The agent’s responsibility when selling a tenanted property
When selling a property with a tenant, the agent must disclose the tenant and lease agreement to the buyer to avoid disputes or the tenant becoming a squatter. The lease agreement takes precedence over the agreement of sale during its duration.
Abstract/Summary
The agents’ duty of disclosure and the “huur gaat voor koop” rule are of great importance when a property is being sold with a tenant in it. Prior to an agreement of sale being entered into, the agent has an obligation to disclose the existence of a tenant and the lease agreement. Failure to do so can lead to disputes and a tenant turning into a ‘squatter’. In instances where the buyer was not informed but there is a lease agreement in place, the “huur gaat voor koop” rule applies, making the lease agreement more important than the agreement of sale. The buyer essentially “steps into the shoes” of the previous owner. This rule can only be enforced for the duration of the lease agreement.
1. Introduction
The sale of a property that has a tenant in it has various implications for all parties involved. The Property Practitioners Act 22 of 2019, assented to in September 2019, brought about noteworthy changes for potential buyers and sellers. A significant change involves mandatory disclosure. The agent’s responsibility of disclosure to the seller, tenant, and buyer, as well as the common law principle of "huur gaat voor koop, are applicable in addressing the sale of a property with a tenant in it.
2. Agents’ responsibility to the seller and tenant
Agents owe the seller a duty of care1. The duty of care extends far beyond finding a buyer for the property, ensuring the seller’s interests are protected and that a tenant is informed well in advance that the property is being sold. The agent has a duty not to negligently mislead or misrepresent any matter pertaining to the immovable property where a mandate is held2. What that means is that the agent should communicate clearly to the tenant when the property is expected to go on sale, as well as the dates, and times when viewings of the property will be held, so as not to infringe on the rights of the tenant and, when an offer has been made, ensure the tenant is given the option to decide whether to end the lease agreement or to continue. The agent also has the responsibility to communicate to the tenant if the agreement of sale promises vacant occupation on transfer, thus giving proper notice to the tenant on when they should vacate the premises.
3. Agents’ responsibility to the buyer
The agent has a responsibility to disclose the existence of a tenant on the property, as this information is within their knowledge and material to the purchase3. An agent is obliged to obtain a “disclosure form” from the seller and/or lessor, before concluding a mandate, and to provide said form to the buyer before making an offer4. The disclosure form is a standard template, signed by all relevant parties, that allows the seller or lessor to disclose any latent or material defects relating to the property, and it is attached to the sale or lease agreement5.
The disclosure form, more than often, does not directly address or make mention of the existence of tenants, as it is mainly used to disclose structural defects. There is, however, space where additional information can be completed and this can be used to notify the buyer that there is a tenant occupying the property, prior to the offer being signed. Should the mandatory disclosure form not make mention of this fact, the agent should find an appropriate method and time to disclose the existence of a tenant.
Failure to disclose the existence of a tenant with a valid lease agreement to a buyer raises the defence of a common law rule which protects the rights of a tenant.
4. “Huur gaat voor koop”
The common law rule protects the personal rights of tenants in cases where the lessor sells the property. The rule allows the tenant to continue occupation of the leased property when it is alienated. What this means is that the purchaser may not terminate, or evict, the tenant on terms outside of the lease agreement, furthermore the purchaser replaces the existing owner in the lease agreement. Through application, there will be no new assignment of obligations or a cession of rights to the buyer, meaning that the original contract will continue6. This rule is also applicable in instances where the purchaser is unaware of a lease agreement. In instances where the purchaser is aware of a lease agreement and a tenant, the doctrine of notice applies which allows the tenant to enforce the lease, for the duration agreed upon with the previous owner.
The crux of the “huur gaat voor koop” rule is that it provides tenure security to the tenant, where the original owner alienates the property during the lease agreement term. Essentially the lease agreement trumps the sale agreement.
5. Conclusion
Ultimately the agent’s responsibility to the tenant, buyer and seller, when selling a property with a tenant in it, begins with the duty of disclosure. The agent is responsible, as a professional, to ensure that all parties involved are well informed early into the process, to allow everyone involved to act and make decisions that are in their best interest.
1 Section 69(2); The Property Practitioner Act 22 of 2019.
2 Regulation 34.3.4.3 of the Property Practitioner Act 22 of 2019.
3 Regulation 34.3.2.1 of the Property Practitioner Act 22 of 2019.
4 Section 67(1)(a); The Property Practitioners Act 22 of 2019.
5 Section 67(2); Property Practitioner Act 22 of 2019.
6 Mignoel Properties (Pty) Ltd v Kneebone 1989 (4) SA 1042 (A) 1050J.
6. Bibliography
Case law
Genna-Wae Properties (Pty) Ltd v Medio-Tronics (Natal) (Pty) Ltd 1995 (2) SA 926 (A).
Mignoel Properties (Pty) Ltd v Kneebone 1989 (4) SA 1042 (A).
Legislation
The Property Practitioner Act No. 22 of 2019
Written by Basetsana Shoke
Moderated and approved by Wessel de Kock
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