What happens to your lease when the property is sold?

"The new owner wants you out by the end of the month." It is one of the most common things said to South African tenants, and it is usually wrong.

Selling a property does not end the leases over it. The principle is old enough to still be known by its Dutch name: huur gaat voor koop, hire goes before purchase.

The rule

Where a lease exists over a property and the property is then sold, the lease survives. The purchaser steps into the shoes of the seller as landlord, acquiring the same rights and obligations against the tenant that the seller had.

The substitution happens by operation of law. There is no need for a new lease to be signed, for the lease to be ceded, or for the tenant to agree to anything. The buyer becomes the landlord on transfer and must honour the lease for the remainder of its term, provided the tenant continues to pay the rent and observe the lease.

The protection therefore runs both ways in practice. A tenant in breach is in no better position because the property changed hands, and a tenant in good standing cannot be removed because it did.

What it means for a tenant

You do not have to move. The new owner takes the property subject to your lease.

Your terms do not change. The rent, the escalation, the duration and the notice period are what the lease says, not what the new owner would prefer.

Your deposit follows the property. This is the practical problem that arises most often, because the deposit was paid to the seller and the tenant will eventually claim it from the buyer. Raise it at the point of sale rather than at the end of the lease: write to both, ask in writing for confirmation that the deposit and the accrued interest have been transferred, and keep the reply. Our guide on how long a landlord has to return a deposit sets out the obligations, and the deposit refund calculator works out what should come back.

Pay the right person. Once transfer has taken place, rent is owed to the new owner. Ask for written confirmation of the new banking details and be sceptical of an email that simply announces a change of account, because that is a common fraud. Confirm by telephone using a number you obtained independently.

You still cannot be evicted without a court order, whoever the owner is. Our eviction checker sets out what that requires.

What it means for a buyer

You are buying a tenanted property and you are buying the tenancy with it.

Ask for every lease before you sign. Read the term, the rent, the escalation, the renewal option and any unusual clause. A lease with four years to run at below-market rent is a real reduction in the value of what you are buying.

Ask for the deposit. Insist that the deposit and accrued interest be paid over or accounted for at transfer, and deal with it expressly in the sale agreement. A buyer who does not will be refunding a deposit they never received.

Check for long leases. These are the ones capable of binding you for a decade or more, and they may or may not be registered against the title deed.

Do not assume vacant occupation. If you need the property empty, that has to be a term of the sale, and the seller then carries the problem of achieving it lawfully, which may not be possible within the timeframe.

Long leases and the ten-year rule

The exception to the general rule concerns leases of land for long periods.

Under the Formalities in Respect of Leases of Land Act 18 of 1969, an unregistered long lease is not valid against a creditor or successor under onerous title of the lessor for a period longer than ten years after the lease was entered into, unless that creditor or successor knew of the lease at the relevant time.

Unpacking that:

• An unregistered long lease binds a buyer for the first ten years from when the lease was entered into.
• Beyond ten years, a buyer who did not know of the lease can ignore the remainder.
• A buyer who did know of it is bound for the full term regardless of registration.

So a tenant on a twenty-year unregistered lease who is eight years in is protected now, and may not be in three years' time if the property is sold to someone with no knowledge of the arrangement.

The answer for a tenant on a long lease is registration. A lease registered against the title deed in the deeds office is protected for its full term against successors, because it is then a real right rather than a personal one. Registration requires a notarial lease and costs money, which is why it is so often skipped on leases where it matters most.

Where disputes actually arise

The new owner denies knowing about the lease. Which is why a tenant should ensure the lease is in writing and, ideally, that the estate agent and the conveyancer are aware of it. A tenant in occupation is itself a fact that ought to prompt enquiry by a purchaser.

The lease is oral. Oral leases are valid in South Africa for ordinary residential terms, and the Rental Housing Act entitles a tenant to require a written lease. But proving the terms of an oral lease against a new owner who was not party to it is difficult, and this is the situation in which tenants most often lose.

The rent was paid in advance to the seller. A tenant who paid six months in advance to a seller who has now been paid out and disappeared has a real problem, and the answer lies in the sale agreement between seller and buyer rather than in the lease.

A sale in execution. Where the property is sold at a sale in execution following a judgment against the owner, the position differs and depends on the circumstances, including whether the lease was in place before the bond and whether the bondholder consented to it. A tenant in that position should take advice rather than assume the ordinary rule protects them.

Selling a tenanted property properly

For a seller, the tenancy is a feature of the property being sold and it should be handled as one rather than discovered by the buyer afterwards.

Disclose every lease at the outset. The lease affects what the buyer is getting, and a buyer who finds out at transfer has a complaint about the sale rather than about the tenant.

Attach the leases to the sale agreement, so that there is no argument later about their terms.

Deal with the deposit expressly. The agreement should say that the deposit and accrued interest are paid over to the purchaser on transfer, and the amount should be stated. Without that clause the seller keeps money the buyer will have to refund.

Apportion the rent. Rent for the month of transfer is usually apportioned between seller and buyer, and the agreement should say how.

Do not promise vacant occupation you cannot deliver. A seller who undertakes to hand over an empty property, with a tenant who has eighteen months to run and no intention of leaving, has promised something that requires either the tenant's agreement or a court order. That is a breach waiting to happen, and the damages fall on the seller.

Tell the tenant. In writing, with the transfer date and the new owner's details. It is a courtesy, and it is also the document that prevents the tenant paying rent into the wrong account.

Worked example

This example is illustrative. Thabo rents a house on a three-year written lease at R8 500 a month, with eighteen months still to run. He paid a R17 000 deposit. The owner sells the property. The new owner tells him the lease "falls away on transfer" and gives him a month to leave, intending to move in.

The lease does not fall away. On transfer the new owner becomes the landlord and takes the property subject to the lease, with the same rights and obligations the seller had. Thabo is entitled to remain for the remaining eighteen months at R8 500, provided he keeps paying and observing the lease.

If the new owner insists, Thabo's routes are the Rental Housing Tribunal, which is free and deals with unfair practices, and, if it comes to it, the fact that he cannot be removed without a court order granted under the PIE Act.

On the deposit, Thabo should write now, to both the seller and the new owner, asking for written confirmation that the deposit and interest have been transferred. Eighteen months from now, when the lease ends, the seller will be hard to find and the new owner will say they never received it.

The new owner's real complaint is with the seller and the agent, who sold them a property they wanted to occupy without dealing with an existing tenancy. That is a conversation for the sale agreement, and it is not Thabo's problem.