A tenant's lease agreement should legally be honoured when a house is sold, but a distressed sale complicates conditions somewhat - here's what you need to know.
READ | How landlords can meet tenants halfway, as 24% of the rental market faces distress
Some landlords, under financial strain due to the Covid-19 Lockdown, are deciding to cash in on their investment by selling their rental properties.
So what happens to the tenant when the landlord decides to sell the home?
Under South African law, a landlord is entitled to put their property up for sale at any time, but that doesn't mean that tenant rights and obligations are automatically forfeited. Selling a rental with a tenant in residence isn't always an ideal situation, but the laws and processes in place are designed to treat all parties as fairly as possible.
'Lease agreement stands, even when the property is sold'
"Simply put, because the lease agreement is legally binding and was in place before, it still stands - regardless if the owner of the home decides to sell. The lease agreement goes with the home. Essentially this means that purchasing the home automatically makes whoever buys it a landlord, whether they planned to be or not. It also means that if you are the tenant, you will only need to leave once your lease agreement expires," explains Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
Anyone who purchases the property will only be able to take occupancy of the home once the lease agreement has expired and the tenant moves out. For this reason, it is best to go over the details of the lease agreement and see how long the tenant can stay in occupation before deciding whether it is worth your while to purchase the home.
"A lot of tenants rely on the South African legal principle of 'huur gaat voort koop' to protect their interests," says Jacqui Savage, National Rentals Business Development Manager for the Rawson Property Group. While this is the default principle, Savage warns that there are circumstances in which it does not apply.
'Distressed sales get more complicated'
"'Huur gaat voort koop' only comes into play when a property is sold under 'normal' circumstances on the open market," she says. "In distressed sales, where banks and sheriffs are involved, things get a little more complicated."
Savage explains that if a property is being put on auction by the bank that holds the bond, and the bond was registered prior to the conclusion of the lease, the bank and sheriff must still attempt to sell the property subject to the lease if they're aware of its existence. If, however, the bids received are not sufficient to cover the bank's claim, the obligation to honour the lease falls away.
"The same is true if the bank and sheriff are unaware of the lease," she continues. "If a tenant with a valid lease comes forward after the auction has taken place, and the bid was sufficient to cover the outstanding amount to the bank, the lease must be honoured. If the bid was insufficient, however, the lease can be cancelled as required."
Can a tenant refuse to move?
"It is possible that the tenant refuses to move out, even once the lease agreement has run its course. Apart from having to deal with the delay, the new owner may also have to take legal action to have the tenant removed, which will cost money. If possible, before purchasing the property, it is advisable to speak to the tenant and see what their intentions are, as this could save both time and money in the long run. A communicative, obliging tenant will make the process far smoother and pleasant," Goslett advises.
He also cautions buyers of the respective obligations that are imposed on the lessor in a lease agreement.
"It is important to understand the implications of buying the home with an existing tenant from the outset. For example, if there was a security deposit paid at the initiation of the tenancy, this will need to be refunded to the tenant at the end of the lease. The new owner of the home must ensure that they get this money from the seller. Otherwise, they will find themselves out of pocket. Another aspect to check is whether the landlord is required to pay back any money that the tenant has paid for improvements to the property during the tenancy - this is money that should also be recovered from the seller during the sales process," says Goslett.
Whether you are the tenant who is feeling uneasy about the sale of your rented home, or a potential buyer looking to invest, it is important to check the conditions or speak to a real estate practitioner who can advise you accordingly.
For available rentals in the Nelspruit Area - visit our website KELLAPRINCE PROPERTIES
