Option to purchase clause in lease agreement south africa
The Right of First Offer gives the Tenant the right to make an offer on the property in question before any other parties. The Right of First Refusal allows the Tenant to wait until all offers are in and then match the highest offer. First Offer gives the Landlord the right to accept or reject the offer and entertain other offers later. First Refusal gives the Tenant the upperhand by letting them see all offers before making their own and potentially discouraging other bidders in the first place.
Parties generally do not bother bidding when "they know that another bidder is simply waiting in the wings to match the offer.
Right of First Offer vs. Right of First Refusal. From the perspective of the Landlord, a First Offer clause may allow the Landlord to avoid many of the transaction costs involved in the sale, including lawyers, advisers, and accountants. The short response periods featured in Right of First Offer clauses may not realistically allow a Tenant adequate time to make the decision to purchase or rent the additional space; such an undertaking would involve a major capital transaction, and the protracted time period would leave the Tenant with little control over the deal.
Courts, such as in Spatz v. The discretionary powers vested in mortgagees in terms of mortgage bonds conferring upon the mortgagees the right unilaterally to increase the original rate of interest payable by the mortgagor must therefore be subject to the aforesaid inherent limitation.
Such a provision in a mortgage bond is therefore valid. In this case, in Van Heerden DCJ's obiter dictum , he noted that it is conceivable, albeit unlikely, that a stipulation may be so worded that an absolute discretion to fix a prestation is conferred on one of the parties. In these circumstances, it is unnecessary to express a view as to whether such a stipulation will be invalid as being in conflict with public policy, or whether the fixing of the prestation may only be assailed when it is done in bad faith.
See also the case of Benlou Properties v Vector Graphics. The main source of the rules pertaining to the contract of lease is the common law, as modified by the Constitution, and the rules creating statutory naturalia. Note the case of Pete's Warehousing , noted above.
Regarding the common law in terms of competing leases, see the case of Croatia Meat v Millenium Properties. In these circumstances, it is noted that one must apply the rules of contract. Undistrubed use and enjoyment of property is known by the Latin term commodus usus. According to Karin Lehmann, the word "use" encompasses both. The lessee does not, however, obtain jus abutendi: Consequently, so-called "mining leases," which allow the lessee to mine for and keep minerals, are not true leases.
Where premises are let for the purpose of conducting business, the commodus usus includes the fact that the lessor may not do anything which might impact negatively on the business. The lessee's right to commodus usus is one of the naturalia of a contract of lease. Where the profitability of the lessee's business has been reduced, the lessee's commodus usus has been impaired. Botha AJ thus introduced the principle of equality into the law of lease by protecting the interests of the lessee against both direct and indirect interference with the profitable use of the leased thing.
The conclusion that the right to profitability is an ex lege term in all commercial leases appears to have been received with mixed feelings and remains under suspicion. The extension was challenged in Sweets from Heaven v Ster Kinekor , where the question of the future profitability of leased premises arose when the lessor let property in the close vicinity of the lessee's premises to a business competitor of the first lessee.
In Sishen , Botha JA had approached the question of whether or not a breach of the duty to provide commodus usus by the lessor constitutes a breach of contract as a question of the content of the lessor's common-law obligations to the lessee. Malan J, in Sweets from Heaven followed the approach submitted by Cooper: A tacit term is implied where the contract is silent on the point, but it is clear that the parties intended the term to be part of their agreement; they would not have contracted otherwise than on the basis of that term.
In such a case, the common intention of the parties is inferred by the court from the express terms of the contract and the surrounding circumstances. It is not necessary that the parties should have consciously envisaged the situation; it is sufficient that their common intention was such that a reference to such a situation by the hypothetical bystander would have obtained a unanimous assertion of the implied term.
Conversely, a term implied by law is one that the law attaches to the particular class of contract in the absence of agreement to the contrary by the parties. These terms are the naturalia of the contract. The obligation to provide the lessee with commodus usus is one such term; therefore, where the parties do not explicitly include a term in the contract which excludes this obligation, it will be implied by law.
Ultimately, the lessor's obligation to provide the lessee with commodus usus is one of the naturalia of the contract of lease and, unless explicitly excluded in the contract, an ex lege term of all leases. It has not been disputed that profitability is included in commodus usus in commercial leases.
Correct perusal of all contractual terms, argues Hawthorne, would have led Malan J to the same conclusion as Botha JA in the Sishen case. It must be noted that it is essential that the leased property be identified or identifiable. Furthermore, the lessor need not be the owner of the premises; lack of title does not affect the validity of the contract. If the lessor fulfils the obligation to give the use and enjoyment which he has promised to give, the lessee is not entitled to question the lessor's lack of title and is bound to perform his own obligations.
If the lessor does not fulfil his obligation and has no title to the property, specific performance will not be ordered; damages is the appropriate remedy. Where the lessee already has the right to the use and enjoyment of the property to which the lease refers, there is no contract. Where, however, another has the right to the use and enjoyment of the property, the fact that the lessee is the owner does not invalidate the contract. If the property once existed but, without the parties being aware of the fact, ceased to exist before the negotiations were concluded, there is no contract.
If the lessor deceives the lessee into thinking that it exists when it does not, however, the lessee has an action for damages for any loss he suffers. If a lessor bona fide represents that the property exists, when in fact it does not, the lessee has a claim for restitution and, if any loss has been suffered, damages for such loss. According to the common law, there is no contract of lease if there is no agreement on rent. Furthermore, the RHA requires rent to be agreed upon for the purposes of a rental agreement.
The rent is usually a sum of money, in which case it must be either fixed in a definite sum or fixable by a method or standard, : It may be agreed upon expressly or impliedly. The parties may nominate a third party to fix the rent. This is, however, subject to a proviso: The determination must not be dependent entirely on the unfettered will of one party. Furthermore, it is assumed that the party will use his discretion arbitrium boni viri: The discretion, therefore, must be exercised reasonably and equitably; the determination may be set aside if it is unjust.
In Proud Investments v Lanchem International , it was pointed out that it is essential in contracts of lease that the rent agreed upon by the parties be fixed in a definite amount merces certa or be determinable by a third person in accordance with the maxim certum est quod certum redid potest.
Agreement by the parties on a certain amount of rent, orally or in writing, is the most common way in which the rent is determined in contracts of lease. Subject to there being sufficient evidence to allow conversion into a particular sum of money in the circumstances of the case, the following formulae are acceptable:.
If nothing is said, and there is a usual or customary amount, that amount will readily be implied. In Lobo Properties v Express Lift Co , the court held that the "fair and reasonable amount" formula was acceptable in appropriate circumstances. Note, however, that the actual decision on this aspect of the case was that the facts alleged did not justify an inference that the parties had agreed either upon any sum of money or any formula.
In cases where the parties expressly or impliedly agree upon a "reasonable amount" or a "fair and reasonable amount," the court must first consider what the parties meant when concluding the agreement and look to evidence in this regard, and then consider whether evidence is available to establish the amount in money in the circumstances of the case in question.
There are four main possibilities when it comes to what the parties thought was a "fair and reasonable" amount:. Kerr states that it does not seem to be in accordance with the law to leave the decision to an arbitrium boni viri as that would mean leaving it to an indefinite third person. This Voet would not permit. Alternatively, if it were left to the court's discretion, this would not be in accordance with the law either, as it is not the duty of the court to make a contract between the parties.
The parties may arrive at the rental value which the property commands in the economic circumstances of the time or which the parties consider to be fair in the circumstances. This occurs where the parties intend to establish the legal relationship of lessor and lessee, but where the lessor is content not to make a profit out of the transaction because he has an overriding religious, social or even economic objective in view.
Voet says that rent cannot take the form of "a single coin. The court must still consider the true nature of the transaction, however, as it is not legally impossible to have a lease with a nominal rent. The rent must be made in money or in quantities of the fruits of the property. Therefore, with regard to a lease of land for agricultural purposes, it is possible for the parties to agree that the rent is a percentage of the produce of the farm.
The question has arisen: Is a contract is one of lease if payment is made other than in money or fruits? Many authorities take the view that, by law, rent cannot consist in anything other than money or fruits, but this prevents the enquiry's being pressed to its proper conclusion. It must be regarded as incorrect.
In Roman law, the position was that, in an exchange, one cannot distinguish which party is buyer lessee and which the seller lessor. This presents a problem, as their duties are very different. The fundamental question, however, is not whether or not rent may be paid in something other than money or fruits, but rather this: Can rent be paid in something other than money? In partiarian contracts, one of the reasons why payment in fruits does not affect the nature of the contract is that there can be no doubt about who is the lessor and who is the lessee, and no doubt, furthermore, about the residual obligations that each incurs.
The duration of the lease is for such period of time as the parties have agreed upon, either expressly or impliedly. If the parties have not made any agreement about the duration of the lease, it is a periodic lease, the period being that in terms of which the rent is payable. A lease at the will of one party cannot last longer than the lifetime of that party. If the relevant party dies during the course of a year, Pothier considers that the year must be completed. This is in the case of rural property and is based on the fact that the fruits are produced annually.
If the parties enter into a periodical lease, they may stipulate the length of the period. If only the period for payment of rent is stated, this is an indication of the intended period required for notice.
The parties may agree otherwise, however. In appropriate circumstances, a lease may be ended before the date originally set, or extended beyond the original date. This is usually done by mutual consent. New leases, whether express or implied, may also be entered into between the same parties. Pothier states that a lease entered into in perpetuity "passes over the bounds into another contract, namely emphyteusis.
In the law of contract, the contract may be subject to formalities that are prescribed either by the parties themselves or by statute governing specific conduct. No formalities are necessary for the validity of a lease as between lessor and lessee. The parties may agree, however, that the contract of lease is not binding until it has been reduced to writing and signed. There is no viciculum juris or binding tie between the parties until the formalities have been complied with.
If it is unclear whether or not the written contract alone is intended to constitute the agreement, any mention of a written document made between negotiations will be assumed to record or facilitate proof of an oral agreement.
In terms of formalities laid down by statute, one must distinguish between statutes which merely lay down penal provisions like section 5 2 of the Rental Housing Act and those statutes in respect of which non-compliance with formalities will render the contract invalid.
See Eastern Cape v Contract Props. The legal position with regard to a lease not subject to the provisions of the NCA is that, as between the parties, there are no formalities required for the validity of the lease agreement, but formalities often will be necessary for effectiveness against third parties like the landlord's creditors.
When dealing with leases of moveable property, one should note the formalities introduced by the NCA, particularly those relating to pre-agreement disclosures, delivery of the relevant documents free of charge, compliance with plain-language requirements, provisions relating to unlawful agreement and unlawful provisions in a contract, and the consumer's right of cooling off.
Section , dealing with the consumer's right to rescind credit agreements expressly, states that the section applies only in respect of a lease or instalment agreement entered into at any location other than the registered business premises of the credit provider.
In terms of section 2 , a consumer may terminate a credit agreement within five business days after the date on which he signed the agreement, either by delivering notice in the prescribed manner to the credit provider, or by tendering the return of any money or goods; alternatively, he may pay in full for any services received by the consumer in respect of the agreement. Other aspects of the contract of lease that deserve special mention are those relating to the lease of land, in particular the requirements for the registration of leases and subleases.
In terms of section 77 1 , save where provision to the contrary is made in any law, any lease or sublease of land or of any rights to minerals in land, and any cession of such a lease or sublease intended or required to be registered in the Deeds Registry, shall be executed by the lessor and the lessee, or by the lessee and the sub-lessee, or by the cedent and the cessionary, as the case may be, and shall be attested by a notary public—provided that any such lease shall be registered for the full term thereof.
Section 77 1 bis states that, whenever a cession of a lease is to be registered in respect of any port ion of the land leased, a notarial copy of the lease shall be attached to such cession and after registration such cession with the notarially certified copy of the lease annexed thereto shall be deemed to be the title to the portion of the lease so ceded, and for any subsequent registration in respect thereof it shall be part of the title.
The termination of a registered lease is regulated by section 78 of the DRA. It is important to note the steps to be taken by the registrar upon termination of a registered lease or sublease. Registration has a bearing on cessions of such leases or subleases. In terms of section 80 of the DRA, no cession of a lease or sublease shall be registered in any deeds registry unless the lease or sublease has been registered therein. In terms of section 81, no hypothecation of a lease or sublease shall be registered in any deeds registry unless such hypothecation is effected by means of.
Registration is a requirement of the law in respect of long leases. The main provisions of the Act are contained in section 1, which provides that "no lease of land shall be invalid merely by reason of the fact that such lease is not in writing. This section purports to remedy the defects inherent in the proviso to the old section 2, which reads as follows:.
Provided that no lease of land which is entered into for a period of not less than ten years or for the natural life of the lessee or any other person mentioned in the lease, or which is renewable from time to time at the will of the lessee indefinitely or for periods which together with the first period of the lease amount in all to not less than ten years, and no cession of such lease, shall be valid as against third parties if executed after the commencement on this Act, unless registered against the title deeds of the leased land.
The general effect of the Formalities in Respect of Leases of Land Act is to reinstate substantially, if not completely, the alw as it existed prior to , when the GLAA was enacted. In any event, the huur gaat voor koop doctrine is revitalized in so far as the previous legislation may have diminished its application to unregistered long leases. The overall result is that, apart from its validity inter partes , an unregistered long lease may be set up against all comers for the first ten-year period, but thereafter does not avail against creditors and onerous successors who had no knowledge of the lease.
One of the worst features of the GLAA was believed to be the obscurity of the phrase "third parties. A further difficulty was whether "third parties" included gratuitous successors. Again, on a strict interpretation, the question could have been answered in the affirmative. In Hitzeroth v Brooks ,  however, it was correctly decided that gratuitous successors were not "third parties. The new section 1 2 clarifies the ambiguities of its predecessor: There is no mention of "third parties.
In view of the wording of section 1 2 b of the present Act, the tenant will only have to prove, after the initial ten year-period, that the landlord's successor—and he must be an onerous successor—"recognized and adopted" the lease in circumstances where he did not know of the unregistered lease at the time he entered into the transaction by which he obtained the leased land.
Wille states that actual knowledge is required; it remains to be seen if constructive knowledge will suffice. Registration requirements are also mentioned in section 25 2 a of the Mineral and Petroleum Resources Development Act, which provides for the registration of mining rights at the Mining Titles Office. In terms of section 11 4 of the Act, transfers, cessions, leases, subleases, alienations and mortgages, or variations thereof, must also be so registered.
In terms of section 11, prospecting and mining rights may be transferred, let and sublet. Such dealing may not occur, however, save with ministerial consent. Draft regulations refer to sketch plans and diagrams that are required to be certified by a surveyor.
The Rental Housing Act came into operation on August 1, Its purpose is to give effect to the right of every citizen to have access to adequate housing, by promoting investment in the rental housing market.
The Act creates measures aimed at protecting both landlords and tenants. In addition to repealing the Rent Control Act, as well as sections of the Sectional Titles Act, the Act also has an effect on the common law of lease, in that it creates statutory naturalia ; it also limits the parties' contractual freedom.
The RHA governs only leases of dwellings for housing purposes, but extends to all urban and rural areas. The RHA provides that a lease between a tenant and a landlord need not be in writing or be subject to the provisions of the Formalities in Respect of Leases of Land Act,  but a landlord must, if requested to do so by a tenant, reduce the lease to writing.
It is unusual to lay down that a contract need not be subject to the provisions of a specified statute. The question arises, therefore, of whether there are circumstances in which the provisions of the FRLL Act do not need to be applied. The answer is that this is possible when a lease is not in writing; if, however, the FRLL Act does not apply, cases must be decided as if this Act were not on the statute books.