LPL4801 - Law Of Sale And Lease Exam Prep Questions.

LPL4801 - Law Of Sale And Lease Exam Prep Questions. DEFINITION OF A CONTRACT OF LEASE A contract of lease of a thing (a contract of letting and hiring) is a reciprocal agreement between one party, namely the lessor, and another party, namely the lessee, whereby the lessor binds himself or herself to give to the lessee the temporary use and enjoyment of the thing, in return for the payment of the rent. 3.1 Requirements for a valid contract There are a number of requirements which must be complied with for a contract to be valid. If they are not complied with, the contract is said to be invalid or void. The requirements in question are stated hereunder. The following are the six absolute requirements for a valid contract: While there can be no contract in the absence of an actual agreement to create obligations or a reasonable reliance in the existence of such an agreement, it is also true that not every agreement to create obligations gives rise to a valid contract. (1) Concensus or apparent consensus (2) The parties must have contractual capacity. (3) Prescribed formalities must be complied with. (4) The obligations created by the contract must be possible of performance. (5) The contractual agreement must be legal. (6) Performances must be determined or determinable. 3.2 Essential elements of a contract of lease Apart from the absolute requirements for the validity of contracts in general, the essential elements of a contract of lease on which the lessor and lessee must reach agreement in order to conclude a contract of lease are that (1) the lessor must deliver and the lessee must receive a thing or property for the temporary use and enjoyment of this thing or the property (2) there must be a thing or property which is being let (3) an amount of rent must be paid for the use and enjoyment of the leased thing 1 An agreement which does not embody all three of these terms may still be a valid contract but it cannot be a contract of lease. So, for instance, a contract which provides that the one party is to deliver a thing to the other and that the other is to pay a sum of money in return, but which does not also provide that it is only the temporary use and enjoyment of the thing which is being parted with by the one in favour of the other, will be a contract of sale and not a lease. However, a contract which does provide that it is the temporary use and enjoyment of the thing which is being parted with but which does not contain a provision to the effect that the intended recipient of the thing is to pay a sum of money for its use and enjoyment will be a contract of loan and not a lease. 3.3 The requirement that the parties must agree to deliver and receive a specific thing The requirement to deliver the leased object is an expression of the general requirement that performance must be possible. Where performance becomes impossible the normal principles of supervening impossibility of performance and prevention of performance take effect. Supervening impossibility takes place where performance becomes impossible through no fault of the lessor. The effect it has on the contract is that the obligations are terminated. Prevention of performance by one of the parties can take two forms, namely absolute or objective impossibility of performance, where performance is prevented permanently and as regards everyone; and relative or subjective prevention of performance where it is only performance by the debtor (lessor or lessee as the case may be) which is rendered impossible Ð this last mentioned form constitutes breach of contract in the form of repudiation. The first mentioned form constitutes breach of contract in the form of prevention of performance. 3.4 The letting and hiring of the leased thing must be temporary and not in perpetuity If the lease is to continue for a definite period or until the occurrence of a future event or is at the will of either the lessor or lessee or if the period is indefinite but the rent is payable periodically, the lease is considered to be temporary. A lease cannot be for ever; only a contract in which the temporary use and enjoyment of a thing is granted to one of the parties can be a lease. That is the view of most Roman Dutch and South African writers on the law of lease. This does not mean, however, that a contract in which the use and enjoyment of a thing is granted to a party in perpetuity is for that reason invalid; it only means that such a contract cannot be one of letting or hiring. It may be a valid emphyteusis. The requirement that a contract of lease must be of limited duration is complied with in the following cases: (1) if the lease is to run for a definite period see Steyn v Fourie 1956 (4) SA 458 (A) (2) if the lease is to run until the occurrence of an event which is sure to occur although the date of its occurrence may be uncertain see Davy v Walker & Sons 1902 TH 114; Cohen v Van der Westhuizen 1912 AD 519; De Kock v De Kock 1966 (1) SA 37 (O) 2 (3) if the lease is at the will of either lessor or lessee see Hart v Hart 1902 TH 247; Thomas v Guirguis 1953 (2) SA 36 (W); Maharaj v Sing 1 955 (1) SA 41 (N); Ebrahim v Pretoria Stadsraad 1980 (4) SA 10 (T); Evangelical Lutheran Church v Sepeng 1988 (3) SA 958; Van der Vijver v Milford 1912 EDL 384; Friedman v Friedman 1917 DPD 268 (4) if the lease is for an indefinite time with the rent payable periodically (in such a case, the lease may be terminated by either party by reasonable notice given to the other) see Fulton v Nunn 1904 TS 123; Ntsobi v Berlin Mission Society 1924 TPD 378; Union Government v Foxon 1925 NPD 47; Begbie & Co v Hartmann 1925 TPD 446; Tshabalala v Van der Merwe 1926 NPD 75; Pinetown Town Council v Tshabalala 1953 (1) SA 427 (N); Wasmuth v Jacobs 1987 (3) SA 629 (SWA) 3.5 The thing subject to the lease can be either corporeal or incorporeal or an object still to come into existence As in the case of contracts of sale, we find that the concept ``thing'' includes incorporeal things too, with the result that rights may also be leased. For example, it is contended that a usufructuary can hire out his or her usufruct, and in Young v Smith and Another 1961 (3) SA 793 it was argued, on the strength of Graham v Local and Overseas Investments (Pty) Ltd, 1942 AD 95 that there is no doubt that an incorporeal thing can form the subject of a lease. In this case the matter arose from granting the tenant the power to conduct a business on a particular piece of land. In this context the court said: ``What was let is not corporeal property but the incorporeal right to trade.'' In contrast to this case, the view had been taken in a series of previous decisions that the granting of an exclusive right to do business on certain premises is not the lease of a thing, but an innominate contract for the granting of something similar to a personal servitude. Unisa's opinion The view that incorporeal things, that is rights, can be let and hired, is unconvincing. In all the abovementioned cases it is obvious that corporeal things were being let, even though the lessee's powers of use and enjoyment may be very much restricted by the contract. In the case of a usufructuary, it is clearly the thing which is the object of the usufruct which is being let. The fact that the lessor is the usufructuary of the thing merely means that the lessor is able, by virtue of his or her legally valid title, to protect the lessee in his or her possession of the thing. Likewise where the lessor empowers the lessee to do business on certain premises, the premises are let with the understanding that the tenant will only have a certain proportion of the use and enjoyment thereof. That the lessee's powers may be very limited in a particular case, indicates that the contract is a lease rather than anything else. It is, after all, one of the essentialia of a lease that the lessee will not enjoy all the powers of the ownership. As long as the performances of the parties are ascertainable, there can be no objection to the landlord's agreeing to deliver only a portion of an existing thing. Such a contract would undoubtedly qualify as a lease, for example where A let a flat to B (the flat is clearly not an independent entity, but forms part of the ground on which it is built). 3 thing still to come into existence can be let A thing which has not yet come into existence can also be let. The mere fact that the undertaking is to deliver such a thing does not automatically mean, therefore, that there cannot be a lease. This type of case is called a location conductio rei speratae. If the thing does not come into being, the lessor's performance naturally becomes impossible. The normal principles relating to supervening impossibility and prevention of performance then take effect. An undertaking to make available a fungible thing at a price, cannot qualify as a lease, for example a bag of sugar cannot be let. Letting and hiring presumes that the use and enjoyment of the thing will be made available and not that the lessee will use up the thing. Thus there cannot, in general, be a lease where the ``lessee'' acquires the power to use up or diminish the thing, for example where it is agreed that a salt pan may be exploited at a price. If the thing does not come into being, the lessor's performance becomes impossible and the principles relating to supervening impossibility and prevention of performance will take effect. One always finds, in a genuine lease, that the parties will expressly or tacitly limit the powers which the lessee may exercise over the thing. Only the use and fruits of the thing are granted to the tenant to a greater or lesser extent. It is not possible to lease something which will be used up during the term of the lease. The lease must be for the temporary use and enjoyment of the thing which means that the leased article or premises must be returned to the lessor at the expiration of the lease period. The leased thing must be identified in the lease or must be easily identifiable. If not, the contract will be void for vagueness. 3.6 The lessee must pay rent for the leased thing A valid contract of lease requires the lessee to pay rent for the use and enjoyment of the leased thing. Where the counter performance for the use and enjoyment of the leased thing does not sound in money, the contract is not one of lease. There is one exception to this rule and that is the case of rural leases where the rent is either a definite quantity or an agreed proportion of the produce of the leased property. OBLIGATIONS OF THE LESSOR When concluding a contract of lease, the parties are bound by those obligations which they have expressly or impliedly undertaken and by those which the law imposes upon them in the absence of such express or implied agreement. The lessor is obliged (1) to make available or deliver the use and enjoyment of the property (2) to refrain from disturbing the lessee's use and enjoyment of the property (3) to place and maintain the property in the condition agreed upon (4) to warrant against eviction Should the lessor fail to fulfil one of the above obligations he or she breaches the contract. Failure to deliver constitutes mora debitoris. Delivery of defective performance constitutes 4 positive mal performance. Delivery to someone other than the contracted lessee constitutes repudiation. Failure to prevent eviction constitutes positive mal performance. QUESTION 1. T RENTS PREMISES IN A SHOPPING MALL FROM L AND RUNS A SMALL COFFEE SHOP. THE SHOP DOES VERY WELL BECAUSE MANY CUSTOMERS PASS BY IT ON THE WAY TO DO SHOPPING AT A WOOLWORTHS STORE, AND TEND TO STOP FOR A QUICK CUP OF COFFEE AND SOMETHING TO NIBBLE. HOWEVER, WOOLWORTHS WANTS TO EXPAND ITS PREMISES, BUT TO DO SO, L DIVERTS THE PASSAGE TO WOOLWORTHS SO THAT ITS CUSTOMERS MUST ENTER VIA ANOTHER PASSAGE. T’S SHOP IS NOW LOCATED AT THE END OF A DEAD END PASSAGE. SOON T’S COFFEE SHOP BEGINS TO RUN AT A LOSS BECAUSE NO CUSTOMERS NOW WALK BY. DOES T HAVE ANY REMEDY AGAINST L? DISCUSS FULLY WITH REFERENCE TO CASE LAW. (15) Identification of problem (maximum 3 marks): Two question are relevant: whether L breached his duty not to disturb T in his use and enjoyment of the shop (1) and whether L breached an express or tacit term of the contract. (2) This is not a case where remission of rent is claimable.(1) Discussion of law (maximum 7 marks): Once the property has been delivered to the lessee, it is obvious that the lessor may not disturb the lessee in his or her use and enjoyment of the thing, except lawfully, as when he or she reasonably requires such right in order to inspect a property or when he or she needs to effect necessary repairs.(1) In Sishen Hotel Case the Appellate Division extended this right by interpreting the lessee's right against the lessor to include a restraint upon the latter to refrain from direct or indirect conduct which negatively affects the profitability of the leased thing. In this case the parties had concluded a twenty year lease of an hotel. The site of the hotel was next to a national road and because of this, the hotel attracted considerable custom. About eight years after the conclusion of the lease, the national road was diverted on application and at the expense of the lessor in order to expand its mining operations in the area. As a result, the hotel's profits declined and eventually turned into losses. About three years later the hotel was closed down and the lessee instituted an action against respondent for the payment of damages for breach of contract. This claim had been dismissed by the court a quo. The appellant raised the argument that the contract contained an implied term that the respondent would not take any steps to interfere with the access to the hotel and prevent 5 the flow of custom to the hotel. The judge came to the conclusion that commodus usus could include the idea of profit where the lessee runs a business from the leased premises. The judge found that because the lessee conducted the hotel business to make a profit, closing or diverting the road indirectly infringed the lessee's commodus usus.(6) This extension of the traditional meaning of the commodus usus was challenged by the decision in Sweets from Heaven (Pty) Ltd v Ster Kinekor Films The question whether profitability is one of the naturalia of a commercial lease or whether the lessee has to rely on a tacit term once again came under the scrutiny of the courts in this case. Here, the first respondent, Ster Kinekor, was the lessee of an entertainment centre. Ster Kinekor in turn sublet premises to third parties. The first applicant, Sweets from Heaven, has a five-year sublease with Ster Kinekor. The second applicant was a franchisee of first applicant and occupied the premises through first applicant with the consent of Ster Kinekor. The dispute concerned the first respondent's right to sublet to second respondent a shop situated virtually next door to the sweet shop of the second appellant. Both second respondent and second applicant sell sweets, confectionary and related products. The court a quo granted an interim interdict prohibiting the first respondent from giving the second respondent occupation of the premises. The applicants based their claim, first of all on the first respondent's failure to ensure free and undisturbed use and enjoyment, commodus usus, of the leased premises in allowing second respondent to compete with the second applicant. The judge found that the lessor had not breached its obligation of providing commodus usus and that in order for a lessee to succeed the lease contract would have to tacitly or otherwise prohibit the lessor from such conduct. It was thus held that the lessor was entitled to let business premises to competitors of the lessee virtually next door to the latter as no explicit terms to prohibit this were entered in the contract. Thus, in the case Sweets From Heaven, the extension in Sishen was not regarded a naturalium of the lease contract as one could have expected. (6) The following is strictly speaking irrelevant. Give however max of 2 extra marks. Part of this obligation may also include the following: A lessor is not entitled to take the fruits of the leased property. The lessor may not graze cattle on land let to another. The lessor may not exclude the lessee from the leased property or from a portion thereof, or deprive him or her of the use thereof (eg he or she may not forcibly eject the lessee, nor unscrew the front door leaving the premises open nor have the electricity cut off). It is also a breach of this obligation if a lessor who has undertaken to prevent plastic bags blowing onto land let for grazing, fails to do so. Since the lessor's obligation is negative, the lessee's normal remedies are an interdict or cancellation and damages.(2) 6 Application (maximum 3 marks): L did not breach his negative duty not to disturb the commodus usus of T.(1) No express contractual term exists which prohibits L from diverting the passing trade from T’s shop.(1) The facts of this problem is similar to that in Sishen and a court will most likely come to a similar conclusion that a tacit contractual term exist which prohibits L from diverting the passing trade.(1) Advice (maximum 2 marks): T may apply for an interdict (enforcing the contract) (1) or he may cancel the contract and claim damages.(1) QUESTION 2: X IS THE OWNER OF A DAIRY FARM SITUATED ON THE BANKS OF A RIVER IN THE EASTERN CAPE. Y LEASES THE DAIRY FARM FROM X FOR 2 YEARS. THE RENT IS PAYABLE MONTHLY. DURING A FLOOD THE DAIRY IS DAMAGED TO SUCH AN EXTENT THAT Y CAN NO LONGER USE THE PREMISES AS A DAIRY. NEVERTHELESS, X STILL CLAIMS PAYMENT OF RENT. DISCUSS Y’S DEFENCE AND GIVE REASONS FOR YOUR ANSWER. [10] Identification of problem (maximum 2 marks): This problem deals with the question of remission of rent (2). Discussion of law (maximum 5 marks): The lessor has to render the premises fit for the purpose of the lease. However, if the lessee is prevented by factors outside his control (vis maior or casus fortuitus) of having full use and enjoyment of the property, he or she is partially or wholly released from the obligation to pay rent (2-3). This would be the case especially where premises are being leased for a specific purpose, known to both parties, but that purpose cannot be achieved due to factors outside of the control of the parties (1). Definitions of vis maior (superior power or force that cannot be resisted) or casus fortuitous s (exceptional or extraordinary occurrence not reasonably foreseeable) (2-3). De Wet and Van Wyk opine that this principle entails nothing more than a specific application of the principles of supervening impossibility of performance in that it is really the lessor’s performance which has become impossible (2). Distinction between cases of total destruction and partial impairment of use of property: where there is total destruction of the leased premises the contract is extinguished on the basis of supervening impossibility of performance (2). On the other hand where the lessee 7 does not have full use and enjoyment of the property he or she is entitled to remission of rent (remissio mercedis) because full and beneficial use of the leased property is a supposition (or more correctly a tacit term) on which parties contracted, and upon failure of the supposition the lessee is entitled to remission of rent (2-3). Remission of rent is also applicable to business leases but a (reasonably) foreseeable occurrence (eg the refusal of a liquor license by a local authority) is deemed to have been within the contemplation of the parties and is no ground for remission (2). Where the loss is caused by vis maior the lessee may either claim remission or even abandon the property where it becomes useless (2). Where remission is claimed the amount is within the discretion of the court (1). Application (maximum 2 marks): The storm renders the house totally uninhabitable (1). A storm is either vis maior or casus fortuitus because it is an exceptional or extraordinary occurrence not reasonably foreseeable (1). Advice (1 mark): Y may raise total destruction of the property due to supervening impossibility as a complete defence to X’s claim. Study Guide 1 WHAT IS REMISSION OF RENT? Remission of rent is a doctrine which our law inherited from Roman law. According to this doctrine, the lessee is wholly or partially released from his or her obligation to pay the rent if he or she is prevented by vismaior from having the full use and enjoyment of the thing. One wonders whether this doctrine has a rational basis or whether it is not perhaps an untenable anachronism. De Wet and Van Wyk 366 are of the view that the rule is nothing but ‘‘an expression of the principles of supervening impossibility of performance’’. Where circumstances beyond the control of the parties make it impossible for the lessee to have the full use and enjoyment of the thing, they hold that it is really the lessor’s performance which has become impossible. The lessee will consequently be released wholly or in part from his or her own performance, that is to pay the rent, on the ground of the reciprocal nature of the obligations in a contract of lease. It must be conceded that in some cases where the doctrine is applied, it can indeed be said that the lessor’s performance has become impossible. After all, the lessor must deliver the property in such a condition that it is suitable for the purpose for which it has been let, and he or she must, moreover, maintain it in that condition. Now, if the thing 8 becomes unsuitable for that purpose as a result of vismaior ensuing after the conclusion of the agreement, the lessor’s performance becomes impossible. Apart from the above instance, there are other cases which come under the rule in question but where nothing is amiss with the condition of the property rented (eg where droughts or locusts have destroyed the lessee’s crops). Only if it is the lessor’s duty not only to deliver and maintain the property in a specific condition, but also to ensure that the lessee can use the property in a profitable manner, would there be any question of supervening impossibility of performance. However, is this not too much to expect of a landlord? If it is, then the abolition of the doctrine is the obvious step to take, so that only the principles of supervening impossibility may effect any remission of rent in these circumstances. 1.1 Rules for the remission of rent The explanation given for the rule that a lessee who is deprived through vis maior or casus fortuitus of the use and enjoyment of the property let to him or her is entitled to remission of rent, is that it is an example of supervening impossibility of performance which extinguishes the contract wholly or partially, as the case may be. However it is submitted that a distinction should be drawn between (1) cases of total destruction (2) cases where the lessee does not have the use and enjoyment of the property In the case of (1), the contract would obviously be extinguished as a result of supervening impossibility, but it is difficult to accept that in the case of situation (2) this would also be the so. In the last-mentioned instance, the lessor is not being prevented from performing. The lessee remains in occupation of the property. It is submitted that the reason why, in situation (2), the lessee is entitled to remission of rent is that the continuous full beneficial use and enjoyment of the property was a supposition upon which the parties contracted and, therefore, on failure of their supposition, the lessee is entitled to claim remission of rent. This view is acceptable provided that ‘‘supposition’’ is interpreted as meaning simply a tacit stipulation (and not necessarily an assumption). Thus, according to the previously stated principles, the lessee need not pay the full rent, or need pay no rent at all, where circumstances beyond the control of the parties lead to his or her being unable to have full or partial use of the thing for the purpose intended by the lease. The lessee will thus be entitled to demand remission of rent, and in some cases even absolution, if the loss has been caused by vis maior. 2 WHAT IS MEANT WITH VIS MAIOR AND CASUS FORTUITUS? 9 Vis maior refers to a superior power of force which cannot be resisted or controlled. Casus fortuitus (a species of vis maior) is an exceptional or extraordinary occurrence not reasonably foreseeable. Thus to be vis maior or casus fortuitus the occurrence must be uncontrollable and unforeseen. Examples of vis maior are lightning, floods and earthquakes and, in some cases, human actions, for example expropriation determined by legislation. 2.1 Drought We shall briefly refer to one example given by Voet which is relevant in a South African context, that is drought. Drought is exceptional and unpredictable. In certain South African regions, droughts are commonplace and should thus not be considered as vis maior in these regions; in other regions drought may well be considered as vis maior. Once the crops have been reaped (ie where a separation of the fruits has taken place), the lessee naturally becomes owner of the crops and any loss of the crops thereafter must be borne by the lessee for res perit domino (the loss of the thing is to the prejudice of the owner). 2.2 Business leases The principle of remission of rent is applicable to business leases as well. But the form of vismaior is usually of another variety. So, for instance, the lessee will be able to claim a remission of rent where the government forbids the sale of liquor on premises expressly let for such a purpose. However, as we have stated above, a foreseeable occurrence is deemed to have been in the contemplation of the parties and is therefore not a ground for remission. Hence a refusal of a liquor licence is no ground for remission. 3 ABANDONMENT OF PROPERTY Where loss is caused by vis maior the lessee may either claim remission or abandon the property (where the loss is so serious that the leased property becomes useless). An abandonment of the property may be justifiable even though the loss is only imminent. So, for instance, the approach of an enemy force justifies the lessee’s abandoning the property. Where a tenant justifiably abandons the property he or she is, naturally, only liable for rent for his or her period of occupation. Whether a release or remission is granted depends on whether the thing has become unfit for the purpose for which it was let. 4 AMOUNT OF REMISSION in court’s discretion The amount of remission is within the court’s discretion. Some of the old authorities think that the excellent profits of one year should be set off against the meagre crops of another year. In other words, if the lessee has one very good year, he or she cannot complain if he or she is not so fortunate the next year. However, these are all matters that will be taken into account by the court in assessing the amount of remission. Where the lessee has paid in advance, he or she may of course recover from the lessor.