A right of pre-emption is a contractual right, affording the holder the first opportunity to purchase property, before it can be offered to another buyer. In other words, it is a right of first refusal. The right usually exists for an agreed period.

A recent Constitutional Court judgment, Mokone v Tassos Properties CC and Another 2017 [ZACC] 25, dealt with a right of pre-emption that was contained in an agreement of lease. One of the questions that was answered in this case was whether the period for a right of pre-emption in a written lease agreement was automatically extended when the lease was extended.

The facts of the case were the following: In 2004 Ms Mokone, the tenant, entered into a written 12-month lease agreement with the landlord, Tassos Properties. The agreement granted the tenant a right of pre-emption. The parties thereafter orally renewed the lease for another year and later extended the agreement for a further period until 2014, which renewal was endorsed on the front page of the lease agreement.

During the period of the lease, the landlord sold the property to a 3rd party without first offering it to the tenant, who only became aware of the sale in 2010. The tenant then notified the landlord that she wanted to exercise her right of pre-emption and offered payment of the same purchase price. She asserted that her right of pre-emption was automatically extended along with the lease and that the sale by the landlord to the third-party buyer was therefore invalid and able to be set aside.

The landlord argued that when the lease was extended, only those terms essential to the lease were carried forward, and that the right of pre-emption therefore lapsed when the initial period of the lease expired. The Constitutional Court however did not agree. The Court held that the contract in its entirety had been extended, including the right of pre-emption. We must now accept that this is the law. All ancillary agreements contained in a lease will also be extended with the lease unless specifically stated otherwise.

As an aside, the Court also confirmed that to be valid, a right of pre-emption need not comply with the formalities prescribed in the Alienation of Land Act, i.e, it need not be in writing. A verbal agreement granting a right of pre-emption will therefore also be binding and enforceable.

What do we learn from this? If you are an agent, and you are selling a property that is subject to a lease, make sure you check the lease carefully before marketing the property. You need to look for pitfalls like rights of pre-emption so as to protect both your seller and any prospective buyers from the consequences of overlooking a clause like this. If you are a landlord or a tenant, be aware of your rights and obligations as contained in the first lease agreement you signed. This will be carried forward to future renewal agreements unless you sign a new contract that differs, or unless you expressly exclude the clause in your addendum to extend.

Deon Welz and Storm Barry
June 2018