Brief Summary

Eviction — Commercial lease — Termination of lease and eviction of occupants — Applicant sought eviction of first and second respondents from commercial premises following non-payment of rent and failure to comply with sale agreement — First respondent occupied premises under a lease that lapsed, while second respondent took occupation under a sale agreement that was subsequently cancelled due to breaches — Legal issue arose regarding the applicant's ownership of the property and the validity of the cancellation notice — Court held that the applicant was entitled to evict the respondents as they failed to remedy breaches of the lease and sale agreements, and the cancellation of the sale agreement was valid.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an application for the eviction (ejectment) of the first and second respondents, together with all persons occupying through them, from certain commercial/industrial premises described as Erf 132 Chamdor, Krugersdorp, more commonly known as 38 Van Eck Street, Chamdor.

The applicant was Hollyberry Props 4 (Pty) Ltd (in liquidation). The first respondent was Hisuper Trading CC and the second respondent was Africa Land Properties (Pty) Ltd. The third respondent was the Mogale City Local Municipality, cited due to its connection to municipal charges and services relevant to occupation, although the dispute in substance concerned the rights of occupation between the applicant and the first two respondents.

The matter was initially opposed on several grounds. By the time of hearing before Francis J, the opposition was narrowed to two defences. The first defence was that the applicant was allegedly not the registered owner and that the bondholder (Investec Bank) ought to have been joined. The second defence was that the sale agreement had allegedly not been validly cancelled because the contractual breach notice and cancellation did not comply with a requirement of dispatch by registered post under clause 11.

The general subject-matter of the dispute concerned the termination of contractual rights to occupy commercial premises, first under a fixed-term lease and later under an offer to purchase/sale agreement concluded with the applicant’s provisional liquidators, and whether the respondents’ continued occupation was unlawful following effluxion of time and cancellation.

2. Material Facts

On 8 March 2013 the applicant and the first respondent concluded a written lease agreement in terms of which the first respondent leased the commercial premises for furniture manufacturing. The lease ran for one year, commencing 1 May 2013 and terminating 30 April 2014, at a rental of R130 000 per month excluding VAT, payable monthly in advance.

It was common cause that the first respondent took occupation and remained in occupation up to and beyond the expiry date. The lease lapsed by effluxion of time on 30 April 2014 and was not extended. The court accepted the applicant’s case that the first respondent had ceased making payments for rental and related charges during the lease period and was materially in arrears, with the applicant alleging an indebtedness of R1 721 573.40 for the period July 2013 to April 2014. The respondents disputed indebtedness and asserted that rental compliance ceased after the death of one of the applicant’s directors, while also referring to defects at the premises and repairs allegedly undertaken by them; however, the judgment treated the decisive facts as the termination of the lease by time and the absence of any extant right to occupy thereafter.

While the first respondent was still in occupation, and after the applicant had been liquidated, the second respondent (represented by Mr JianLiang Li, who was also a member of the first respondent) signed an offer to purchase the premises, accepted on 14 January 2014 by the applicant’s provisional liquidators. The purchase price was R11 000 000.00, with a 10% deposit of R1 100 000.00 payable on the effective date, and the balance payable against registration of transfer, secured by bank guarantees deliverable within 30 days of the effective date.

The sale agreement contemplated that if the second respondent took occupation before transfer, it would pay interest/occupational amounts and assume responsibility from occupation for municipal charges and other outgoings associated with the premises. The second respondent took occupation on or about 1 May 2014, after the lease expired. The applicant alleged that the second respondent failed to pay occupational rent and related charges, being indebted in the sum of R572 050.11 as at August 2014. It was further undisputed that the second respondent did pay the deposit but failed to provide the required bank guarantees for the balance within the contractually stipulated time.

The applicant’s attorneys addressed letters dated 3 September 2014 and 26 September 2014 recording alleged arrears, demanding payment, and (as to the second respondent) giving notice of breach in terms of clause 11 requiring remedy within 10 days. After discussions failed, the applicant informed the second respondent that the sale agreement was cancelled and, in a letter dated 9 October 2014, stated that the agreement was cancelled and demanded that the premises be vacated within 48 hours.

The respondents admitted receiving the relevant letters, including the breach notice and the cancellation communication, but contended that cancellation was invalid because the notices were not shown to have been dispatched by registered post as clause 11 required. The respondents also contended that the applicant was not the owner because Investec Bank was the bondholder, and on that basis alleged a non-joinder.

The court treated the premises as commercial premises in an industrial area, and the respondents did not persist with reliance on the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 (PIE) as a defence.

3. Legal Issues

The central legal questions the court was required to determine were whether, notwithstanding the respondents’ continued occupation, the applicant had established a right to evict the respondents based on the termination of contractual occupation rights, and whether either of the two remaining defences defeated that claim.

The first issue was a question of law applied to largely common cause facts, namely whether a bondholder has an interest amounting to ownership or such a direct and substantial interest as to require joinder, and whether the applicant, as owner (in liquidation), could seek eviction without joining the bondholder.

The second issue concerned the application of contractual principles to fact: whether the sale agreement was validly cancelled in light of clause 11 requiring a breach notice dispatched per registered post, where the respondents admitted actual receipt of the breach notice and cancellation letter, but proof of registered post dispatch was not produced and delivery appeared to have occurred by hand.

A further contextual issue, although ultimately not pursued by the respondents, was whether the dispute engaged PIE; this was treated by the court as falling outside PIE because the property was commercial rather than residential.

4. Court’s Reasoning

On the non-joinder point, the court rejected the proposition that Investec Bank, as bondholder, was the owner of the premises. The court characterised the bondholder’s interest as that of a secured creditor, not ownership, and held that the bond did not confer upon the bank the status of owner or a basis to insist on being joined merely because of the existence of a mortgage bond. In support of this conclusion the court referred to Gainsford and Others NNO v Tanzer Transport (Pty) Ltd 2014 (3) SA 468 (SCA), which the court treated as authority for the proposition that the bondholder’s interest is security for debt rather than ownership of the property. On this basis the court found no merit in the defence and held that the applicant was entitled to pursue eviction without joining Investec Bank.

On the cancellation point, the court focused on the content of clause 11 of the sale agreement, which entitled an aggrieved party to cancel if the defaulting party remained in breach for 10 days after dispatch per registered post of a written notice to remedy. The court then evaluated the undisputed admissions by Mr Li on behalf of the respondents: he admitted receipt of the letters placing the second respondent in mora and the subsequent cancellation letter, although disputing the accuracy of their contents and contesting the formal mode of dispatch.

The court accepted that there was no proof before it that the letters were dispatched by registered post, but found that the letters appeared to have been hand-delivered, and that receipt was acknowledged. The court treated the purpose of the notice requirement as being met because the respondents were informed of the breach, were afforded the contractually stipulated period to remedy, failed to do so, and then received written notice that the agreement was cancelled.

In addressing authorities relied on by the respondents, the court considered them either irrelevant to the issues it had to decide or supportive of the proposition that actual receipt may cure objections related to the mode of delivery. The court stated that Minister of Land Affairs and Agricultural and Others v D & F Wevell Trust and Others 2008 (2) SA 184 (SCA) was not relevant because it concerned reliance on uncanvassed material in annexures in motion proceedings rather than the validity of breach notices in a cancellation context. The court regarded reliance on First National Bank of SA Ltd v Ganyesa Bottle Store (Pty) Ltd and Others; First National Bank of SA Ltd v Schweizer Drankwinkel (Pty) Ltd and Another 1998 (4) SA 565 (NC) as misplaced because that matter dealt with knowledge of a summons that had not been served. The court referred to Kragga Kamma Estates and Another v Flanagan [1994] ZASCA 137; 1995 (2) SA 367 (A) as dealing with mora and cancellation requirements, and treated Sandton Square Finance (Pty) Ltd and Others v Biagi, Bertola and Vasco and Another 1997 (1) SA 258 (W) and SA Wimpy (Pty) Ltd v Tzouras 1977 (4) SA 244 (W) as illustrating that where notice is received, the method of delivery is not necessarily decisive for validity. The court articulated the conclusion (with reference to SA Wimpy) that, provided there is proof the notice was received, “it matters not how the notice was given”.

Applying these principles, the court concluded that there had been compliance with clause 11. The breach notice of 26 September 2014 (admittedly received) identified the breach and allowed 10 days to remedy. The cancellation letter of 9 October 2014 (also admittedly received) recorded failure to remedy and communicated cancellation. The court therefore found the sale agreement validly cancelled and held that the respondents had no remaining legal basis to occupy the premises.

Having found that the lease had ended by effluxion of time and that the sale agreement had been cancelled following breach, the court characterised the respondents’ continued occupation as unlawful, entitling the applicant to eviction. The court also recorded that PIE did not apply given the commercial/industrial nature of the premises and that this defence was abandoned.

On costs, the court distinguished between two phases. An earlier urgent application had been struck from the roll on 9 December 2014 for lack of urgency, with costs reserved. The court held the applicant had not made out urgency and should bear those reserved costs on the party-and-party scale. As to the costs of the present application, the court found the respondents’ opposition to be frivolous and doomed to fail, warranting costs against them on an attorney and own client scale (attorney-and-client type scale), excluding the reserved costs from the earlier urgent appearance.

5. Outcome and Relief

The court granted an eviction order directing the first and second respondents and all those occupying through them to vacate the premises by 14h00 on 5 June 2015. The court further authorised the sheriff, with assistance from the South African Police, to enter and evict the occupants if they failed or refused to vacate by that deadline.

As to costs, the court ordered that the first and second respondents pay the costs of the application jointly and severally on the scale of attorney and own client, excluding the costs reserved on 9 December 2014. The reserved costs relating to the striking from the urgent roll were ordered to be paid by the applicant to the first and second respondents on a party-and-party basis.

Cases Cited

Gainsford and Others NNO v Tanzer Transport (Pty) Ltd 2014 (3) SA 468 (SCA).

Minister of Land Affairs and Agricultural and Others v D & F Wevell Trust and Others 2008 (2) SA 184 (SCA).

First National Bank of SA Ltd v Ganyesa Bottle Store (Pty) Ltd and Others; First National Bank of SA Ltd v Schweizer Drankwinkel (Pty) Ltd and Another 1998 (4) SA 565 (NC).

Kragga Kamma Estates and Another v Flanagan [1994] ZASCA 137; 1995 (2) SA 367 (A).

Sandton Square Finance (Pty) Ltd and Others v Biagi, Bertola and Vasco and Another 1997 (1) SA 258 (W).

SA Wimpy (Pty) Ltd v Tzouras 1977 (4) SA 244 (W).

Legislation Cited

Land Reform (Labour Tenants) Act 3 of 1996.

Extension of Security of Tenure Act 62 of 1997.

Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998.

Rules of Court Cited

No specific rules of court were cited in the judgment.

Held

The court held that the applicant was entitled to evict the first and second respondents because the first respondent’s lease had terminated by effluxion of time and the second respondent’s sale agreement had been validly cancelled after breach and failure to remedy within the stipulated period.

The court held that Investec Bank, as bondholder, was not the owner of the premises and had no interest requiring joinder in the eviction proceedings.

The court held that, despite the absence of proof that the breach notice was dispatched by registered post as described in clause 11, the admitted receipt of the breach notice and cancellation letter meant that the contractual notice purpose was satisfied and that there had been sufficient compliance to found a valid cancellation.

The court held that PIE did not apply because the premises were commercial premises in an industrial area and the defence based on PIE was not persisted with.

LEGAL PRINCIPLES

A mortgage bondholder’s interest is that of a secured creditor and does not, by virtue of the bond alone, make the bondholder the owner of the property; non-joinder will not succeed merely because a bondholder exists where no direct ownership interest is established.

Where a contract requires that a breach notice be dispatched in a particular manner (here, per registered post), the court approached the issue by emphasising the significance of actual receipt and the substantive function of the notice, namely to place the defaulting party in mora and afford an opportunity to remedy, followed by communication of cancellation upon non-remedy.

Upon termination of a fixed-term lease by effluxion of time, and upon valid cancellation of a subsequent agreement conferring occupational rights, continued occupation of commercial premises becomes unlawful, entitling the owner (or party with the right to vindicate possession) to ejectment/eviction.

Costs may be awarded on a punitive scale such as attorney and own client where the court considers opposition to have been frivolous or without merit, while costs consequences from prior interlocutory/urgent proceedings may be allocated separately according to the court’s assessment of urgency and conduct.

Hollyberry Props 4 (Pty) Ltd (In Liquidation) v Hisuper Trading CC and Others (43073/2014) [2015] ZAGPJHC 108 (29 May 2015)