The Appellant, Roazar CC (“Roazar”), sought an order on appeal evicting the Respondent, the Falls Supermarket CC (“The Falls”), from a shopping centre owned by Roazar at which The Falls had been conducting a business known as “The Spar”.
On 2 February 2016, The Falls wrote to Roazar stating it wished to renew the lease for a further period of five years. However, on 31 March 2016 Roazar’s attorneys of record responded stating that the lease had terminated through the effluxion of time on 29 February 2016 and that The Falls was required to give one month’s written notice of its intention to exercise the right of renewal. It alleged the notice was not provided and, further, that The Falls had breached the agreement by its failure to pay the full rental amounts due. The Falls was given notice to vacate the premises by 30 April 2016.
In May 2016 Roazar filed an application for eviction in the court a quo and instituted a separate action claiming for arrear rental. The Falls successfully opposed the eviction application, stating that it had, since at least 2014, and again in January 2016, advised Roazar that it wished to exercise its right of renewal, which Roazar appealed.
The Supreme Court of Appeal (“SCA”) was limited to decide upon the eviction of The Falls. From the outset the SCA was of the view that the dispute may be disposed of by establishing whether Roazar was entitled to terminate the contract. It relied on the assumption that all separate but linked lease agreements between the parties were valid. The SCA added that even if the agreements were invalid, once the notice was given to The Falls, it had no right to remain in occupation of the premises.
Thus, the question arose whether The Falls exercised its pre-emptive right of renewal within the time provided for. Roazar contends that The Falls’ letter of 2 February 2016 did not constitute sufficient notice in that the option to renew had to be exercised, in writing, by no later than 29 January 2016. The Falls in turn argued that the applicable clause in the agreement only references the need to ‘negotiate’ the terms of the contract at such time. The SCA agreed with the Falls’ submissions and confirmed that the correct interpretation is that The Falls had to notify Roazar at least one month before expiry of the lease that it wished to exercise its option. It did not have to do so in writing and until another agreement could be concluded, the existing agreements would continue on a monthly basis, subject to one month’s notice of termination.
In its letter, Roazar terminated the contract by giving one month’s notice. That should’ve ended the matter, but The Falls argued that termination was not permitted until good faith negotiations had ensued. This takes us to the second point of dispute.
The SCA reiterated the general rule that an agreement to negotiate and conclude another agreement is not enforceable because of the absolute discretion vested in the parties to agree or disagree. But, the courts have been prepared to enforce the terms of a contract that require parties to negotiate in good faith, in instances where there is a deadlock-breaking mechanism. Referring to the case of Makate v Vodacom Ltd 2016 (4) SA 121 (CC) para 101, the Constitutional court said
“…here the agreement to negotiate in good faith the amount of the compensation payable contained a deadlock-breaking mechanism. The parties had agreed that in the event that they disagreed on the amount to be paid, Vodacom’s CEO would determine the amount. It is how the parties in their wisdom formulated the relevant clause, and their choice must be respected and given effect. This is what they have bargained freely, and consequently they must be held to it.”
Accordingly, counsel for The Falls submitted that the contract contains what is akin to a deadlock-breaking mechanism, which the SCA rejected, confirming that the payment of rental and an option to terminate are not aimed at the resolution of deadlocks. Further, the SCA confirmed that there was no obligation on Roazar to continue negotiations with The Falls. In the alternative, The Falls submitted that the common law should be developed to recognise the validity of an agreement to negotiate where there is no deadlock-breaking mechanism, citing the case of Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd 2012 (1) SA 256 (CC):
“… it is highly desirable and in fact necessary to infuse the law of contract with constitutional values, including values of ubuntu, which inspire much of our constitutional compact…Where there is a contractual obligation to negotiate, it would be hardly imaginable that our constitutional values would not require that the negotiation must be done reasonably, with a view to reaching an agreement and in good faith.”
However, the SCA pointed out that development of the common law to induce negotiations in good faith is not without complications. Citing the case of Bredenkamp & others v Standard Bank of South Africa Ltd 2010 (4) SA 468 (SCA) the court in that instance held there is no fairness in obligating the bank to retain a client, as it had a valid contract which gave it the right to cancel same. The ensuing termination did not offend any identifiable constitutional values and was not contrary to any public policy considerations. Concluding that it is not for a court to assess whether or not a bona fide business decision, which is, on the face of it, reasonable and rational, was objectively ‘wrong’ where in the circumstances no public policy considerations are due. The SCA had further regard to the article ‘The uneven journey to uncertainty in contract’ (2013) 76 THRHR 80, wherein it concludes that a contracting party should be entitled to rely on the contract itself, unless if offends public policy or our constitutional values, as no one can rely on a general duty to bargain in good faith – it is illusory.
Having regard to the above, as well the fact that the agreements are silent on how long negotiations were required to take place and what criterion would be used to verify if parties were negotiating in good faith. The SCA concluded that if we accept that the negotiations had been ongoing since 2014, one must accept that the parties have been at loggerheads for two years on a material term of the contract.
A final point raised by the SCA is that in its replying affidavit Roazar explicitly stated that it has no intention of ever leasing its property to The Falls. Therefore, the SCA concluded that it would be against public policy for a court to coerce a lessor to conclude an agreement with a tenant whom it does not want to have as a tenant any longer, concluding that It is difficult to conceive how a court, in a purely business transaction, can rely on ‘ubuntu’ to import a term that was not intended by the parties and deny the other party the right to rely on the terms of a contract.
The SCA upheld the appeal by Roazar with costs, ordering the eviction of The Falls and all other persons who occupy the premises through The Falls.
The SCA was called upon to develop the common law by relying on constitutional values and to impose a duty on a landlord to negotiate the renewal of a lease agreement if it records an agreement to agree. However, the SCA held that one cannot rely on ‘ubuntu’ and the like to import a term not intended by the parties and that it is against public policy for a court to coerce a lessor to conclude an agreement with a tenant whom it does not want to have as a tenant any longer.
Written by Danmari Bouwer and supervised by Jasvir Sewnarain, 6 February 2019