What happens to your lease agreement when the leased property is sold?

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What happens to your lease agreement when the leased property is sold?
The huur gaat voor koop rule

When a lease agreement is concluded between two parties (a lessor and the tenant), the tenant acquires use and enjoyment rights to a property against payment of a rental. The question arises: if the lessor-owner sells the property to a third party, is the lease agreement still enforceable? And if it is, how do rights and obligations contained in the lease agreement function between the tenant and new owner?

At the outset, a distinction must be drawn between a real right and a personal right. A person with a real right can enforce this right against all third parties. Ownership is an example of a real right. A personal right, on the other hand, is only enforceable against a specific person.

Historically in Roman law, when a lease agreement was concluded, the tenant only got a personal right against the lessor. So, if the lessor sold the property to a third party, the tenant was not able to enforce their lease agreement rights against this third party.

The unfairness, and impracticality, that arose from this position contributed to the development of a legal rule in the Netherlands: the huur gaat voor koop rule. Literally translated this rule states ‘lease takes precedence over sale’.

The rule means that a lease agreement survives the transfer of ownership from the lessor-owner to a new owner. Instead of the tenant losing their rights to the property when the sale takes place, a tenant can use the huur gaat voor koop rule to enforce the terms of her lease agreement against the new owner. Essentially, this means that the lease agreement creates a ‘limited real right’ in favour of the tenant – the tenant has a right to the use and enjoyment of the property which is enforceable against the original lessor and any third parties who purchase the property from this lessor.

In practice, this means that a tenant can continue to rent the premises after the sale, provided they comply with the terms of the original lease agreement. The new owner cannot terminate the lease for any reason that isn’t provided for in the agreement.

It is clear that the huur gaat voor koop rule means that a tenant is entitled to continuing leasing the property from the new owner. But the question arises: are obligations which were incurred against the original lessor now enforceable against the new owner?

Consider the following situation: Lessor A and tenant B enter a lease agreement in terms of which A is liable for electricity charges. During the first 6 months of the lease, however, B pays for the electricity and attempts to claim these amounts from A. In the 7th month of the lease the property is sold from A to C. Can B now claim the amounts due by B (for electricity during the first 6 months of the lease) from C?

The court in Genna-Wae Properties (Pty) Ltd v Medio Tronics (Natal) (Pty) Ltd 1995 (2) SA 926 (AD) held that “the new owner is in law substituted for, and takes the place of, the original lessor”. This would seem to imply that the new owner takes on all of the previous lessor’s obligations. In reality, it is not clear whether the substitution of the new owner for the previous lessor means that the tenant may claim debts incurred by the lessor from the new owner – this issue has not yet been considered by our courts.
Regardless of this uncertainty, however, it is clear that the sale of the property does not affect the normal, forward-looking functioning of a lease agreement.

Written by:
Savanna Kanzler – Candidate Attorney

For further information or assistance in this regard please contact Stephen Koen on skoen@bissets.com or via:

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Website: www.bissets.com
Bissets WhatsApp: 072 370 0416 – our Client Liaison, Tracy, will put you in contact with the relevant professional.