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Wednesday Jul 11, 2012

Fixing a fault in a rental contract

What happens when parties to a contract realise that the written contract of lease they concluded, due to a mistake, does not represent all the terms and conditions they agreed to?

In the event of a dispute, the rights and obligations can be seriously affected unless the errors are corrected.

The mistake is based on parties having the same intention; "rectification presupposes a common intention" (Sonap Petroleum (SA) (Pty) Ltd (formerly known as Sonarep (SA) (Pty) Ltd) v Pappadogianis [1992] 2 All SA 114 (A)).

"A party is entitled to rectification of a written agreement which, through common mistake, incorrectly records the agreement which they intended to express in the written agreement." (Boundary Financing v Protea Property (597/07) [2008] ZASCA 139 (27 November 2008)).

The law allows the party or parties to correct or rectify the mistake to embody what was originally agreed to.

This is referred to as the rectification of contract, and a party can approach the court to have a contract rectified on proof of common intention.

There are strict requirements to prove what was agreed to, and ought to have been part of the terms and conditions of the contract.

"A party claiming rectification must prove common intention which the parties intended to express in a contract, but which, through some mistake, they failed to express..." - Judge Hlophe in South African Broadcasting Corporation v Thompson and another [1998] 3 All SA 586 (C).

The court can reject the rectification sought, or grant it for minor changes such as typographical errors or the changing of dates, by introducing a new clause; substituting a particular clause, or clarifying certain terms and conditions.

This would then reflect what was intended by the parties.

In Jointwo Holdings (Pty) Ltd v Old Mutual Life Assurance Company (South Africa) Ltd [2007] SCA 5 (RSA) (Case number 115/06; not reportable), the Supreme Court of Appeal rejected rectification tenants wanted.

Jointwo Holdings (Pty) Ltd and Malentino Holdings (Pty) Ltd (the companies) entered into leases with the landlord, Old Mutual Life Assurance Co (SA) Ltd, to run a restaurant business.

Pierre Vosloo and Daniel Francois de Villiers Steyn bound themselves as sureties for the two tenants.

When the landlord sued all four parties for arrear rentals, the tenants, together with Vosloo and Steyn, did not dispute the claim, but counterclaimed for breach of contract.

The breach was the landlord allowing a competitor, a Spur restaurant, to operate in the Riverside Mall in Nelspruit.

Steyn argued that prior to entering into the lease contracts, Dukes of Colliers RMS, which was the sole letting agent, informed him during negotiations that in terms of Old Mutual's "tenant mix" policy, a Spur restaurant would not be allowed in the mall if leases were concluded with the companies.

The companies' offer to rent was accepted in a letter from the agent detailing the terms and conditions that would be contained in a lease to follow.

Steyn's endorsement of the letter and the landlord's acceptance irrevocably bound the parties.

The lease followed much later, but a Spur restaurant was also granted a lease to conduct its business in the mall and this, according to the companies, was contrary to what was intended during the negotiations of the leases.

The following rectification was sought by the company that was rejected by Judge van der Merwe of the Pretoria High Court, and by the SCA: "The landlord undertakes not to let floor space in the building to anyone for the purpose of establishing or running a 'Spur' restaurant, for the duration of this lease."

This clause had to replace 5.1 in the signed lease that read: "The tenant... acknowledges that it shall not have an exclusive right to any particular type of business being conducted in the building."

Judge Cloete of the SCA, with judges Scott and Lewis agreeing with his judgment, dismissed the appeal with costs.

The judge held that there was a difference between authorising an agent to convey a current policy and authorising an agent to agree to a term of a contract.

"In the former case, the principal can change its mind. In the latter case, it is bound.

"Dukes had no authority to agree to any terms of the lease agreements and whatever he said cannot constitute an agreement by Old Mutual, or a representation binding on Old Mutual as to what the leases would contain, so entitling the companies to rectification of the leases.

"The same reasoning applies to the fraudulent misrepresentation made by Dukes just before Vosloo and Steyn signed the lease agreements (cf Ravene Plantations Ltd v Estate Abrey 1928 AD 143 at 154). It follows that rectification was correctly refused by the court a quo." is chairperson, Organisation of Civic Rights.

Tenant Issues

Sayed Iqbal Mohamed

Daily News

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