Leases often give tenants an option to extend or renew at the end of the current term, and tenants who lose sight of the value and importance of such an option are flirting with disaster.
In a nutshell, when the time comes to exercise your option do comply fully with the clause’s requirements. Make sure also that you understand and accept the exact wording of the renewal clause before you sign the lease. Drop the ball in either respect, and if your landlord wants you out for whatever reason, you will struggle to convince a court to come to your rescue by forcing an unwilling landlord to renew.
Four recent court cases – one in the Constitutional Court, two in the Supreme Court of Appeal (SCA) and one in the High Court) illustrate, but before we get there here’s a quick note for landlords…
This is of course also highly relevant to you – the last thing you want is for a poorly-worded clause to lumber you with an unwanted tenant, or an unrealistically low rental, or even just with a bitter and expensive legal fight over what the clause actually means. Nor, as we shall see below, do you want to run the risk of a court holding the terms of your lease to be so unfair as to be unenforceable.
First case: Non-compliance v unfairness, Ubuntu and public policy
Second case: Renewal clause void for vagueness
For ten years a tenant occupied premises in terms of an original lease and agreed renewals. When it gave notice of a further renewal, the parties were unable to agree on a rental, the renewal clause providing that … “the rental and costs shall be mutually agreed upon in writing between the Landlord and the Tenant when the right of renewal is exercised”.
The landlord applied for eviction and the SCA held that the term was unenforceable, being merely an agreement to agree rather than containing any “legally enforceable obligations”. The renewal clause was void for vagueness and the tenant was given 14 calendar days to vacate.
Third case: No agreement on rental, too late to call in a third party
A tenant gave notice of renewal, the lease in this case providing that “the rental consideration will be determined by agreement between the parties based on the prevailing market rental’s applicable to the property”, and if they could not agree, a third party would determine it.
The lease, held the SCA, had terminated because the tenant had only tried to invoke the third party clause after the lease had lapsed. The rental must be fixed or agreed for the renewal to be valid.
Fourth case: No notice of renewal and no deadlock breaking mechanism
The tenant in this case failed to give notice of renewal on time, his attempts to negotiate an extension with the landlord failed, and the High Court ordered his eviction. The tenant’s argument that over the years it had become “customary” for the landlord just to remind him about an upcoming expiry and ask him if he wanted to renew was, said the
Court, irrelevant because the clause itself was not “definite and complete”.
The clause provided “that the parties agree in writing to the rental, conditions and provisions of the proposed lease” and even if the tenant had given proper notice of an intention to renew, the parties would still have had to negotiate terms, and there was no “deadlock breaking mechanism” in the lease.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)