Huur Gaat VoorKoop (Rent before Purchase)
Category Market Advice
Article Provided by Leanne Jooste, B Law Inc. Attorneys
"Huur gaat voor koop" is a Dutch saying that translates to "rent before purchase" in English. The phrase is commonly used in the context of property ownership and refers to the idea that it is often more financially advantageous to rent a property before purchasing it.
The reasoning behind this saying is that renting a property allows for more flexibility and less financial commitment compared to purchasing a property. Renting a property allows individuals to test out the neighborhood, see if they like the property, and avoid being tied down to a mortgage bond.
Overall, "huur gaat voor koop" is a wise piece of advice for those considering purchasing a property and emphasizes the importance of taking the time to carefully consider one's options before committing to a significant financial investment.
Meaning of the maxim (fundamental principle)
Loosely translated it means that an existing lease trumps a later sale. This means that in the case of a lease of immovable property, a tenant is protected against the rights of third parties which vested later in time than those rights of the tenant under the lease.
This maxim is especially relevant in the context when the property in question is sold to a new party. The purchaser (new owner) will take over the lease agreement by "stepping into the shoes" of the seller and have the same rights and obligations against the tenant as the seller of the property before the sale took effect.
The seller is substituted by operation of law, meaning no formal ceding of right is required, and the purchaser will automatically acquire all the rights and duties of the landlord under the lease. In other words, both the tenant and the purchaser will be bound to the lease agreement and neither party can resile from it without following the provisions contained in the agreement itself.
The purpose of the maxim
The maxim aims to protect the most vital part of the lease agreement namely the tenant paying rent to the landlord, in return for undisturbed quiet occupation of the property for the duration of the lease period.
Exceptions to the maxim
As will be discussed below, the maxim is however limited in its application, as all of the rights and obligations in terms of the lease are not necessarily protected. Generally, the maxim will only transfer rights that are related to the immediate relationship between landlord and tenant.
Mortgage execution
In cases where a mortgage bond preceded the lease agreement, the rights of the bank will take precedence over those of the tenant. In as much as the real right (mortgage bond) was registered before the lease was concluded such right will trump the "huur gaat voor koop" maxim.
Generally, in situations such as these, the bank or sheriff must try and sell the property subject to the leases as they are aware of their existence. But if the offers received are not reasonably sufficient to cover the claims of the bank the obligation to honor the lease will fall away and the choice to auction the property free of the lease is in the bank's discretion.
Sureties
Sureties continue to be bound to the purchaser in terms of the suretyship agreement in the event that the tenant omits to pay rental in terms of the lease agreement. As was confirmed by the courts, the seller is substituted by the purchaser by operation of law and therefore it is a natural result of such substitution that the purchaser also acquires the rights which the seller had against the surety for the tenant's obligations under the lease agreement. Thus, the purchaser is entitled to sue any sureties in terms of the agreement if necessary.
Managing Agent/commission clauses
As highlighted above, where "huur gaat voor koop" applies, the purchaser and tenant will only be bound by the essentialia of the lease agreement and need not comply with any additional, incidental obligations contained in the agreement. In other words, the parties will be bound by those terms of the agreement which gives the lease its relevant identity such as the terms which ensure undisturbed occupation of the property in return for compensation.
Often the lease agreement will include a clause providing for the services of a managing agent in return for a commission payable monthly, or as a once-off payment, and the question arises whether this provision is covered by the maxim.
It has been argued that such a provision is incidental to the agreement and to the landlord-tenant relationship as ancillary rights, thus not being protected by the maxim. Therefore, it is advisable for the Purchaser and agent to conclude a new agreement upon transfer of the property to avoid unnecessary disputes.
The same thinking applies to commission clauses relating to the sale of the property to the tenant by the landlord. Where the rental agent has a clause entitling the agent to commission in the event of the sale of the property to the tenant, in the event that the property is sold and the purchaser of the property subsequently sells the property to the tenant, it is argued that the leasing agent would not have a claim for commission against the purchaser.
Deposits paid in terms of the lease agreement
The purchaser will be held liable upon the end of the lease for any deposits the tenant may have paid, regardless of who may hold the original deposit amount. Therefore, it is advisable that should the purchaser who buys property that has an existing tenant, makes it a condition of the offer to purchase that any deposits and pro rata rental held by the existing landlord (seller) are to be transferred by the conveyancer to the purchaser upon transfer.
Option to purchase contained in the lease agreement
The case of Spearhead Property Holdings v E & D Motors (2010) dealt with a situation where a property was sold with a lease. In terms of the lease, the lessee had a right to purchase the property from the lessor. The court held that the lessee's option to purchase the leased property in terms of the lease agreement is not a primary part of the landlord-tenant relationship in which the maxim would apply.
Thus, the Supreme Court of Appeal held in its majority judgment that the tenant could only exercise his option against the seller who granted the option and not against the purchaser.
However, the court underlined that its ruling went hand in hand with the doctrine of notice, which prescribes that if the purchaser was aware of the tenant's prior right to purchase, the claim of the tenant may still be asserted and compel the purchaser to transfer the property against payment of the purchase price stipulated in the option. In this context 'notice' means prior knowledge and therefore it is essential to ensure that the content of any existing lease agreement is made known to any prospective purchaser.
In the context of property sales, this is important. Agents should be careful to ensure a purchaser is provided with a copy of the lease and acknowledge receipt of same and awareness as to the content. Agents should further ensure that the lease agreement is read and understood. Any issues around options to purchase the property must be dealt with in writing.
Long term leases
The maxim only applies to leases shorter than ten years. Should a tenant wish to enjoy protection against third parties in respect of a lease that exceeds ten years, such lease agreement needs to be registered at the relevant deeds office for the full period of such lease. In the event that the lease is not registered, the tenant will be protected for the first ten years of the lease, as long as he is in occupation of the relevant property.
Conclusion
The maxim of "huur gaat voor koop" protects the rights of tenants in the case where the property, where they reside is sold to a new purchaser therefore it is important to take care when buying or selling property in terms of which a lease agreement pre-exists.
The best practical guideline in these cases is to ensure that the estate agent obtains the relevant lease agreement and provides this to a serious purchaser before the offer to purchase is entered into.
It is furthermore good practice to ask that the purchaser sign an acknowledgment that he/she indeed received such a copy, as this will prevent future disputes as to the content and terms of the lease agreement after transfer.
De Lucia Group has been servicing the property industry for over 45 years. Contact us to ensure you get the best advice for all your property-related queries. Michael De Lucia - michaeldl@delucia.co.za
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The information contained herein is not intended to constitute advice and shall only be relied upon by you at your own risk. De Lucia Group does not guarantee the accuracy or completeness of any information posted in this newsletter or otherwise. Any information relied upon by you should be independently verified for accuracy. De Lucia Group reserves the right to change the content distributed or published without prior notice.
Author: De Lucia Group
