Rental watch: 'Offer to purchase' made easy

Durban - Some tenants and owners are genuinely confused about the requirement of “the offer to purchase” and its incorporation into a lease agreement.

There are tenants who believe they were “cheated” by their landlords, who ignored their rights by selling or offered to sell the leased property to a third party.

Some tenants claim they were given the option to purchase the leased property orally at the time they entered into a lease agreement.

There are those who assume that their long period of occupancy entitles them to ownership, or at least, to the right to purchase the leased property, at the exclusion of others.

There are a few instances when tenants refused to vacate the dwelling or property on termination of a lease by becoming “imaginative” about an offer to purchase.

Landlord and tenant can mutually agree that the tenant be given the (i) option to purchase the dwelling to be leased or (ii) a preferential right to do so. This becomes binding once it is written into the lease contract, and upon parties having concluded such an agreement.

The option to purchase is an offer by the landlord/seller and must therefore have the essential elements of a contract of sale that includes the purchase price and the agreement of the (leased) dwelling or property.

Accordingly, a landlord who gives the tenant a written option to purchase the leased dwelling cannot sell it to a third party unless it is offered to the tenant and the latter declines or is unable to pay the purchase price.

In the absence of the written lease contract containing the period within which the tenant is required to exercise the option, this has to be done before the lease comes to an end. Once the tenant exercises the option by accepting to purchase, the landlord/ seller cannot refuse or change it; the option to purchase is irrevocable.

If the parties concluded a lease contract that contained a preferential right or a right to pre-emption this means that the tenant has the right of first refusal if a condition in the lease contract is fulfilled.

The condition is usually that when the landlord decides to sell, it must be offered to the tenant first.

This preferential right given to the tenant does not mean the landlord must sell the leased property but that when he/she decides to sell or proposes to do so, the tenant has the right of first refusal. This right may be for a period stipulated in the lease contract or a period that is reasonable.

It would appear that the price need not be specified because the landlord may or may not decide to sell the leased property. In other words, the preferential right is not an offer to sell at the conclusion of a lease contract but a right granted to the tenant that becomes operative if the landlord decides to sell.

Can a tenant lodge a complaint with the Rental Housing Tribunal of an unfair practice regarding a dispute that the landlord has refused or failed to offer the dwelling for sale to the tenant as stipulated in the lease contract? No!

A clause reads: “The tenant has the first option to purchase the dwelling during the lease period when the owner decides to sell.” Or, “The tenant has the first right of refusal on the dwelling for the purchase price of R120000 for a period of 12 calendar months from the start of this lease.” Or, the tenant’s employment is linked to a lease which in turns allows him the option to purchase provided he fulfil the terms of his employment and the lease (Mittermeier v Skema Engineering (Pty) Ltd 1984 (1) SA 121 (A)).

This aspect of the lease applies to a purchase and sale of the dwelling and the dispute with the landlord-owner does not relate to the use and enjoyment, rental and other terms and conditions of the lease contract.

The Tribunal does not have authority to resolve such a dispute.

However, last year, the Constitutional Court judgment in Mokone v Tassos Properties CC and Another 2017 (5) SA 456 (CC) changed the requirement that a verbal agreement is not binding. In terms of section 2(1) of Alienation of Land Act, 1981, for the right of pre-emption to be valid and enforceable, it must be in writing. When parties extend an expired lease, the right of pre-emption must be incorporated into the extend lease.

Generally, when a lease is extended, essential terms are automatically included such as the rental amount and the duration of the lease. Collateral terms such as a right of first refusal must be included and signed by both parties.

After the one-year written lease expired, the landlord Tassos Properties CC verbally agreed to extend Ms Ntswaki Joyce Mokone’s lease for another year. Thereafter, another extension was agreed and the landlord endorsed this on the first page of the original lease but Mokone did not sign.

The original written lease contained the right of pre-emption that gave Mokone the contractual right to buy the property in the event Tassos decided to sell. This right fell away in terms of the common law requirement since the extended lease did not specifically contain the pre-emptive right or in the second extension, Mokone failed to sign the endorsement.

The Constitutional Court found that in extending the lease, Tassos extended the right of pre-emption in favour of Ms Mokone. The court held that a right of pre-emption granted orally or in writing without signature is valid. It is for the tenant or landlord to seek legal advice when there is dispute relating to the option to purchase or a preferential or pre-emptory right.

Mohamed is chairperson of Organisation of Civic Rights & deputy chairperson of the KZN Rental Housing Tribunal. Contact Pretty Gumede or Loshni Naidoo on 031 304 6451 / pretty@ocr.org.za or loshni@ocr.org.za