Joint purchasing more acceptable to banks than suretyships

With banks and home sellers increasingly determined to be covered in the event of unforeseen non-payment, growing use is being made of joint purchasing agreements favoured by the banks.

Suretyships are a means whereby the seller or landlord gets a third party to guarantee any sums owed but are, says Paul Henry, Managing Director of Rawson Developers, no longer usually acceptable and this, he adds, is probably a good thing because they can backfire.

Attorneys Smith Tabata Buchanan Boyes have recently shown (in their always informative clients newsletter), that standing surety can result in complications.

In a High Court case, Astill vs Lot 54 Falcon Park cc, Astill appealed against a judgment in the Pietermaritzburg Magistrates Court which ordered him to pay rent, water, rates and insurance costs incurred by a tenant for whom he has previously stood surety on a lease.

Astill’s argument was that he had signed suretyship only on the initial three-year lease and the agreement, in his view, did not cover subsequent leases.  (These ran over a period of five years.)

The magistrate based his decision to enforce the landlord’s rights on the words in the agreement, which referred to monies owed “now or from time to time thereafter”.  This, the magistrate ruled, implied that the suretyship would not expire until the tenant vacated the premises.

The High Court, on examining the wording, decided that the magistrate’s decision was wrong.  The wording here, they said, was too imprecise to justify the landlord’s claim and the phrase stipulating suretyship “now and from time to time hereafter” had to be seen in the context of a subsequent phrase reading “arising from an agreement on the lease executed by principal debtor with the creditor”.

The court’s decision was that the first phrase could not be deemed to refer to all amounts incurred at any stage thereafter, i.e. the decision was not open-ended.

The court also declared that in view of the ambiguity of the relevant clauses, it had to base its understanding of the original intention of the signatories.  On this basis, the magistrate’s ruling was set aside and the signatory to the suretyship was exonerated.

Henry said that this and several similar cases have shown the absolute necessity of precise wording in property deals - and, he added, now that the Consumer Protection Act is in force, especial care has to be taken to ensure at the outset that all parties have had the contract explained to them and that they have both in writing and verbally certified that they have understood the explanation.

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