by Pako Mekute | Associate | Mooney Ford Attorneys
Lease Agreements are contracts entered into between two parties (the landlord and the tenant) for the rental of a property. The purpose of entering into such an agreement is vital in protecting both the Tenant and Landlord’s rights in terms of the agreement and further ensuring that the terms thereof are recorded so as to avoid any uncertainty.
Although lease agreements, the terms thereof and the applicable laws vary depending on the relevant situation, one factor that always rears its head when concluding these agreements and the performance thereof is that of human nature. Misunderstandings can occur between parties when there is no proper understanding of the terms of such agreements and the implications thereof. One such instance is when a Landlord sells the leased property to a third party during the subsistence of a lease agreement with a Tenant. In this instance, the principle “huur gaat voor koop” is applicable.
The Roman-Dutch principle of huur gaat voor koop has been accepted as forming part of the legal framework in South Africa. In essence, the above principle states that the lease agreement takes precedence of the actual sale. This has the effect of protecting a Tenant in ensuring that the lease agreement between a Tenant and Landlord is honoured in an instance where the sale of the immovable property inhabited is concluded and ownership rights are passed over to a new party.
As stated above, the fact that the principle of huur gaat voor koop is recognised in South Africa does not mean that there are no issues surrounding its application in realworld situations. The protections afforded by this principle can sometimes be incorrectly relied on by either Tenant or Landlord due to a lack of understanding of the rule itself.
The Supreme Court of Appeal grappled with this very issue in the case of Genna-Wae Properties (Pty) Ltd v Medio-Tronics (Natal) (Pty) Ltd.
Facts of the Case:
The Respondent entered into a written agreement of lease with a certain close corporation on the 23rd of August 1991 for a period of 3 years. During the subsistence of the lease, ownership passed over to the Appellant as a result of an agreement of purchase and sale being concluded. Subsequent to the sale, the Appellant notified the Respondent of the change in ownership and its intention to honour the lease, to which the Respondent replied to by informing the Appellant that it did not wish to continue with the lease agreement citing its right of election consequent to the change of ownership.
The Appellant was of the position that no such right existed therefore prompting the institution of legal proceedings whereby it was prayed that the Respondent abide by the terms of the pre-existing lease agreement. The court a quo ruled in favour of the Respondent and agreed that there indeed was a right of election on the part of the Respondent which was properly exercised by notifying the Appellant of its wish to not continue with the lease agreement. On appeal, the Court had to consider the above issue and whether the Respondent indeed had this right and could thus exercise same.
The Court’s Ruling:
The Honourable Corbett J found in favour of the Appellant, stating that alienation of leased property consisting of land or buildings in pursuance of a contract of sale does not bring the lease to an end. Furthermore, the new owner of the property is substituted ex lege for the original landlord under the lease. As a result of the above, the new landlord, being the Appellant is obliged to recognize the lease and permit the Respondent to continue to occupy the leased property provided that the Respondent continues to comply with the terms of the lease agreement. This, in turn, also binds the Respondent as tenant provided that the Appellant recognised the Respondent’s rights in terms of the lease. The Honourable Corbett J further went to confirm that the “so-called” election to resile from a lease agreement as a result of the sale of the property is not recognised in this regard and would only be so in a situation where the new landlord attempts to eject the tenant contrary to the lease terms.
In light of the above, the Supreme Court made an order setting aside the order of the court a quo and declaring that the lease agreement entered into between the Respondent and previous owner of the leased property was of full force and effect and was binding on the Applicant and Respondent upon transfer of the leased property.
There has been many a debate on the implications of the huur gaat voor koop principle and how it applies to our law, but this case has provided clarity as to its interpretation and furthermore, the powers available to parties to a lease agreement in this situation.
Consequences of the Huur Gaat Voor Koop principle
As stated above, huur gaat voor koop is a principle put in place to protect Tenants from Landlords that do not wish to honour a pre-existing lease agreement subsequent to the sale of a leased agreement. This does not mean that a Tenant has the right to unilaterally renege on a lease agreement in this regard. Equally so, the Landlord is provided protection to ensure that all rights acquired by him in a sale are recognised and enforced.
It should be further noted however, that the principle protects parties to a lease agreement only to the extant that it relates to the rights and responsibilities conferred on each party according to that agreement and goes no further. This means that where a property sold was subject to a lease, the purchaser is automatically substituted in as the landlord under the lease agreement and no cession of rights is required save for any collateral rights not connected with the lease.
Conclusion
When seeking to rely on the principle of huur gaat voor koop, it is imperative that the party seeking to rely on it establishes whether the right relied on is material to the Tenant’s right to occupation of that property. When making this consideration, it is clear that the Court in the Genna-Wae case correctly concluded that the Respondent’s purported right to election was misplaced as there was no such right in a situation where the Landlord complied with the terms of the pre-existing lease agreement. The Genna-Wae case serves to provide clarity in this situation for both Landlords and Tenants and further solidifies the necessity of the huur gaat voor koop principle in South Africa.
Photo by Hardik Pandya on Unsplash
