Last month, we wrote about the Beadica-case, where the court condoned the late exercising of an option to renew a lease agreement, based on the principle of ubuntu (a person is a person through other people), in that the court was of the view that it would be unjust to demand strict compliance with the terms of the agreement, due to the facts of the matter. Two very recent decisions of the Supreme Court of Appeal (“SCA”) has turned that decision on its head – which is good news for landlords and contracting parties in general.
In the first case, Roazar CC v The Falls Supermarket CC, the tenant contended that it had validly exercised an option to renew, by giving notice of its intention to renew the lease agreement, albeit it that the formal notice was late. The landlord refused to negotiate with the tenant, and demand that it vacates the premises. When the tenant refused to do so, it approached the court for the tenant’s eviction. The tenant argued that the landlord had a duty to negotiate the renewal lease terms in good faith, and that, accordingly, the court ought to refuse the eviction, and ought to order the landlord to renew the lease on proper commercial terms. The high court refused the eviction, but the landlord appealed to the SCA.
The court held that, unless the contract to be renewed contains a proper method for breaking a deadlock during the renewal negotiations, there is no duty on a party to negotiate in good faith. The court made the following two very important statements: “It would be against public policy to coerce a lessor to conclude an agreement with a tenant whom it does not want as a tenant any longer.” The other statement was “It is difficult to conceive how a court, in a purely business transaction, can rely on ‘ubuntu’ to import a term that was not intended by the parties.” As a result, on appeal, the eviction order was granted.
The second case is the matter of Mohamed’s Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests (Pty) Ltd. This matter has a slightly different set of facts: it concerned a cancellation of a lease agreement due to non-payment of rent, as a result of a bank error. The facts were that Southern Sun had leased certain property from Mohamed’s for the operation of a well-known hotel. The relationship had endured in excess of 30 years, and over a number of successive lease agreements. The current lease agreement provided for payment of rent on the seventh day of the month, and contained the usual provision for late payment – the landlord was entitled to cancel the lease on late payment of rent. The tenant had used, at all relevant times, Nedbank, its bankers, to effect payment. In June 2014, due to a bank error, which Nedbank admitted, payment was not done timeously. The landlord delivered a written letter of demand, demanding payment, and advising that future non-payment would result in cancellation of the lease. The tenant, and Nedbank, remedied the breach timeously. In July, August and September, the tenant monitored its bank accounts, to ensure that the error did not repeat itself. On 6 October, the rentals were deducted from the tenant’s bank account by Nedbank, but, due to an error, it failed to pay same to the landlord on the next day. As a result of this non-payment, the landlord cancelled the lease, and subsequently sought the tenant’s eviction from the leased premises.
In the High Court, the court refused the eviction application, and held that the common law principle of pacta sunt servanda (contracts must be honoured) ought to be developed by importing the principles of ubuntu and fairness. It held that it was unfair to visit the bank’s error on the tenant, and consequently was of the view that the strict terms of the agreement ought not to be enforced.
On appeal by the landlord, the SCA overturned the decision of the High Court, and held that the Constitution requires of parties to honour contractual obligations which they freely and voluntarily undertook. The court stated the following: “The fact that a term in a contract is unfair or may operate harshly does not by itself lead to the conclusion that it offends the values of the Constitution or is against public policy.”
There is therefore, at last, some good authority for landlords to rely on when they wish to strictly enforce certain contractual terms. These two judgments will bring more certainty, and will hopefully help to dispel attempts by tenants to remain in occupation of leased premises where they have no right to do so.