Lessors and landlords – do they hold all the cards?

It is not unusual for lease agreements to contain clauses providing that lessees who want to sublet or to cede and assign all their rights and obligations in terms of the lease agreement to a third party may only do so having first obtained the prior written consent of the lessor, whose consent will not be unreasonably withheld.

Interestingly, the applicable case law suggests that the use of such a clause in this context will not be treated as an enforceable term of the agreement but, rather, as a mere proviso or qualification to the lessee’s obligation not to sublet or assign the lease without the lessor’s consent.

Although some may argue that this does not seem in keeping with the development of our contract law, the failure on the part of the lessor to (reasonably) consent, consequently, does not amount to a breach by the lessor and contractual damages can, therefore, not be claimed by the lessee.

In terms of this approach, an aggrieved lessee’s remedies would, instead, be to proceed to sublet or assign notwithstanding the lessors refusal and then to defend any proceedings by the landlord on the basis that his refusal was unreasonable. Alternatively, the lessee could approach the court for a declaratory order declaring the lessee to be entitled to sublet or assign notwithstanding the lessor’s refusal to consent. It ought to be borne in mind, and while often a matter of contractual interpretation, that nothing prevents a lessor and a lessee from agreeing, if phrased properly, that the lessor is under a positive obligation not to withhold consent unreasonably.

Whether as a means of expressing its misgivings, the court in Kouga Municipality v De Beer and Another 2008 (5) SA 503 (E) refrained from deciding “to the effect that when the lessor has unreasonably withheld his consent the lessees are restricted to sublet without consent and resist legal action taken by the lessor or to approach the court for declaratory relief (is) correct or not” (paragraph 10).

Interestingly, this case is authority that a decision to unreasonably withhold consent by an organ of state (a municipality in this instance) will potentially constitute administrative action capable of being reviewed and set aside. This appears to open the door to the possibility of obtaining constitutional damages by reason of the organ of state’s breach of its constitutional duty to act lawfully where, conceivably, such constitutional damages would be difficult to quantify. Given the fact that the Constitutional Court has recently shown its penchant to develop the contract law, the issue of unreasonably withholding consent may yet receive its attention.

The lesson to be learned by clients, particularly if they are tenants, is to define their rights and obligations clearly before entering into a lease agreement and while they still have some bargaining power. It is imperative to be as pedantic as possible before you sign on the dotted line.

(Article by Lionel Egypt and Jennifer Begg - Lionel Egypt is a director, and Jennifer Begg a candidate attorney in the dispute resolution practice at Cliffe Dekker Hofmeyr)

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