What is a ‘long term lease’?
A long term lease entitles the lessee to a limited real right over a property for an agreed period of time ranging from 10 years to 99 years.
When it comes to immovable property in South Africa, we tend to focus our attention on the sale and transfer of ownership, and the short-term rental or lease of such property. However, there are other forms of title to property in South Africa, such as long term leases.
Fundamentally, a long term lease is a contract between the lessor and the lessee that entitles the lessee to a limited real right over the property in question for an agreed period of time ranging from 10 years to 99 years. The lessor agrees to allow the lessee use and enjoyment of the property, and the lessee agrees to compensate the lessor through a rental fee.
As with ownership of a property, a long term lease, with all the terms of the agreement, is registered and an endorsement is made against the property’s title deed in the Deeds Registry. This affords both the lessee and the lessor security in terms of the real rights and obligations afforded to each party as a result of the agreement.
Unencumbered ownership of immovable property is the strongest form of title and interest to such property, enforceable against third parties. It entitles the owner to use and enjoy the property as desired (within the confines of the law) and for an unlimited duration. In contrast, a long term lease encumbers or limits the rights of the owner and affords the lessee a limited real right. While also enforceable against third parties and entitling the lessee to use and enjoy the property as desired, this agreement is time dependent and at the end of the lease period, all rights to the property will revert to the lessor.
Because a long lease is intended as a form of ownership, it will typically have a clause allowing for the renewal of the lease at the end of the contract period.
Payment methods for such a lease may vary. In some situations, the full amount due for the lease duration is paid at the outset; however, obtaining finance for this from a financial institution, while possible, can be complicated. Alternatively, the agreement can allow for the payment of the lease agreement to be paid in instalments.
While full title ownership may still be considered the most comprehensive and permanent form of ownership, a long term lease can be considered an alternative.
Written by Wessel de Kock
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