Selling your rented home? Read this

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07 Jan 2013

Question

My husband and I have downscaled from our family home, which we have now let for three years at a good rate and with annual escalations.

No new agreement of lease comes into existence, all that happens is that the buyer is substituted for the seller as lessor without the necessity for a cession of rights or an assignment of obligations.

In turn we have rented a comfortable apartment. However, we would now prefer to buy a suitable unit in a retirement home. To afford this, it will be necessary to sell our now rented home. Presuming we can find a buyer, what will be the legal position?”

Answer

Smith Tabata Buchanan Boyes (STBB) attorneys have this to say:

The essence of the maxim huur gaat voor koop gives protection to tenants against third parties whose rights vested later in time than those of the tenants.

It is particularly valuable to a tenant in the event of a new buyer seeking to evict him or her. However, the exact content of the protection by this rule of our law can leave one with misgivings.

Assuming that landlord A, sold to X his property which he had rented to B, it is accepted that the maxim will protect the rights of B so that the lease remains in place after the sale of the property to X.

But presuming, for example, that the lease contained an option to purchase the property or a clause regulating the payment of commission to the leasing agent used by the landlord, would such provisions also be covered by this maxim?

STBB explains: “Our courts have held that the protection offered by the maxim is of a sui generis nature (for example, it is of a unique character and therefore not similar to other forms of protection recognised in our law).

The protection afforded by the maxim includes that the tenant is bound to pay rent to the buyer and the buyer, in turn, is bound to the tenant regarding the provisions of the lease agreement.

It is often said that in terms of this maxim, the buyer “steps into the shoes” of the landlord.

No new agreement of lease comes into existence, all that happens is that the buyer is substituted for the seller as lessor without the necessity for a cession of rights or an assignment of obligations.

One might ask, however, to what extent does the buyer step into the shoes of the seller?

Legally, there is nothing to stop the owner from selling unless there is a stipulation in the lease not to market the premises.

Since the maxim essentially protects a tenant from eviction, our courts have pronounced that a buyer is bound on it (the lease) by the doctrine of huur gaat voor koop and also bound by all its material terms (our emphasis).

This means that the maxim only transfers rights that are the material and usual incidences of the direct relation between the landlord and the tenant, such as those arising in relation to occupation.

“As such, our courts have maintained that an option to purchase, for example, is not an integral part of the landlord – tenant relationship in respect of which the huur gaat voor koop rule operates.”

Thus a tenant cannot exercise an option to purchase contained in the lease against the subsequent purchaser in terms of this maxim.

STBB explains that the reason is that a tenant who seeks to exercise an option to purchase will usually have to do against the grantor of the option.

The doctrine of notice has the effect that where the buyer was made aware of the option by the tenant, the tenant will generally be able to claim transfer of the property from the buyer.

The same argument may apply with regard to a leasing agent’s commission contained in the lease agreement.

Usually such a clause makes commission payable on a monthly basis as part of the rental amount, or as a once-off payment on conclusion and/or renewal of the lease.

Such payments are usually not material to the landlord/ tenant relationship and are therefore ancillary rights, not protected by the maxim.

In such instances it would be advisable for a seller, agent (in terms of the lease) and new buyer to arrange their obligations separately to avoid litigation.

Finding a suitable buyer is another matter. Legally, there is nothing to stop the owner from selling unless there is a stipulation in the lease not to market the premises.

Access for agents/buyers is likely to be a problem, however, and show houses are seldom consented to unless agreed as part of the lease with the tenant.

A potential buyer would have to have an appetite for such a purchase and would require an equally appetising return on his/her capital. Nevertheless, it is possible.

This article is published courtesy of Pam Golding Properties Intellectual Property Magazine.

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