03 May 2013
If a landlord decides to sell his property, what happens to the tenant? Are the tenants within their rights to breach the contract under such circumstances?
Adrian Goslett, CEO of RE/MAX of Southern Africa, explains that South African law states that a landlord is not prohibited from selling the property to a third party while the property is housing a tenant and a lease agreement is in place. However, in terms of the legal principle huur gaan voort koop, the lease precedes the sale and the tenant is entitled to retain occupation of the property for the remainder of the lease period.
Goslett says that while a tenant can stay in the property for the duration of the lease, some may feel uncertainty around dealing with a different landlord or the renewal terms of the lease with the new owner. "There is also the matter of what the new owner intends to do with the property, as they may not want to continue renting the property out and could want to move into the property themselves."
He adds that sometimes in these situations tenants might want to find other accommodation. However, a tenant’s right to cancel their lease will be determined by the lease agreement that they signed and the law. “For this reason, reading the lease agreement is the first step when it comes to knowing where you stand with regard to your rights and obligations should the property be sold."
Goslett says in some cases landlords and tenants may have agreed to a lease with a sales provision in order to give both parties flexibility should the situation arise. The lease may specify that the tenant has the option to cancel their current lease and find another place to stay if the property is placed on the market. If these are the terms and there is mutual consent, then the tenant is absolved from any penalties that may arise due to breaking the agreement.
He explains that all the terms and conditions in the lease before the sale of the property will be carried over to the new owner of the property. What this means is that if nothing is specifically stated in the lease regarding the sale of the property, it will be difficult for the tenant to break the agreement without suffering the consequences of a penalty. The lease will remain in effect under the new landlord and the tenant is obligated by law to respect the specified terms, as will the new landlord. He says that in certain cases the buyer will buy a property with an existing tenant with the intention of keeping that tenant. "If this is the case they will more than likely not want to release the tenant from their contractual obligations,” says Goslett.
He points out that the Consumer Protection Act (CPA) allows for the early termination of a fixed term contract within the fixed term on the condition that the new owner is a supplier who lets property in the ordinary course of his business. This is regulated by section 14 of the Act. In this case, a tenant can give a 20 business day notice period during the term of the lease. However, Goslett says they would be liable for the notice month and possibly a penalty fee. "It should be noted that the CPA will not be applicable if the parties to a lease agreement are both juristic persons,” he says.
Before making any decisions regarding terminating a lease prematurely, tenants should first speak to the landlord. Goslett says that discussing the matter with the landlord could help to alleviate concerns regarding the sale of the property. Tenants should also be aware that the conclusion of the sale might only be after the end of the lease term, or the new landlord may be better than the current one.
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