On 11 October 2016, the applicant company (“the lessor”) concluded a written lease agreement (“the lease”) with the respondent (“the lessee”) in terms whereof the hotel and the property on which it is located were leased to it for a period of 20 years.
By the end of 2016, the lessee began defaulting on its monthly rental and other obligations towards the lessor. The latter consequently elected to cancel the lease. Notwithstanding the cancellation, the lessee refused to vacate the hotel and disputed the cancellation on the basis that when it stepped into the shoes of the previous tenant, the change of tenancy was facilitated by a so-called term-sheet intended to regulate the parties’ contractual relationship for an indefinite period.
A loan, which the lessee had obtained from a bank, was insufficient to cover its refurbishment of the hotel. The lessee alleged that it was a tacit term of the term-sheet, that the lessor would obtain an additional loan facility of R 30 million for the lessee and make it available by a certain date. Further, it was alleged that the lessor breached the term sheet by failing to make the loan available to the lessee timeously, and that such breach was causally connected to the lessee’s failure to pay the rental due.
Thus, the Court had to consider, inter alia, whether this tacit term could be read into the agreement despite the lease having been reduced to writing.
In rejecting the lessee’s arguments, the court relied on the decision of Academy of Learning (Pty) Ltd and set out the following 3 categories where a defaulting party’s breach of a contract would be obviated by the wrongful conduct of a counter-party of that contract. The 3 categories were as follows:
1. where the wrongful conduct of the lessor made the performance of the lessee impossible;
2. where the lessor’s wrongful conduct constitutes a deliberate intention on its part to prevent the lessee’s performance; or
3. where the lessor’s conduct in itself constituted a breach of an express or implied term of the agreement in circumstances where the conduct of the lessor was required for the performance of the lessee.
The lessee relied exclusively on the application of category three, which required that the wrongful conduct complained of on the part of the lessor had to be in breach of an express, implied or tacit term of the lease agreement itself.
The court concluded that no tacit term had been proved, and held that the lessee was in default of its obligations to pay the rental due in terms of the lease and the lessor was entitled to cancel the contract. It was ordered that the lessee vacate the premises, failing which the Sheriff of the court was authorised to eject it.
The circumstances in which a lessee might rely on a claim against a lessor, attempting to evict it, as a defence seem to have been appropriately limited by the courts.
Written by Jordan Dias and supervised by Pierre van der Merwe, 11 February 2019