Landlord and Lessee rights when a tenanted property is sold

MARCH 14, 2017
Landlord and Lessee rights when a tenanted property is sold

As a tenant occupying a property that is about to be sold, are you obliged to move out once the property is sold, or are there rights that protect you?

In South Africa, tenants can use the legal principle of  "huur gaat voor koop" to protect their rights. This means that a lease agreement is given precedence over a sale agreement, which effectively means that the tenants are allowed to occupy the property until their lease agreement expires.

However, the principle of "huur gaat voor koop" only applies if the property is sold under "normal" circumstances, on the open market. This may not apply in situations such as distressed sales, where banks and sheriffs are involved.

If the property is put on auction by the bank (who hold the bond to the property)  and the bond was actually registered before the conclusion of the lease, then the bank and sheriff must try and sell the property subject to the lease as they are aware of its existence. But if the bids received are not sufficient to cover the banks claim, the obligation to honour the lease then falls away.

This obligation to honour the lease is also not enforceable if the bank and sheriff are not aware of the lease. If the tenant makes them aware of the lease AFTER the auction AND the bid covered the outstanding amount due to the bank, the lease must be honoured.

If the situation arises where the tenant steps forward but the bid did not cover the amount due to the bank, the lease can be cancelled.

One way of opting out of "huur gaat voor koop" is if the landlord includes a sales provision in the terms of the lease. This essentially allows both the landlord and the tenant more flexibility if the property is sold. This type of clause can allow either party to cancel the lease earlier than the required notice period, should the property be placed on the market for sale, provided both parties have agreed to this term.

Even if your lease agreement does not have this term, it is possible to cancel the lease early. However, the landlord can require the tenant to pay penalty fees, depending on the terms in the lease.

Contact Cara Knipe at Goldberg & de Villiers on 041 5019800.