Birkenruth Estates (Pty) Ltd v Unitrans Motors (Pty) Ltd (Formerly Malbak Consumer Products (Pty) Ltd) and Others

• Jurisdiction: South Africa
• Judge: Rabie J, Gildenhuys J and Gautschi AJ
• Judgment Date: 15 September 2004
• Citation: 2005 (3) SA 54 (W)
• Docket Number: A5042/03
• Hearing Date: 15 September 2004
• Counsel: R E Griffiths for the applicant. No appearance for the first and third respondents. R Seegobin for the second respondent.
• Court: Witwatersrand Local Division

Gildenhuys J:

The background B

[1] This is an appeal against a judgment and order of Mlambo J given on 19 June 2003. The appeal is about the interpretation of a lease agreement between the appellant (as lessor) and the first respondent (as lessee).

[2] The appellant (plaintiff in the Court a quo) sued the first respondent (defendant in the Court a quo) C for unpaid rental and damages consequent upon an alleged repudiation of its obligations under the lease agreement. The first respondent joined the second and third respondents as third parties in the case. It claims an indemnity from them under the provisions of an unbundling agreement. The issues which arise between the first respondent on the one hand and the second and third respondent D on the other, are not relevant to this appeal.

[3] The appellant, in its particulars of claim, asked for rectification of certain provisions of the lease agreement. Mlambo J was not required to adjudicate upon the rectification issue. The parties are ad idem that, for purposes of this appeal, the lease agreement must be construed as if rectified. E

The facts

[4] The appellant let certain premises to the first respondent for use as showrooms, offices, warehouses and service F workshops. A comprehensive lease agreement was signed by the first respondent on 27 June 1994 and by the appellant on 12 July 1994. As a precursor to the comprehensive lease agreement, the basic terms of the lease were recorded in a letter written on behalf of the appellant on 10 February 1994 and accepted by the first respondent through an endorsement at the foot of the letter. G Paragraph 4 of the letter reads as follows:

'The lease shall endure for a period of 10 years after the commencement date.'

On 11 February 1994, a further letter was written on behalf of the appellant to the first respondent. The relevant portion reads as follows: H

'The lease shall commence on the 01 July 1994 and expire on the 30 June 2004. The monthly rental payable (exclusive of Value Added Tax) during the period shall be as follows:

From	01/07/94 to	30/06/95	R42 000 per month
From	01/07/95 to	30/06/96	R45 780 per month
From	01/07/96 to	30/06/97	R49 900 per month I
From	01/07/97 to	30/06/98	R54 391 per month
From	01/07/98 to	30/06/99	R59 286 per month

The rental for the next five years to be linked to a market review from 1 July 1999 to 30 June 2004.'

A confirmation of its contents, signed by the first respondent, was appended at the foot of the letter. J

Gildenhuys J

[5] The comprehensive lease agreement replaced the recordal of the lease in the two letters. Clauses 2 and 3.1 of the schedule to the A lease agreement (as rectified by the appellant) reads as follows:

'2.

Lease period: From 1 July 1994 to 30 June 2004

Rent review: From 1 July 1999 to 30 June 2004

3.

Charges B

3.1

Monthly rent (excluding VAT):

From 01/07/94 to 30/06/95	R42 000
From 01/07/95 to 30/06/96	R45 780
From 01/07/96 to 30/06/97	R49 900
From 01/07/97 to 30/06/98	R59 286
From 01/07/99 to 30/06/04	to be determined as per rent review procedure set forth in annexure D.' C

[6] The rent review procedure set forth in annexure D to the lease agreement is cardinal to the subject of this appeal. The relevant portions of annexure D reads as follows:

'Annexure D D

Rent Review

1.

Definitions

1.1

Rent review date: 1 July 1999

1.2

Rent review period: 1 July 1999 - 30 June 2004 (five years)

2.

Not more than nine months but not less than six months prior to the rent review date, the lessor shall notify the lessee in writing of the monthly rental for the first year of the rent review period and the E rate at which such rental will escalate during the subsequent years of the rent review period (hereinafter referred to as ''the first year's rental'' and ''the rate of escalation'' respectively) which the lessor proposes.

3.

If the lessee does not accept the first year's rental and the rate of escalation proposed by the lessor, then the lessee shall notify the lessor in writing of such non-acceptance within 30 days of the date F of the notification referred to in 2, failing which the lessee shall be deemed to have accepted the lessor's proposals.

4.

If the lessee gives notice to the lessor of its non-acceptance of the lessor's proposals in terms of 3, then the first year's rental and the rate of escalation shall be established in accordance with the following provisions: (The subclauses which follow contain elaborate G provisions for the determination by an estate agent or through arbitration of the first year's rent and the rate of escalation applicable during the rent review period.)

5.

If the first year's rental and the rate of escalation remain undetermined after the review date for any reason then the same monthly rental that was payable during the immediately preceding year escalated by the average of the rates of escalation applied to rentals between H the commencement date and the rent review date (rounded down to the nearest Rand) shall be payable by the lessee to the lessor in respect of every month succeeding the rent review date, escalated annually by such average rate of escalation, until the determination has been made; provided that once such determination has been made it shall have retrospective effect and either party shall on demand pay to the other I party entitled thereto the difference between the monthly rentals, calculated in accordance with such determination and amounts already paid to the lessor in respect of the expired portion of the rent review period.'

[7] The first respondent paid stamp duty on the lease. The stamp duty was calculated on the basis that the lease is a ten-year lease. J

Gildenhuys J

[8] Towards the end of the first five-year period of the lease, it became necessary that the rent for the second five-year period be A determined. On 31 March 1999 the appellant caused a letter to be sent to the first respondent, stating inter alia the following:

'1.

We refer to the original lease agreement and to annexure (iv) being the rent review.

2.

The monthly rental during the rent review period shall be as follows. . . .' B

The letter then sets forth rentals for the rent review period.

[9] The first respondent alleges that the March 1999 letter was received at the leased premises, not by it, but by the second respondent. It is the appellant's case that the March 1999 letter constitutes notice under clause 2 of annexure D of the lease agreement, C albeit out of time. The first respondent never reacted to the March 1999 letter. It avers that the letter did not come to its attention until after the commencement of the action. It denies that it is a proper letter as envisaged in clause 2.

[10] The appellant alleged in its particulars of claim that the first respondent repudiated the lease agreement, inter D alia by vacating the leased premises on or before 30 June 1999 and by treating the lease agreement as if it was at an end with effect from 30 June 1999. According to the appellant, the lease still had another five years to run at that time. The appellant pleaded that it accepted the repudiation, and that the lease agreement had been E cancelled through the acceptance. It asserts that the first respondent is indebted to it for unpaid rental and assessment rates, for damages arising from the repudiation, and for damages arising from certain other breaches.

The issues F

[11] The parties have agreed in the Court a quo, pursuant to Rule 33(4) of the Uniform Rules, that:

'The issue for determination is whether a failure by the lessor to have given a notice complaint with clause 2 of the rent review (annexure D, PD34) means that the further provisions of annexure D would not become operative and the agreement would, as a consequence, terminate on 30 June 1999.' [1] G

[12] Mlambo J found that

'the failure by the lessor to give a notice compliant with clause 2 of annexure D means that the further provisions of annexure D did not become operative and the lease became unenforceable beyond 30 June 1999, as a consequence. The plaintiff's claim therefore fails.' [2] H

The appellant appeals to this Court, with leave of the Court a quo, against the dismissal of its claim.

[13] The reasoning which led Mlambo J to dismiss the claim appears from his judgment to be as follows: I

'The scheme of annexure D is that the processes aimed at fixing the rental and rate of escalation aim to fix such rental and escalation before the rental review J

Gildenhuys J

date. Clause 5 must have been intended to make provision for provisional rental when the rent review date dawns and no A rental has been determined for any reason.' [3]

. . .

'Clause 2 of annexure D required the lessor to start the rent review mechanism not less than six months before the rent review date. Failure by the lessor, to initiate the rent review mechanisms via clause 2 bedeviled the whole rent review process. None of the processes B envisaged in clause 5 could be invoked when the lessor failed to take the critical first step. Clause 5 which is at the tail end of the rent review processes could also not be invoked. In the circumstances it appears justified to conclude that annexure D and in particular clause 5 does not make provision for the rental of the second five year term but the mechanism to fix that rental. Therefore with no rental in place for the second five year term there can be no enforceable lease for the C period.' [4]

[14] The issues in this appeal are twofold. First, does the lessor's mora in failing to give the requisite notice under...