Important aspects when selling a property with an existing lease agreement

It may happen that you decide to sell a property with a current lease and tenant in place. It is important to know that in terms of South African common law, an existing lease agreement may not be prematurely cancelled by the landlord because of the sale of the leased property.

This rule is embodied in the maxim "huur gaat voor koop", a Roman-Dutch legal principle which translates to the 'lease trumps a later sale'. This means that the tenant is entitled to remain in occupation of the property for the remainder of the lease period and on the same lease terms.

Any such existing lease must be disclosed upfront to the purchaser to avoid any future complications with the transaction. The purchaser will take over the lease agreement by substituting the seller and will have the same rights and obligations towards the tenant as the seller had.

Alternatively, the lease agreement may already provide the tenant with the option of cancelling the lease in the event of the sale of the property. In such event, there will be no cancellation penalties payable by the tenant.

Should there be no such provision, the tenant may also take the opportunity to cancel the lease in terms of the provisions of the Consumer Protection Act by giving 20-business days' notice and paying the relevant penalties.

Should the above not apply, the lease would simply carry forward to the purchaser and it is recommended that a Cession of the Lease Agreement be entered into signed by the seller, purchaser, tenant and the managing agent (if applicable).

The rental deposit together with interest must be transferred by the seller to the purchaser to continue holding it in an interest-bearing account for the benefit of the tenant. If at the expire of the lease no new lease is entered into with the tenant, then the deposit (with interest) will need to be refunded to the tenant subject to the relevant legal rights and obligations.

It is also recommended that a new inspection of the property is done with the new owner to ensure that there is agreement on the condition of the property and to mitigate any possible disputes at the end of the lease.

Source: https://stbb.co.za/

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