Genna-Wae Properties v Medico-Tronics
Genna-Wae Properties v Medico-Tronics (1995) is an important case in the South African law of lease.
Medico-Tronics had entered into a written agreement of lease with a certain corporation in terms of which Medico-Tronics hired a unit in a building in Durban for a period of three years, commencing on September 1, 1991. At the time the lease was entered into, the close corporation was the owner of the property.
On July 30, 1992, ownership of the property passed to Genna-Wae Properties in pursuance of an agreement of purchase and sale. Medico-Tronics was notified of the change of ownership probably around September 1992. Thereafter Medico-Tronics informed Genna-Wae that it did not wish to continue with the lease, and gave notice of its intention to vacate the premises.
The court a quo held that, on a change of ownership of the leased property, the lessee may elect to bring the lease to an end.
On appeal, the court held that, in South African law, the alienation of leased property consisting of land or buildings in pursuance of a contract of sale does not bring the lease to an end.
The principles relating to the rule huur gaar voor koop were discussed. Under Roman law, a lease of property (locatio conductio rei) conferred only jura in personam. More particularly, the lessee held no real right in the leased property; he merely enjoyed contractual jura in personam against the lessor by virtue of the agreement of lease. Consequently, if during the currency of the lease the lessor alienated the leased property in terms of, say, a contract of sale, the purchaser (and new owner) was not bound to recognise the lessee's rights of occupation under the lease, unless he had undertaken to do so.
The main authority referred to in this regard is the Codex of Justinian, which reads as follows:
It is not necessary for the purchaser of land to permit the tenant to whom the former owner leased it to remain until his lease has expired, unless he bought the property under this condition. If, however, it is proved by any agreement that he did consent that the tenant should remain until the expiration of his lease, even though this may not have been reduced to writing, he will be compelled by an action of good faith to comply with the contract which he made.
The inequity of the tenant's position in these circumstances led to a desire to find a principle which would give him security of tenure. This principle was found. It is called the huur gaat voor koop principle (literally "hire takes precedence over sale").
The rule is limited to leases of land and buildings, and confers upon the lessee the real right to continue to occupy the property. It precludes the new owner from ejecting him, for the remainder of the lease, provided that he continues to pay the rent due under the lease.
The impact of huur gaat voor koop in modern South African law is that the purchaser (the new owner) is substituted ex lege for the original lessor, and the latter falls out of the picture. On being so substituted, the new owner acquires, by operation of law, all the rights of the original lessor under the lease.
At the same time, the new owner is obliged to recognise the lessee and permit him to continue to occupy the leased premises in terms of the lease, provided that he (the lessee) continues to pay the rent and otherwise observes his obligations under the lease.
The lessee, in turn, is also bound by the lease. Provided that the new owner recognises his rights, the lessee does not have any option, or right of election, to resile from the contract on the alienation of the leased property by the original lessor.
Genna-Wae won.
The court a quo's finding in this case had already come under some criticism before it was heard on appeal. Kritzinger, for example, noted that, in Roman law, a lessee did not have a real right in the hired property, but merely a personal right against the lessor on the contract. If the lessor sold the property, the buyer could generally evict the lessee. In this regard the Roman law was modified by the huur gaat voor koop principle, which principle became part of the Roman-Dutch law. Accordingly, the rule is not based on legal principle but is merely an expression embodying the general effect which custom and legislation had introduced into the law governing the lease of lands and houses: that is, that the buyer will be bound by the material terms of the contract, and therefore bound by the option to renew the lease.
Furthermore, Kritzinger noted Voet's statement that, as a result of the adoption of the principle, the Roman-law remedy of suing the seller for damages after being ejected had been replaced by the availability of a right to continue the tenancy. The adoption of the principle therefore ended the Roman-law action for damages against the seller.
Thus, if the lessee elects not to abide by the lease, no damages may be recovered by him if the lessor is prepared to allow the tenancy to continue. The Appellate Division has adopted the approach of an automatic transfer of rights and obligations from the original lessor to the purchaser.
Another commentator, Currie, in the Annual Survey of South African Law 1995, considered the following question: Does a change in ownership of hired property following its sale give the lessee a right to choose whether to continue with the lease? According to Squires J, in the court a quo in Genna-Wae, this right to choose exists; later that year, however, in One Nought Three Craighill Park v Jayber, Heher J for the WLD held that this right does not exist.
Currie commented on Kritzinger's assertion that there was nothing in Voet to support the view that the lessee had a right to discontinue the tenancy without liability, if the purchaser wished to continue with it. If Kritzinger is correct, Currie argued, this would mean automatic transfer of rights and obligations under the lease to the new owner following the sale and transfer of the leased property. The new owner is simply substituted as lessor for the old.
Nor, Currie continued, was there any basis either in Roman-Dutch law or in South African law for holding that the automatic substitution of purchaser for seller as lessor, on transfer of the leased property pursuant to a sale of it, was subject to a condition that the lessee shall first have elected to continue hiring the property.
Thus the rule that the new owner of hired property may not eject a lessee should be balanced by the rule that the lessee is required to abide by the terms of the lease.