K2012150042 (South Africa) (Pty) Ltd v Zitonix (Pty) Ltd [2017] ZAWCHC 4; [2017] 2 All SA 232 (WCC) (7 February 2017)
Was the cancellation of the lease agreements between K2012150042 (South Africa) (Pty) Ltd and Zitonix (Pty) Ltd valid, and is the applicant entitled to an order for the respondent to vacate the leased premises?
In February 2016, Zitonix (Pty) Ltd, represented by Marcel Joubert, entered into five written lease agreements with K2012150042 (South Africa) (Pty) Ltd for commercial premises located in the Gateway Theatre of Shopping in Umhlanga. Zitonix operated under various brands, including Aca Joe, Vertigo, Urban Degree, Hilton Weiner, and Jenni Button. The respondent, Zitonix, is part of the Platinum Group (Pty) Ltd, which was experiencing significant financial difficulties at the time, leading to the termination of several retail leases held by its entities.
The lease agreements were backdated to August 2015 to allow the applicant to recover losses incurred from previous leases with the Platinum Group that had been terminated. As a condition of the lease agreements, Joubert signed a limited deed of suretyship, guaranteeing Zitonix's obligations up to R5,000,000 in total across all five stores.
"It is trite that as the lessee in terms of the lease agreements, the respondent is only entitled to the temporary use and enjoyment of the property. One of the naturalia of any lease agreement is that upon termination of the agreement, the lessee is obliged to return the property to the lessor... If the lessee fails to comply with its duty to return the property to the lessor, the lessor is entitled to the normal contractual remedies, namely to an order for specific performance, in the present case an order directing the respondent to vacate the property, failing which it may be evicted therefrom."
Shortly after the lease agreements were executed, Zitonix fell into arrears on its rental payments. The applicant, K2012150042, issued breach notices in accordance with the lease agreements, allowing Zitonix an opportunity to remedy the breaches. Despite these notices, Zitonix failed to rectify its payment defaults, leading to the applicant sending cancellation letters for three of the five premises on August 25, 2016, and subsequently for all five premises on August 31, 2016, citing a new ground for cancellation based on Joubert's sequestration on August 22, 2016.
The applicant's cancellation was based on clause 16.1(e) of the lease agreements, which allowed for cancellation if the surety was sequestrated. Following the cancellation, Zitonix continued to occupy the premises unlawfully, prompting the applicant to seek an urgent court order to confirm the cancellation and to direct Zitonix to vacate the premises. The matter was complicated by Zitonix's claims of procedural irregularities, lack of authority of the deponent to the founding affidavit, and allegations of anti-competitive conduct by the applicant, which Zitonix argued warranted referral to the Competition Tribunal.
Throughout the proceedings, it was established that Zitonix had not disputed its arrears and had made payments after the cancellation, indicating acknowledgment of its financial obligations. The applicant maintained that the lease agreements had been validly cancelled and sought to enforce its rights to reclaim possession of the leased premises.
The ratio decidendi of the case is that a lessor has the right to cancel a lease agreement and seek eviction of a lessee when the lessee fails to comply with the terms of the lease, particularly in cases of non-payment of rent and the sequestration of a surety. The court affirmed that the cancellation of the lease agreements was valid based on the lessee's failure to remedy its breaches and the triggering of the cancellation clause due to the sequestration of the surety. Furthermore, the court held that the lessee cannot raise defenses related to the lessor's title or anti-competitive conduct when the lessee has no independent right to occupy the property outside of the lease agreement. The court emphasised that the lessee's obligations under the lease remain enforceable, and the lessor is entitled to reclaim possession of the property upon valid cancellation of the lease.
The court relied on several cases in its reasoning process, including:
- Ebrahim v Pretoria Stadsraad 1980 (4) SA 10 (T), which confirmed that an occupier (or lessee) cannot dispute the title of the lessor when being sued for eviction at the termination of a lease.
- Mighty Solutions t/a Orlando Service Station v Engen Petroleum Ltd and another 2016 (1) SA 621 (CC), which reiterated that a valid lease does not depend on the lessor having any title to the property.
- Brisley v Drotsky 2002 (4) SA 1 (SCA), which established that in commercial leases, the common law applies, and the lessee is unlawfully holding over if the lease has been terminated.
- Slipknot Investments 777 (Pty) Ltd v Du Toit 2011 (4) SA 72 (SCA), which discussed the principles surrounding unilateral mistake and the obligations of contracting parties to be aware of the terms of agreements they sign.