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Wednesday Apr 25, 2012

Outcome of Constitutional Court case 'crucial to property development'

As yet, says Tony Clarke, MD of Rawson Properties, the multi-faceted residential property marketers now expanding throughout South Africa, the property sector (with a few exceptions) has not yet appreciated the huge significance of the Aengus Lifestyle Properties vs Inner City Resource Centre Constitutional Court case.

The background to this case is that a property developer bought a rundown, old fashioned block of apartments in Braamfontein, Johannesburg, an area which is much in demand by tenants, especially students, on account of its strategic position.

The developer then made known to the tenants his plan to renovate and upgrade the units - as a result of which, he said, rents would have to be raised 100 to 150%.

This was shattering to the tenants concerned because they had been paying very low rents, some of which were said to be under R1 200 per month. Furthermore, some of the tenants had lived there for over ten years.

The tenants appealed in court against this decision claiming that such huge rent increases were oppressive and unfair and contrary to the Rental Housing Act.

The case ended up at the Supreme Court of Appeal, which ruled in favour of the landlord who, it said, was entitled to a fair profit from his investment (he had claimed he was actually losing money on it) and he had no tenants on long leases - all such long leases had expired and all his tenants were, therefore, leasing on a one-month's notice basis.

The tenants then took their case to the Constitutional Court arguing that they had a constitutional right to housing and that evictions were not acceptable unless similar quality accommodation at the same price in the same area was available.

The Constitutional Court then ruled that the Supreme Court's judgement should be set aside and the eviction notices given to tenants should have been stayed.

This court also however recommended that the tenants should approach the Rental Housing Tribunal for a decision on whether the landlord's actions had been fair or unfair in terms of the Rental Housing Act and the court supported the landlord's right to appeal to the Tribunal as to whether increasing the rents was fair or unfair.

In addition, the Constitutional Court issued an order allowing any of the parties to lodge a complaint in terms of the Rental Housing Act (by 2nd May). If such a complaint is lodged the parties are granted permission to apply to the Gauteng Rental Tribunal for a ruling. The court said that if this was not done within two weeks the tenants' case would be dismissed.

Clarke drew attention to Prof Henk Delport's comments on this case. Prof Delport has said that it is significant that the Constitutional Court did not rule outright that the landlord's termination of leases was unfair nor did it rule on what rents the tenants would pay. However, the court also said that if the Tribunal rules that the cancellation of the leases was unfair, the eviction orders would probably also have to be set aside pending the stitching up of a new deal.

"As I read the situation right now," said Clarke, "no one can say how this case will be concluded. Everything now depends on the Tribunal's ruling. It should be stated, however, that if the tenants' case is favoured this is likely to lead to a freeze by developers on all further CBD upgradings, which in nine cases out of ten are only viable if higher rents can be charged for the improved accommodation. This, in turn, would exacerbate the deterioration of our inner cities. It is highly commendable that the "underdogs'" rights should be recognised but in the long run our experience indicates that where there is major interference with free market principles, a downgrading follows: no profit all too often means no growth."


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