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Wednesday Jun 24, 2015

Be careful when signing surety for tenant

The landlord can hold a third person who signed as surety and co-principal debtor, responsible for the payment of rental if the tenant is in default or unable to perform.

In terms of section 6 of the General Law Amendment Act 50 of 1956, suretyship must be in writing. The third party becomes responsible when he or she signs a surety agreement that may be a separate agreement or forms part of the tenant's lease agreement.

The suretyship binds the surety to the landlord who is entitled to demand performance of specific obligations included as part of the terms and conditions. These may relate to payment of rental, rates, damages and legal costs.

The surety may agree that the landlord can claim directly from the surety all amounts owed by the tenant, without claiming from the tenant.

Where the surety claimed that she was unaware of the risks involved when she signed the surety agreement, the court held that she was a career woman who had always worked in the business sector. Barbara Tracey Trzebiatowsky claimed that she was unaware of what she was signing and simply complied with her husband's request to come to Absa bank to sign some documents.

The court held that there was no need for the bank's representative to alert her and the other directors who signed deeds of suretyship in their personal capacities about the risks involved in signing the surety agreements. The directors as sureties cannot escape liability on the basis that they did not understand the nature of the documents they were required to sign (Absa Bank Ltd v Trzebiatowsky and Others 2012 (5) SA 134 ECP).

In the case of Beaux Lane (SA) Properties (Pty) Limited v Marais (2015) JOL 32961, the landlord successfully sued Marais who signed a deed of suretyship for the tenant's arrear rentals, rates and taxes, and damages for breach of contract. The court found that the surety was aware that by signing the deed of suretyship he attracted personal contractual liability towards the landlord.

The surety said that he made a mistake by not realising that by signing the deed of suretyship, he was liable in his personal capacity. The court held that the mistake was clearly of his own recklessness and inattention and that he was aware of the suretyship provision.

The court ruled that the surety was liable to the landlord in the sum of R228 538.12, including interest at the rate of 11 percent per annum from the date of judgment to date of final payment and R44 673.75 at the legal rate of interest from the date of service of summons to the date of payment.

In a supreme court of appeal case, judgment was handed down on May 29, 2015 against the landlord Dormell Properties 282 CC.

Alwyn Gideon Bamberger was the sole director of Edulyn (Pty) Ltd, the tenant who signed the offer to lease on behalf of Edulyn and also bound himself as surety for Edulyn's obligations under the lease.

The deed of suretyship was made an annexure to the memorandum of agreement of lease, but the landlord failed to sign the lease.

The landlord successfully evicted the tenant and the magistrate's court held Edulyn and Bamberger jointly and severally liable, the one paying the other. Bamberger appealed to the Western Cape Division of the high court and succeeded in overturning the decision of the Bellville Magistrate's Court that held him liable as surety.

Dormell then took the matter to the SCA but failed because the court held that it sued Bamberger on the deed of Suretyship that was not valid. (Dormell Properties 282 CC v Bamberger (20191/14) (2015) ZASCA 89, 29 May 2015).

The person who signs as surety must be aware of the serious implication that he or she is responsible for the tenant's lease and liable for all the tenant's debt.

Dr Sayed Iqbal Mohamed
Tenant Issues
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