The sale of a rental enterprise

11 Sep 2014 3 min read Dispute Resolution Matters Article

In Boschoff v Theron the court applied the said maxim and held that upon transfer being passed to the purchaser the previous landlord is divested of his rights and obligations as the lessor and a tenant cannot recover any loss or damages from the previous landlord.

In practice, purchasers often inherit poorly drafted agreements of lease, which contain certain ancillary charges for which tenants are liable, including turnover rentals, pro-rata operating costs and so on. Such agreements are common in rental enterprises comprising of shopping centres or malls, and often give rise to disputed claims.

A purchaser who has acquired commercial property may have tenants who have claims against the previous landlord (for example overpayment of rental or utilities). The tenants either claim remission of rentals or withhold future rentals in lieu of such overpayments. This is a cause for concern for any purchaser taking over a new rental enterprise.

The question that now arises is whether the purchaser would be liable to the tenant for obligations not fulfilled by the previous landlord during the currency of the lease but prior to transfer taking place? Who is liable for the tenants' rights flowing therefrom?

One would expect to find the answer in the sale agreement itself. However this is not always the case. Sale agreements often contain terms which are vague, ambiguous, and sometimes contradictory from a litigation point of view. The same goes for the terms of the lease. The huur gaat voor koop maxim also does not satisfactorily deal with this question.

The case of Scrooby v Gordon & Co (cited in many judgments) dealt with this issue and held that the tenant has a right of action against the purchaser in respect of the 'ordinary obligations' of a landlord arising during the continuance of a lease. However, it still does not deal with the rights and obligations which arose prior to transfer taking place.

In our view (and unless the sale agreement provides otherwise) the tenant has, in the case of overpayment, an enrichment claim against the previous landlord. It is a personal claim and the tenant cannot therefore look to the purchaser in recourse.

Consequently, any rights or obligations which arise prior to transfer cannot be assumed by or carried over to the purchaser, unless the latter consents to this or it is contractually provided for. The purchaser assumes the previous landlord's future obligations but not retrospectively. In addition, it is our view that the rights and obligations assumed by the purchaser (in this case) cannot be said to constitute ’ordinary obligations arsing in the continuance of a lease’ as held in Scrooby v Gordon & Co.

Purchasers are advised to ensure that agreements of sale are clear and unambiguous on this issue. We also advise that parties record the transfer by concluding an addendum to the lease, which stipulates the reciprocal rights and obligations which are now being assumed by the purchaser from the previous landlord. Preferably, the tenants should also be requested to become party thereto.

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