Consumer Information

Author : Maryna Botha – STBB
7 July 2016

CONSIDER THIS BEFORE CANCELLING A LEASE
LOBELIA INVESTMENT (PTY) LTD V RTT GROUP (PTY) LTD (9837/2014) [2016] ZAKZDHC 21 (23 MAY 2016)

To-ing and fro-ing in negotiations regarding alterations to premises before commencement of the lease period, lead the tenant in this matter to ultimately walk away from the deal as the premises appeared not to be ready for occupation on the lease commencement date. The tenant however did not follow the notice period prescripts in the breach clause. Was the cancellation legally valid?

SUMMARY OF JUDGMENT

FACTS
Lobelia Investments (Pty( Ltd (Lobelia) entered into a 12 month lease agreement with RTT Group (Pty) Ltd (RTT) on 20 December 2013. The agreement was partly oral and partly in writing.

The written agreement provided:
• for occupation on 1 January 2014; • for certain alterations that the landlord (Lobelia) would install at its own cost (clause 27);

• that, should the leased premises not be ready for occupation on the commencement date due to, amongst other things, the building operations not having been completed, then the tenant would “have a claim for cancellation of this lease and for damages or other right of action against the landlord. Should the tenant agree and undertake to take occupation of the leased premises upon a later date, the landlord shall ensure that the leased premises will be available for occupation by the tenant on such later date and the lease shall commence on such date as agreed between the parties …”(clause 20);

• that in the event of breach, the steps in clause 10 had to be followed, which included a requirement that 14 days’ notice to the guilty party to remedy the breach had to be given.

When Lobelia received the signed agreement from RTT (in the period 20 – 24 December), it noticed that the lease made provision for an extension of the lease period for a further three months without a concomitant provision for an escalation of the rental. RTT made handwritten changes to the document to provide for a rental escalation for the additional period and sent the document back to RTT. RTT’s offices responded to this (on 24 December 2013) by stating that the amendment was irregular as the extended lease period was agreed to between the parties but that no agreement was reached regarding a rental escalation for that period. They advised therefore in an e-mail that they “cannot accept the escalation being added after signature by us. Most of the directors are on leave and I will only be in a position to raise this with them in the new year.”

To this Lobelia responded and stated that if its changes were not accepted, there would be no lease agreement. RTT’s legal officer responded to this, basically reiterating the message in its earlier e-mail.

On 27 December 2013, a director of RTT sent an e-mail to Lobelia confirming that the “initial lease has been signed, it is just the extension that needs to be approved.” RTT went on to suggest a 7% escalation for the extension period and requested the premises to be ready for move-in on 4 January 2014.

The material terms of the oral part of the lease were to the effect that:
• RTT agreed to extend the occupation date from 1 January 2014 to 1 February 2014 and RTT would commence paying rental on 1 February 2014.
• RTT agreed that the escalation rate for January to March 2015 would be 7% per annum.
• Lobelia tendered unconditional occupation of the premises on 1 February 2014.

In communications in the period from 23 December 2013 to 13 January 2014, the details regarding the required amendments were expanded on and certain additional requirements were stipulated, notably installation of a roller shutter door.

The finishes were not completed by 1 January 2014 and RTT was informed, on 8 January 2014, that the date of occupation was moved to 1 February 2014, to which RTT agreed.

Nonetheless, on 16 January, RTT advised that it was not prepared to wait until the end of January to occupy the premises and accordingly would no longer lease the property. To this Lobelia replied and demanded that RTT perform and comply with its obligations in terms of the agreement.

On 21 January 2014, RTT inspected the premises and Lobelia thereafter received a call from RTT demanding the keys to the property and access.

The premises were however not ready for occupation on 1 February either. An important factor here was the roller shutter door, an additional requirement not listed in the initial agreement, which was an important requirement for RTT and which had not yet been installed. RTT therefore cancelled the lease on 3 February 2014 on the basis that the premises were not ready for occupation. Lobelia argued that RTT had repudiated the agreement and claimed lost rental and damages. RTT alleged that it had validly cancelled the agreement.

HELD:
Repudiation
• Repudiation has sometimes been said to consist of two parts – the act of repudiation by the ‘guilty party’ evincing a deliberate and unequivocal intention no longer to be bound by the agreement, and the act of his adversary, accepting and thus completing the breach. To explain with a simple example: Where A and B are parties to an executor contract and A intimates by word or conduct that he no longer intends, or is unable, to perform it, or to perform it in a particular manner, he is in effect making an offer to B to treat the contract as dissolved or varied so far as it relates to the future. If B elects to treat the contract as thereby repudiated, he is deemed according to the language of many decided cases, to “accept the repudiation and is thereupon entitled (a) to sue for damages in respect of any earlier breach committed by A and for damages in respect of the repudiation, (b) to refrain from himself performing the contract any further.”

• Thus the ‘innocent party’ to a breach of contract justifying cancellation exercises his right to cancel (a) by words or conduct manifesting a clear election to do so and (b) which is communicated to the ‘guilty party’. Except where the contract itself otherwise provides, no formalities are prescribed for either requirement. Any conduct complying with those conditions would therefore qualify as a valid exercise of the election to rescind and the innocent party need not identify the breach or the grounds on which he relies for cancellation.

• The test as to whether conduct amounts to such a repudiation is whether, fairly interpreted, it exhibits a deliberate and unequivocal intention no longer to be bound.

• Lobelia’s contention that RTT repudiated the agreement cannot succeed. On the facts, it appeared that RTT still considered itself bound to the agreement which was why they did an inspection of the premises as late as 21 January 2014.

Did the parties conclude a valid agreement of lease?

• Considering the facts and evidence, it was clear that the parties undoubtedly concluded a valid lease agreement. Both parties elected to amend the written agreement, partly oral and partly in writing. RTT added a specific requirement regarding a roller shutter door and Lobelia effected changes to the lease without it being countersigned by RTT. However, the conduct of both parties show that they were in agreement on the terms of the lease during January 2014.

Could RTT validly cancel the lease on 3 February 2014?

• RTT relied on Lobelia’s breach (failure to complete the stipulated renovations timeously) as basis for its entitlement to cancel.

• The written lease agreement however provided for breach and stipulated what had to be done – i.e. clause 10 of the agreement ought to have been enforced and 14 days’ notice should have been given. There was no evidence that RTT had performed in terms of clause 10.

• Clause 20.3, which afforded RTT a specific remedy in the event that the premises were not ready for occupation, should be read in context with clause 10 and did not give RTT the right to cancel without complying with the notice period in clause 10. So, whilst clause 20.3 did not refer to a notice period, clause 10 did and should have been adhered to.

• The cancellation was therefore invalid and RTT was accordingly liable for the arrear rental for the period February 2014 to July 2014 (since the lease remained valid until terminated with effect on 31 July 2014).

Was Lobelia entitled to damages?

• The evidence before court showed that Lobelia had cancelled the lease and informed RTT that a new tenant would lease the property from 1 July 2014 until 31 January 2015.

• Lobelia, given the facts, was entitled to the damages suffered for the remaining months of the initial lease period (February and March 2015) when no rental was received from RTT.

CONCLUSION:
Judgment was accordingly granted in favour of Lobelia.

 The Judgment can be viewed here: