SELLING A TENANTED PROPERTY IS NO FAIRY TALE

SELLING A TENANTED PROPERTY IS NO FAIRY TALE

We asked STBB Attorneys to give us some property advise. The only guideline that we gave them was that it should answer some questions that property buyers frequently ask. So here is your answer when buying a property with a tenant or two.

“Goldilocks and the Three Tenants”

 Once upon a time…    

Once upon a time, Goldilocks met a charming Anna Basson agent, who introduced her to a perfect little cottage in a pleasant neighbourhood, with excellent prospects of capital growth on investment.  She instantly fell in love with the handsome agent and adorable cottage and the agreement was signed in a flurry of fairy tale excitement.  But as registration of transfer drew closer and her excitement to move into her new dwelling grew, she had a rude awakening of the sort that threatened to interfere with her “happily ever after”.  There, in her perfect little cottage, she found three bowls of porridge, three chairs, three beds and alas, three tenants! Not only were the tenants planning on finishing their porridge, but also finishing their lease period of another year.

What does the law say about this fairytale gone sour?

A seller must take careful consideration when thinking of selling his/her tenanted property.  Should the tenant refuse to vacate as he/she is still entitled to reside in the property under a lease agreement, the only way of getting that tenant out would be to bring an application to a Court of Law for his/her eviction.

Firstly, the Lease Agreement should be considered to determine what is provided for in terms of notification from either side.  If the tenant is not in breach and the agreement is valid, he/she will have a legal defence against the eviction application and the prospects of obtaining an eviction order will be highly unlikely. This legal defence is known in our Common Law as “huur gaat voor koop” and the maxim is aimed at protecting the rights of a tenant under a lease agreement where the property is being sold and the lease has not yet expired. In terms thereof, the tenant will be entitled to exercise his right to remain in the property until the lease expires.

By implication, the lease agreement will take precedent over an agreement of sale and a Purchaser will only be able to move into his newly bought property after the Tenant’s lease has expired.

In terms of ownership, the purchaser effectively steps into the shoes of the seller/previous landlord and acquires all the rights and obligations under the existing lease.  No cession of rights or assignment of obligations is required and no new lease agreement needs to be concluded.  The purchaser is bound to the lease agreement, regardless of whether he/she is aware of the existing lease agreement or is keen on having a tenant at all.

Similarly, where a lease agreement has been extended, the terms of said lease agreement continues as contained in the main lease agreement unless specifically excluded by the extension.

In Mokone v Tassos CC and Another [2017] ZACC 25 (“Mokone”) the court examined whether the right of pre-emption (“first refusal”) contained in the written lease agreement was renewed when the lease was extended by way of endorsement.

The Constitutional Court disregarded the fact that the right of pre-emption did not meet the necessary validity requirements.   Instead, the Court gave preference to the intention of the parties, being lay-persons, that the lease agreement and all collateral terms thereof, continues for the extended period of the lease unless specifically excluded by the parties.

Happily ever after?

The purchaser is therefore bound, not only to the lease agreement but also to any extension thereof as concluded by the former landlord.  Goldilocks will, therefore, have to wait another year to move in and start her happily ever after, in her perfect little cottage – with no tenants.

In practice, it is advisable to landlords who intend to sell their investment property in the foreseeable future, to include a sale provision in the lease agreement.   In terms of the sale provision, the parties acknowledge that the landlord intends to sell the property and upon concluding a sale agreement, the lease may be cancelled after due and reasonable notice to the tenant.

Leave a Comment

Your email address will not be published. Required fields are marked *