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Landlord's right to cancel lease due to delayed transfer of funds

by Jan-Hendrik Gous on 1 June 2018


In the recent case of Mohamed's Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests (Pty) Ltd the court had to consider the landlord's right to cancel the lease agreement due to late payment of rent resulting from an error by the tenant's bank.  

Southern Sun leased a property from Mohamed's for the operation of a hotel.  The lease agreement determined that rent is payable by no later than the seventh day of each month, and in case of late payment, the landlord shall be entitled to cancel the agreement and take possession of the premises.

Due to an error by the tenant's banker, rent was not paid timeously to the landlord.  The landlord subsequently served a notice on the tenant demanding payment within five days and advising that future non-payment would result in cancellation of the lease.  Rent was subsequently paid within the five days.   

Four months later the breach was repeated.  Rent was deducted from the tenant's account on the sixth day of the month, but due to an error by the tenant's banker, the bank only paid over the rent to the landlord on the next day.  The landlord subsequently cancelled the lease and sought the tenant's eviction from the premises.   

The Supreme Court of Appeal found in favour of the landlord and held that parties are required to honour the contractual obligations which they freely and voluntarily undertake.  The court held that "the fact that a term in a contract is unfair or may operate harshly does not by itself lead to the conclusion that it offends the values of the Constitution or is against public policy". 

Sudden death cancellation rights afforded to the landlord should be avoided in lease agreements.  They can for instance be mitigated by requiring notice of breach or having a suitable force majeure clause that excludes breach from causes outside of the control of a tenant.



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