In Roman Dutch law, which forms the basis of most South African legislation, including that which pertains to property, the principle of “huur gaat voor koop” is honoured and accepted. The “huur gaat voor koop” principle ensures that any contract with a tenant, whose lease has not yet expired must be honoured if and when the property is sold. This applies whether or not there is a bond on the home and whether or not the purchaser knew of the lease when he signed the deed of sale. Even if a lease is signed after the conclusion of the sale, this, in most lawyers’ opinions, still has to be honoured.
It often happens that when a home is sold in execution, it will still have significant outstanding payments owing. It is accepted in these situations, says Wayne Albutt, National Manager for Rawson Rentals, that the bank has first claim on the sale money but, again, the lease has to remain in place. If, however, the sum raised by the sale or by an auction in execution is too small to cover the amount owing to the bank, the lease in South African law can then become invalid and the home can be resold or re-auctioned. Without the lease, it will probably achieve a higher price.
Albutt said that it does frequently happen that homes, on which the sum owing to the bond issuer is not realised, are sold and in these situations the tenant has to be ‘sacrificed’ to ensure that the bank is better compensated. The new owner of the property may well then be faced with the challenge of evicting the tenant, who, if he has had his lease cancelled against his will, may dig in and resist this for some time. Alternatively, the new owner can, of course, draw up a new lease with the tenant.
There are always many detailed factors which can dictate the ongoing validity of a lease if a property is sold in execution. The most important point to note, however, is that there are exceptions of the kind I have described and the phrase “huur gaat voor koop” should therefore not always be relied upon,” says Albutt.
