the consumer to comply with the agreement and the supplier must first have given the consumer notice of the failure and allowed for 20 business days within which the failure could be rectified. If the 20 business day period passes and the consumer has not rectified the failure, then the supplier may cancel the fixed term agreement.