Right of first refusal and other important aspects of rental renewals
Category Newsletter: Article
When it comes to renewing the rental agreement of an existing tenant, it has become vital to ensure that the terms are expressly agreed to and again reduced to writing and signed by both parties. A recent Constitutional Court judgement has made it clear that by not doing this, it will be deemed renewed on the same terms as the original rental agreement.
It often happens that the landlord and tenant agree verbally or perhaps via email to renew the rental agreement, but there might be aspects of the original terms that may need to be revisited. One such aspect, is the ‘right of first refusal’ which is often included in a rental agreement.
This right of first refusal (sometimes called a right of pre-emption) gives the tenant the opportunity to put in a first offer to purchase on the property should the landlord decide to sell.
The recent Constitutional Court case, Mokone v Tassos Properties CC 2017 had to deal with exactly this aspect which was included in the original lease agreement. The agreement was then later extended, first orally and later through a written endorsement.
The owner however, later sold the property to a third party without the right of first refusal and the matter made its way to the Constitutional Court. The court in its judgement, held that “lay person(s), when renewing a lease on the same terms and conditions, would regard the contents of a document setting out the terms of their lease and a related agreement to agree of whatever nature as their ‘lease’ and therefore a right of first refusal would form part of any renewal”.
The precedent set by this case, is that in the absence of an express intention to the contrary during the renewal of a lease (either oral or written), its collateral parts (including a right of first refusal) are also deemed to have been automatically renewed regardless of form or procedure.
That means that in the absence of a new agreement, the lease is deemed to have been renewed on the same terms contained in the original lease. This judgement has highlighted the importance of ensuring that the terms upon which the lease is renewed, is again discussed by both parties and agreed to and then put in writing and duly signed by both parties.
Author: Coastal Property Group
