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IN THE HIGH COURT OF SOUTH AFRICA

SOUTH GAUTENG LOCAL DIVISION, JOHANNESBURG

Case number: 47172/13

DATE: 27 AUGUST 2014

In the matter between:

J G RABIN PORT ELIZABETH PROPS (PTY) LTD.................................1^ST APPLICANT

J G RABIN EAST LONDON PROPS (PTY) LTD......................................2^ND APPLICANT

J G RABIN QUEENSTOWN PROPS (PTY) LTD......................................3^RD APPLICANT

And

BROWNS & WEIRS CASH & CARRY (PTY) LTD....................................RESPONDENT

JUDGMENT

NICHOLLS J:

[1] The applicants are three related property companies that entered into three separate leases with Final Call Investments (Pty) Ltd which was the respondent’s previous name. The terms of the three leases are identical. They refer to three different properties in Port Elizabeth, East London and Queenstown of which the respective applicants are the registered owners.

[2] The applicants seek an order declaring that the respondent has not validly exercised the right of renewal in respect of each lease; a declaratory order that subsequent to 30 April 2013 the respondent occupied the respective premises on the basis of a monthly tenancy; and a declaratory order that the applicants validly terminated the monthly tenancies in terms of letters from the applicants’ attorneys dated 30 August 2013. Finally the applicants seek an order that the respondent be ordered to vacate the three premises forthwith.

Background

[3] The predecessor in title as registered owner of the each of premises was Peregrine Finance (Pty) Ltd. (“Peregrine”). Peregrine concluded the three leases with Final Call Investments (Pty) Ltd in early 2003. Each lease was for a period of ten years and provided that the commencement date meant the date of the transfer of the premises into the name of the lessor. Each of the premises was transferred into the name of Peregrine on 30 April 2003. There was a simultaneous transfer from Peregrine to each of the three applicants on the same day. This meant that the first applicant became owner of the Port Elizabeth property; the second applicant owner of the East London property and the third applicant owner of the Queenstown property.

[4] The material terms of the lease for the purposes of this application are the clauses relating to the right of renewal and maintenance of the property, clauses 7 and 11. Clause 7 provides as follows:

“7.1. Provided that the lessee is not in unremedied breach of any material provision of this agreement at the time of exercise of same, the lessee shall have the right to extend the lease period for the renewal period.

7.2. The lessee shall, if it wishes to renew this lease, give written notice thereof to the lessor by not later than 1 (one) year prior to the termination of the lease period.

7.3. The parties agree that the rental amount per month for the first year of the renewal period shall be R185 700 (one hundred and eighty-five thousand seven hundred rand), exclusive of VAT, escalating thereafter at a rate of 8% (eight percent), compounded annually on each anniversary of the commencement of the renewal period.

7.4. Save for the rental and escalation in respect of the renewal period in terms of 7.3, the terms of this agreement shall continue to apply to such renewal period.”

[5] The renewal period referred to in clause 7.1 is defined in the lease at clause 1.1.18 as meaning a period of 10 years commencing on the day immediately following the termination of the lease period.

[6] At some point the Respondent was taken over by Masscash (Pty) Ltd. On 30 March 2012 Dr Van Schalkwyk who describes himself as Executive: Business Governance/ Legal Services sent a facsimile on Masscash letterhead to Joseph Rabin (“Rabin”) of the applicant in the following terms:

“Dear Mr Rabin

RENEWAL OF LEASE AGREEMENTS:

1. J.G. Rabin Port Elizabeth Props (Pty) Ltd / Final Call Investments (Pty) Ltd in respect of Erven 7014-7018 Korsten, Port Elizabeth

2. J.G. Rabin East London Props (Pty) Ltd / Final Call Investments (Pty) Ltd in respect of Erf 31385, East London

3. J.G. Rabin Queenstown Props (Pty) Ltd / Final Call Investments (Pty) Ltd in respect of Erf 6565 and 3836, Queenstown

The above leases refer.

In terms of clauses 1.1.18 and 7 of the above three (3) lease agreements, we wish to hereby notify you of our intention to execute the renewal option in respect of all three (3) leases. However, our regional manager, Mr Louis von Fintel, will in due course contact you telephonically in order to discuss various aspects of the leases, which may require amendments and/or additions due to the Walmart-Massmart merger. Walmart has set additional requirements to be inserted in all future renewals and/or newly negotiated lease agreements.”

[7] Rabin responded in a formal letter sent on 2 April acknowledging receipt of the fax. He also sent an email on 3 April 2012:

“Our telephonic discussion yesterday refers, as well as the faxed letter sent to us by Dr A van Schalkwyk on the 30 March 2012.

I confirm that you will revert back to me once you have had the opportunity to read the leases in question.

I suggest that we then formally prepare the necessary document for the execution of the renewal option in terms of clause 7 of the relevant leases.

We can then deal with the other matters discussed being the possible extensions to warehouses etc etc

I look forward to a continued mutually beneficial relationship.”

[8] The same day Louis von Finkel (“von Finkel”), the operations director of Masscash Holdings (Pty) Ltd, responded as follows:

“Many thanks for the note.

I will identify and forward any issues re the content of the current leases. We can renew the leases having discussed and agreed on these issues. Additions and alterations can always be added at a later stage – these shouldn’t hold up the process.

I will revert shortly.”

[9] It is common cause that a period of negotiations took place between the applicants and the respondent but did not culminate in any agreement. On 28 May 2013 the applicants’ attorney sent a letter to the respondent stating that they now occupied the properties on a monthly tenancy as governed by the common law and setting out the new rentals to be paid as from 1 July 2013. On 30 August 2013 the applicants’ attorney gave the respondent one calendar month notice to vacate the property by no later than 30 September 2013. The respondent continued to pay not only the increased rental asked of them but in excess thereof apparently in hope of preserving and promoting negotiations.

[10] The issues to be determined are twofold. The first and primary issue is the validity of the purported exercise of the option to renew the lease. The second issue is whether the applicants waived their rights to cancellation and eviction. Initially the applicants sought to rely on a further ground to contest the validity of the renewal, namely that the respondents had failed to maintain the premises and were therefore in unremedied breach of the lease agreement which precludes them from extending the lease period. This ground has, for the purposes of this application, been abandoned.

The exercise of the right of renewal

[11] The law on the exercise of a renewal is well established. A line of authorities dating back from 1949 make it clear that the exercise of an option must be communicated in clear, unambiguous and unequivocal terms[1]. Unlike a contract, which may be binding even though it is not unambiguous, the acceptance of an offer must be unambiguous and positive.

[12] Where the intention to renew is conveyed exclusively in a unilateral written document, the actual but uncommunicated intention is irrelevant. It is only the intention as expressed in the written communication that must be considered. This must be expressed in such a manner that a reasonable person in the shoes of the lessor would understand it as an unequivocal acceptance of the offer.[2]

[13] It has been held that although ‘intention’ has an ambiguous meaning and may connote, not an actual renewal, but rather an indication to exercise the option at some future date, generally in renewal clauses it is a synonym for “election” or “decision”.[3] The court must, however, be satisfied that the party communicating this intention must be making an unconditional offer of acceptance and not a counter offer. Whether the word ‘intention’ constitutes an actual exercise of the option or notification to the lessor of a future objective is entirely dependent on the context in which the intention is relayed to the lessor.

[14] The crisp issue is whether Dr van Schalkwyk’s letter sent by fax on 30 March 2012 constitutes a valid notice of renewal. The applicants contend that the option to renew was not properly exercised because the letter does not constitute an unequivocal exercise of the option of renewal. A determination on this point requires a detailed interpretation of the letter.

[15] The first sentence of the letter reads: In terms of clauses 1.1.18 and 7 of the above three (3) lease agreements, we wish to hereby notify you of our intention to execute the renewal option in respect of all three (3) leases. The applicants argue that the use of the word “execute” is indicative of a future intention to renew, rather than an actual renewal. This is particularly so when viewed in the context of the letter as a whole which refers to amendments and additions. The respondent on the other hand argues that this is an artificial construction when one has regard to the dictionary meaning of “execute” which is “carry into effect” or “to give effect to”.

[16] The letter goes on to state: However, our regional manager, Mr Louis von Fintel, will in due course contact you telephonically in order to discuss various aspects of the leases, which may require amendments and/or additions due to the Walmart-Massmart merger. The applicants stress that the word “However” places the first sentence in an entirely different context and must mean that there are additional requirements. The respondent on the other hand emphasises the importance of the word “may” which they say does not detract from the unequivocal exercise of the option and is not indication that further terms would have to be inserted, merely that they may be inserted.

[17] According to the Applicants if there was any doubt that further negotiations were to follow before finality could be reached, this is to be found in the last sentence which reads: “Walmart has set additional requirements to be inserted in all future renewals and/or newly negotiated lease agreements.“ The respondent submits that the reference to future renewals is not a reference to the current lease under negotiation but a future lease.

[18] The latter submission seems disingenuous. It is hardly likely that the respondent would be alerting the applicants to requirements applicable in 10 years’ time when the lease expired. As pointed out by the applicant there is no second option of renewal provided for in the lease, and therefore the reference to ‘future renewals’ must be a reference to the current renewal.

[19] That this referred to another renewal is belied by the contents of von Fintel’s email to Rabin wherein he states “I will identify and forward any issues re the content of the current leases. We can renew the leases having discussed and agreed on these issues.” Further, this is a clear indication that the leases in their current form were not acceptable and were subject to agreement on outstanding issues.

[20] In my view the reasonable lessor would have understood the letter of 30 March 2012 to amount to an intention to renew the option but on varied terms as required by the Walmart/Massmart merger. The fact that on 3 April 2012, a few days later, Rabin wrote to von Fintel suggesting that they formally prepare the necessary documentation for the execution of the option is a clear indication that Rabin as lessor did not consider the letter of 30 March 2012 to amount to a final unequivocal acceptance of the offer but that another step was required after agreement had been reached on outstanding issues. This view was shared by the respondent as evidenced by von Fintel’s email of the same day wherein he states that he will identify issues in the current leases and the leases can be renewed after discussion and agreement on these issues. Clearly, von Fintel, as lessee, was also under the impression that a further document was necessary in order to renew the leases.

[21] This means that neither the lessee nor the lessor considered the letter of 30 March 2012 to constitute a positive and unequivocal election to exercise the option of renewal. Both anticipated a subsequent document had to be drawn up. The letter in its current form presupposes further negotiations. In those circumstances it is inconceivable that there has been a valid exercise of the option and an unambiguous acceptance of the offer. Neither the construction of the letter nor the subsequent communications between the parties are supportive of such a finding.

Waiver

[22] The argument of the respondent in this regard is that despite alleging a monthly tenancy from April 2013 and the subsequent purported cancellation of the monthly tenancy as from 30 August 2012, the applicants continued to invoice the respondent for rental and accept payment. The rental was not accepted on a ‘without prejudice basis’ or deposited into the trust account of the applicants’ attorney. Instead the applicants accepted payment from the respondent in excess of what they asked with no reservation of rights. This conduct, says the respondent, is not consistent with the applicants’ case that the respondent’s right of occupation was terminated and manifests an election not to persist with the claim of cancellation and to seek ejectment.  

[23] For this submission the respondent relies on Desai v Mohamed[4]  where it was held that conduct between the date of the breach and the purported cancellation of the lease, which clearly manifests an election not to cancel, may constitute a waiver of the right to cancel. This reliance is misplaced. The court in that case differentiated between an acceptance of rental before cancellation and the situation where the conduct in accepting rental took place after a valid cancellation of the lease. In the latter instance there would have to be a new agreement and fresh meetings of the mind to restore the status quo ante. It was held that there was no new agreement and the lessor’s conduct was at all times consistent with an intention to cancel the lease and eject the lessor.

[24] A similar situation pertains to this case. The applicants’ conduct since the cancellation has been consistent that they consider the leases to have been terminated. It has not manifested in any manner whatsoever the election not to cancel. The applicants were entitled to accept rental as and when it became due and that did not deprive them of their right to terminate the leases[5]. In any event the termination of a lessee’s liability to pay rental is not the date of cancellation of a lease but the date on which the premises are actually vacated.[6] Accordingly the defence of waiver must fail.

[25] In respect of costs both parties agreed that the costs should include the costs of two counsel.

In the result I make the following order:

1. The respondent has not validly exercised the right of renewal in respect of the following leases:

1.1 J.G. Rabin Port Elizabeth Props (Pty) Ltd / Final Call Investments (Pty) Ltd in respect of Erven 7014-7018 Korsten, Port Elizabeth,

1.2 J.G. Rabin East London Props (Pty) Ltd / Final Call Investments (Pty) Ltd in respect of Erf 31385, East London,

1.3 J.G. Rabin Queenstown Props (Pty) Ltd / Final Call Investments (Pty) Ltd in respect of Erf 6565 and 3836, Queenstown;

2. The respondent occupied the respective premises on the basis of a monthly tenancy subsequent to 30 April 2013;

3. The letters of the applicants’ attorney dated 30 August 2013 constitute a valid termination of the monthly tenancies;

4. The respondent is to vacate the three premises referred to 1.1, 1.2, and 1.3 on or before 30 September 2014;

5. The respondent is to pay the applicants’ costs, which costs include the employment of two counsel.

C. H. NICHOLLS

JUDGE OF THE HIGH COURT

GAUTENG LOCAL DIVISION

JOHANNESBURG

Appearances

Counsel for the applicants : Adv. J Blou SC

Adv. N Segal

Instructing Attorneys : Cranko Karp & Associates

Counsel for the respondent : Adv. G O van Niekerk SC

Instructing Attorneys : Fairbridges Attorneys

Date of hearing : 18 August 2014

Date of judgment : 27 August 2014

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