The Constitutional Court recently handed down a judgment in the matter of Ntswaki Joyce Mokone v Tassos Properties CC and Another (“Mokone”) where it developed the common law as it applies to the renewal of a lease agreement.

Mokone involved an initial written lease agreement of immovable property, which was subsequently renewed orally and thereafter, in written form, through a one line endorsement across the face of the lease agreement. The initial written lease agreement contained a right of pre-emption and the issue which came before the Constitutional Court related to whether this right of pre-emption survived the subsequent renewals.

A right of pre-emption is the right of first refusal that the holder of the right of pre-emption has against the grantor

Lease agreements predominantly contain terms unique to the landlord and tenant relationship such as the identity of the property being leased, the rental payable and the duration of the lease agreement.  A right of pre-emption in a lease agreement is however regarded as being ”collateral to, and independent of“ the landlord and tenant relationship. This is because it does not impact on that relationship.

The common law, which is the body of law developed by judges and courts, provides that only terms that are incidental to the landlord and tenant relationship, and not collateral terms ( a right of pre-emption), carry over in a lease agreement which is simply renewed without further ado.

The Constitutional Court stated that it was unfair to differentiate between different terms and to apply different consequences to them. It reasoned that if a layman were to renew a lease agreement without stating more, then such a person would ordinarily understand the renewal to have the consequence of carrying over all of the terms of the lease agreement so renewed, including any right of pre-emption. It accordingly held that the common law, as it stood, was unfairly skewed in the favour of landlords, and required reformulation.

This  new approach to renewals of lease agreements states that if parties to a lease agreement extend it without stipulating anything more,  all of the terms of the lease are extended (even any right of pre-emption) , save for any terms which, if carried through to the subsequent lease agreement, would result in an absurdity.

It is likely that the principles that flow from Mokone would apply to other agreements containing collateral terms. One field of possible application which immediately springs to mind in the commercial setting relates to options and pre-emptions involving the sale and purchase of shares.

For more infromation, please contact Warren Parker on +27 41 396 9200.