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[2020] ZASCA 85
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Sontsele v 140 Main Street Properties CC and Another (328/2019) [2020] ZASCA 85 (6 July 2020)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
Not
reportable
Case
No: 328/2019
In
the matter between:
MLUNGISI
NDODANA SONTSELE
APPELLANT
and
140
MAIN STREET PROPERTIES CC
FIRST
RESPONDENT
NEDBANK
LIMITED
SECOND RESPONDENT
Neutral
citation:
Mlungisi Ndodana
Sontsele v 140 Main Street Properties CC and Another
(
328/2019
)
[2020] ZASCA 85
(6 July 2020)
Coram:
PONNAN, MBHA, MOKGOHLOA and PLASKET JJA
and LEDWABA AJA
Delivered:
This judgment was handed down electronically by
circulation to the parties' representatives by email, publication on
the Supreme
Court of Appeal website and release to SAFLII. The date
and time for hand-down is deemed to be 10:00 am on 7 July
2020.
Summary:
Lease – option to renew –
failure by parties to reach agreement on rental or by lessee to
invoke clause providing for
rental to be fixed by third party -
effect of - agreement lapsing by effluxion of time.
ORDER
On
appeal from:
Eastern Cape
Division of the High Court, Mthatha (Lowe J, sitting as court of
first instance):
(a)
The appeal is upheld with costs, including those of two counsel.
(b)
The order of the court below is set aside and replaced by:
‘
(i)
The application succeeds with costs.
(ii)
It is declared that the notarial agreement of lease entered into
between the parties
on 29 June 2004 terminated by effluxion of
time on 31
May 2014.
(iii)
The first respondent is ordered to vacate the property described as
Erf 83, Flagstaff
within two (2) months from the date of the granting
of the order.’
JUDGMENT
Ponnan
JA (Mbha, Mokgohloa and Plasket JJA and Ledwaba AJA concurring):
[1]
This appeal concerns an option to renew in a notarial agreement of
lease (the agreement)
that provides:
‘
The
lease shall commence on 1 July 2004 and shall terminate on 31
st
of May 2014;
2.2
The [lessee] shall have an option to renew this agreement of lease
for two further periods
of nine (9) years and eleven (11) months
each, such renewal periods being subject to:
2.2.1
the option in respect of each renewal shall be exercised by the
[lessee] by giving the [lessor] notice in
writing at least six (6)
months before the expiry of the initial lease or of the expiry date
of each successive renewal period,
whatever the case may be;
2.2.2
the same terms and conditions of [the agreement] shall apply to all
renewal periods thereof save that the
rental consideration will be
determined by agreement between the parties based on the prevailing
market rental’s applicable
to the property;
2.2.3
in the event of the parties not being able to agree on the
commencement rental for any of the option periods,
such rental will
be determined by a suitably qualified person appointed by the
President of the Cape of Good Hope Estate Agents
Board.’
[2]
The agreement was concluded on 29 June 2004 between the appellant,
Mr Mlungisi Ndoda
Sontsele (the lessor), as the registered
owner of Erf 83, Flagstaff (the property), together with his
mother, who at the time
held usufructuary rights over the property,
and the first respondent, 140 Main Street, Kokstad Properties CC (the
tenant).
[3]
On 8 August 2013 the lessee wrote to the lessor: ‘. . . in
terms of clause 2.2.1
of [the agreement], the lessee hereby gives
notice to the [lessor] that it exercises its right to renew the lease
for the first
renewal period of nine years and 11 months, commencing
1 June 2014 and expiring on the 30 April 2024’. The
notice
was silent as to the commencement rental for the renewal
period. And, although no rental had been fixed between the parties,
the
tenant remained in occupation of the property after 31 May 2014.
According to the lessee, ‘it applied an approximately 20%
increase to the rental amount paid in the last month of the
first rental period (being May 2014) and paid this amount (being
R14 000) to [the lessor] on 1 June 2014’. On 1
June 2015 the lessee applied what it described as ‘an
annual
market related inflationary escalation factor of 8% to the
aforementioned amount of R14 000’, thereby arriving
at a
monthly rental of R15 120.
[4]
Those rentals did not meet with the lessor’s approval and when
further negotiations
between the parties failed to yield fruit, the
lessor’s attorney wrote on 31 July 2015 to the lessee:
‘
3.1
[D]uring or about October 2013, prior to the
expiry of the initial period of the agreement, the [lessee]
exercised
its option to renew by furnishing a notice of renewal for a further
period of 9 (nine) years and 11 (eleven) months.
Such renewal notice
was not accompanied by an offer of the rental to be payable to [the
lessor] during the extended period of the
lease, and [the lessor]
anticipated that an offer would be forthcoming prior to the expiry of
the agreement;
3.2
prior to the expiry of the initial term, namely 31 May 2014, no
rental amount was fixed
for the proposed extended lease in that:-
3.2.1
the parties did not agree any rental amount, and the agreement was
not amended in any document signed by
both parties and recording what
rental would be payable during the extended lease; and
3.2.2
no referral was made for the determination of the rental by the Cape
of Good Hope Estate Agents;
3.3
there was no extension of the agreement into a second term . . . on
or before 31 May 2014,
with the result that the agreement expired, on
its own terms, on 31 May 2014.
4.
In relation to the continued occupation of the property by [the
lessee] from
1 June 2014 to date, we are advised by [the lessor]
that:
4.1
the tenancy was on an oral basis, on a monthly basis with no fixed
term commencing on the
1 June 2014;
4.2
for the whole period of the monthly tenancy, a non-agreed rental
amount of R14 000
. . . was paid . . . save for June and July
2015 where the [lessee] paid a non-agreed amount of R15 120 . .
. and
4.3
notwithstanding various discussions and attempts by the parties to
reach a market related
rental, no rental amount acceptable to our
client was reached.
.
. .
6.
In the circumstances, [the lessor] has resolved to forthwith
terminate the monthly
tenancy arrangement by affording [the lessee]
two months to vacate the property by no later than 12 noon on
Wednesday, 30 September
2015, failing which [the lessor] shall take
such legal steps as may be advised . . .’
[5]
The response to that letter from the lessee’s attorney on 6
August 2015 was:
‘
8.1
In an attempt to agree on the rental amount as contemplated in clause
2.2.2 of the agreement [the
lessor] advises what rental amount he
believes should have been payable for the period 1 June 2014 to 31
May 2015 and what annual
escalation factor should apply for the
remaining period of the first renewal period.
8.2
Should our respective clients not agree on the rental and escalation
amounts as envisaged
in paragraph 8.1 above by 21 August 2015, this
matter must be referred to the person to be appointed by the
President of the Cape
of Good Hope Estate Agents Board as
contemplated in clause 2.2.3 of the Agreement. . . .’
[6]
Impasse having been reached, the lessor approached the Eastern Cape
Division of the
High Court, Mthatha on 22 April 2016 for the
following relief:
‘
1.
An order confirming the
termination and cancellation of the notarial agreement of lease
entered into between the parties on 29 June 2004 with the effective
date of termination and cancellation being 31
May 2014.
2.
An order declaring that the notarial agreement of lease entered into
between
the parties on 29 June 2004 was not renewed for a
further period of 9 years and eleven months.
3.
An order declaring the month to month tenancy agreement entered into
between
the parties with the effect from 1 June 2014 validly
cancelled.
4.
An order directing the First Respondent to vacate the property within
two (2)
months from the date of the granting of the order.
5.
An order directing the First Respondent to pay the costs of the
application on
the scale of attorney and client.’
[7]
The application failed before Lowe J in the high court, who dismissed
it with costs.
The learned judge held:
‘
In
the result, I must inevitably conclude that on a proper
interpretation of the lease agreement, the option was sufficiently
exercised
such as to bring into operation a peremptory obligation to
attempt to reach agreement in good faith on the rental provisions
applicable
to the subsequent release., Both as to the initial sum
thereof and in an appropriate escalation percentage for the remainder
term
of the lease annually applied, even the 9 years 11 months. If
this failed there was the father peremptory requirement that a third
party determine the rental.’
The
appeal is with the leave of this court.
[8]
I regret I am unable to agree with Lowe J that the application ought
to have failed.
In terms of the agreement, the option to renew was to
be exercised by the lessee by giving the lessor notice in writing ‘at
least six months before the expiry of the initial lease period’
(clause 2.2.1). It was then stipulated that the same terms
and
conditions would apply to all renewal periods save that ‘the
rental consideration will be determined by agreement between
the
parties . . .’ (clause 2.2.2). The first event, the giving of
at least six months’ notice did occur in due time
in this case.
There was thus compliance by the tenant with clause 2.2.1. But that
was insufficient to bring a contract of lease
into existence. The
essentials of a contract of lease are that there must be an
ascertained thing and a fixed rental at which the
lessee is to have
use and enjoyment of that thing (
Kessler
v Krogmann
1908
TS 290
at 297; W E Cooper
Landlord and
Tenant
2ed
(1994) at 3). As agreement upon rent is an essential element of a
lease, until such agreement has been reached no lease
is concluded (W
E Cooper at 346).
[9]
Indeed, as Broome J pointed out in
Biloden Properties v Wilson
1946 NPD 736
at 744-5:
‘
.
. .But in the present case the giving of notice under clause 11 does
not bring a contract into existence, for all the terms, other
than
the period, have still to be arranged. And unless those terms are
agreed upon there will be no contract at all. In my opinion
the true
effect of clause 11 is that the due exercise by the lessee of the so
called option is nothing more than a notice to the
lessor that he
wishes to renew and desires to negotiate. The parties are then in the
position of negotiators, but neither is obliged
to agree to anything.
It may be that some duty to act in good faith is cast upon the
lessor, but the exact nature and extent of
the duty, if it exists at
all, are impossible to define. Nor is it necessary to do so. The
important point for the purposes of
this case is that, if my view of
the effect of clause 11 is correct, it becomes apparent that the
lessee’s rights, whatever
they may be, are not affected by the
fact that no agreement was reached before the termination of the old
lease. Seeing that the
lessee cannot claim that the lease has been
renewed until the terms of the new lease have been agreed, it does
not seem to matter
when agreement is reached, whether before or after
the termination of the original lease. The lessee has given due
notice of his
desire to negotiate; he must now show that agreement
has been reached, expressly or by implication. . . .’
[10]
The failure of the parties to reach agreement in terms of clause
2.2.2 on the rental to be paid,
was not, without more, the end of the
road for the lessee (contra
Premier,
Free State and Others v Firechem Free State (Pty) Ltd
2000
(4) SA 413
(SA) para 35). As it was put in
Southernport
Developments (Pty) Ltd v Transnet Ltd
2005
(2) SA 202
(SCA);
[2005] 2 All SA 16
(SCA) para 7:
‘
Our
law has . . . long accepted that principal parties to a contract may
delegate to a third party the responsibility of fixing
certain terms.
Thus parties may validly agree that the price of an article sold may
be fixed by a named third party (Grotius 3.14.23)
and they may leave
the determination of the rental in a lease agreement to a particular
arbitrator (Voet 19.2.7).’
However,
when the parties failed to reach agreement on the rental in
accordance with clause 2.2.2, the lessee simply did not invoke
clause
2.2.3. The first allusion on the part of the lessee to clause 2.2.3
was after the termination of the agreement by effluxion
of time. But,
at that stage, clause 2.2.3, which did not survive the agreement,
could no longer avail the respondent. (
Shepherd Real Estate
Investments (Pty) Ltd v Roux Le Roux Motors CC
[2019] ZASCA 178
;
2020 (2) SA 419
(SCA) para17). This conclusion renders it unnecessary
to consider whether or not properly construed the clause was capable
of creating
legally enforceable obligations. (See in that regard
Southernport Developments (Pty) Ltd v Transnet Ltd
and
Shepherd Real Estate Investments (Pty) Ltd v Roux Le
Roux Motors CC)
. It follows that the appeal must succeed.
[11]
In the result:
(a)
The appeal is upheld with costs, including those of two counsel.
(b)
The order of the court below is set aside and replaced by:
‘
(i)
The application succeeds with costs.
(ii)
It is declared that the notarial agreement of lease entered into
between the parties
on 29 June 2004 terminated by effluxion of
time on 31
May 2014.
(iii)
The first respondent is ordered to vacate the property described as
Erf 83, Flagstaff
within two (2) months from the date of the granting
of the order.’
__________________
V M
Ponnan
Judge
of Appeal
Appearances
For
appellant:
T Ngcukaitobi SC (with him M Meyer)
Instructed
by:
Ledwaba Mazwai Attorneys, Pretoria
Kramer
Weihmann Joubert, Bloemfontein
For
first respondent: AJ Troskie SC
Instructed
by:
Hay & Scott Attorneys, Pietermaritzburg
Phatshoane
Henney Attorneys, Bloemfontein