Lease cancellation to increase rent

Terminating lease for higher rental?

By | Eviction law case summaries, Lease cancellation to increase rent

CASE SUMMARY: Mphando v Aengus Lifestyle Properties Case no.: 611/201 In the Supreme Court of Appeal

By Simon Dippenaar & Associates Inc.*

The 18 appellants were lessees of flats in a ten-storey building in Johannesburg, which was owned by the respondent. The respondent applied to the South Gauteng High Court for the eviction of the appellants and their families on the grounds that their leases had been validly terminated. The appellants argued that the respondent’s termination of the leases was invalid and that even if the leases were validly cancelled, it would not be just and equitable to evict them.

In the High Court proceedings, the respondent conceded that two of the leases had not been validly terminated. The Court held that the remaining 16 leases were validly cancelled. In respect of 9 of the leases, the Court found that there were no grounds, based on justice and equity, to justify a refusal to evict them, and as such, they were evicted. In respect of the remaining 7 appellants, the Court held that the eviction would render them homeless and therefore it would not be just and equitable to evict them. The Court therefore postponed the matter so that the City of Johannesburg municipality could be joined as a party to determine alternative accommodation available. The appellants appealed the decision to the SCA.

The SCA had to determine whether the leases were validly cancelled. The respondent gave written notice of termination of the leases to each of the appellants, which called upon them to vacate on different dates. The appellants were notified that if they wished to remain in their flats, they would need to enter into new lease agreements with a significantly higher monthly rental. The appellants refused to accept the termination and could not afford to pay more. They, therefore, remained in the flats and continued to pay the rent as before. The respondent had spent approximately R1 million on renovations and servicing the building and, therefore, required a higher rent to be able to cover the cost of the bond, renovation and maintenance.

The appellants argued that the leases were not validly terminated because:

  1. Each lease agreement contained a tacit term which prohibited the respondent from terminating the lease agreements in order to effect a higher rental;
  1. To allow the respondent to terminate the lease agreements solely on the grounds of a rental increase would be contrary to public policy

The appellants relied on the officious bystander test, arguing that if the officious bystander were to ask the parties whether they intended the owner to be able to circumvent the rental increase provision by making use of the termination clause, the answer would have been no.

The appellants also contended that a tacit term was necessary to ensure the efficacy of the agreements. They argued that if the tacit term was not in place, the respondent would be able to demand an increase in rental simply by threatening to cancel the agreements.

The SCA found these arguments to be logically unsound and it would mean that the respondent entered into a lease of infinite duration without being entitled to terminate the agreements, even when they were not commercially viable.

The Court also found that a lessee of property has no security of tenure in perpetuity – the lease agreements could be terminated on notice. Therefore, it could not be argued that the termination of the leases constituted an infringement on the appellants’ right to security of tenure.

The appeal was therefore dismissed.

*Simon Dippenaar & Associates Inc. are a Cape Town law firm of specialised eviction lawyers in South Africa, with offices in Cape Town and Gauteng, and Durban, representing landlords and tenants with commercial, residential, and farm evictions.