Soteriou v Retco Poyntons (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Koté JA, Botha JA, Nicholas JA, Galgut AJA and Vivier AJA
• Judgment Date: 29 March 1985
• Citation: 1985 (2) SA 922 (A)
• Hearing Date: 07 March 1985
• Court: Appellate Division

Nicholas JA:

This appeal has to do with the legal effect, if H any, of a clause in a lease.

The lease was concluded on 18 December 1978 between Poyntons Properties (Pty) Ltd ("Poynton") as lessor and Michael Constantinides as lessee. (The name of the lessor was subsequently changed to Retco Poyntons (Pty) Ltd.) The lease related to shop 18 in Poynton Building in Church Street, I Pretoria, and was for the period 1 February 1978 to 31 January 1983. Clause 2 (b) of part B provided:

"2 (b)

The lessee shall have the first refusal of entering into an extension of this lease for a further period of four years and 11 months upon such terms and conditions and at such rental as may be mutually agreed upon. In the event of the lessee wishing to exercise such right, the lessee shall give to the lessor three months' notice prior to the expiration of J this lease of his intention so to do."

Nicholas JA

A The rental was initially R643 per month, increasing annually to R811 in the last year of the lease. The lessee was limited to using the premises for the purpose of a "general dealer, fresh products, baking and restaurant".

(It appears that the owners of the Poynton Building were companies in the Retco group. The building was leased under a B "head lease" to Poynton's which subleased the individual letting units to various tenants. In March 1982 Recto Ltd appointed Richard Ellis Dunlop Heywood (Pty) Ltd ("Richard Ellis") as managing agents for Poynton Building.)

On 29 February 1980, Evangelos Soteriou, the present appellant, took cession of the lease with the written consent of Poynton's, and thereafter conducted a take-away and confectionery business on the premises.

C In a letter dated 21 October 1982 Soteriou's attorneys advised Richard Ellis that Soteriou wished to exercise "the option" to renew the lease for a further period of four years and 11 months, commencing on 1 February 1983, and requested details, as soon as possible, "of the terms and conditions, as D well as the rental which will be payable for such new lease". Richard Ellis replied by letter dated 29 October 1982. It stated:

"We deny that your client has an enforceable option to extend his lease beyond 31 January 1983. We do not intend entering into negotiations for such an extension with your client. In fact the relevant premises have already been relet."

On that day Soteriou's attorneys wrote a letter direct to Poynton's, advising that Soteriou intended exercising his right E as contained in clause 2 (b), and requesting that Poynton's communicate with them. On 2 November 1982 Richard Ellis sent a formal acknowledgment of this letter, in which it referred to its letter of 29 October 1982.

In a letter dated 17 November 1982, addressed to Richard Ellis, Soteriou's attorney advised that Soteriou would not vacate the F premises - he was in occupation as a valid tenant and he was lawfully entitled to remain in occupation.

Messrs Rooth and Wessels, a firm of attorneys acting for Richard Ellis, replied on its behalf in a letter dated 25 November 1982. They stated that their client, acting on behalf G of Poynton's, denied the existence of a right of refusal or a valid option in Soteriou's lease, and reiterated that Poynton's did not intend entering into negotiations regarding a renewal of the lease.

By letter dated 17 January 1983, Rooth and Wessels informed Soteriou that the premises had been relet, with occupation as from 1 February 1983. They advised that unless Soteriou H timeously vacated the premises, Poynton's would take urgent steps to obtain an eviction order, and would also claim damages.

Towards the end of January 1983, Soteriou tendered payment of rental in respect of February. This was refused.

The threatened eviction proceedings were launched in the I Transvaal Provincial Division as a matter of urgency by notice of motion dated 14 February 1983. Poynton's sought firstly an order declaring that clause 2 (b) of the lease did not afford Soteriou a right of first refusal but purported to be an option to extend the period of the lease, and that such option was of no force or effect; and secondly an order of ejectment.

The grounds of urgency were that Poynton's had concluded a J written lease of shop 18 with Central News Agency Ltd (CNA) as from

Nicholas JA

1 February 1983 at a basic monthly rental of R1762,69; that CNA A was suffering damages because it was unable to trade in the premises; and that CNA held Poynton's responsible for such damages.

The contention raised in the applicant's founding affidavit was that foreshadowed in the letters written on its behalf, namely, that on a true interpretation of clause 2 (b) it granted B Soteriou not a right of first refusal but an option; and that the option was void and unenforceable because it did not contain the essential elements of a lease - in particular it contained no agreement as to the rental to be paid during the extended period of the lease. In consequence Soteriou had no right to hold over the premises.

Soteriou opposed the application. His opposition was not C limited to a contention that clause 2 (b) was legally effective. He also raised two factual defences: one based on alleged representations made on behalf of Poynton's; the other on an agreement for the extension of the lease allegedly concluded by its agents.

The application was heard by McCREATH J. He dismissed the D factual defences, and came to the conclusion that, whether clause 2 (b) of the lease was an option or a right of first refusal, it was of no force or effect because the rental and the other terms and conditions had not in fact been mutually agreed upon. In view of this conclusion, he considered it unnecessary to make a declaratory order, and simply granted an E order of ejectment with costs.

An application to the Court a quo for leave to appeal was refused with costs. Pursuant to a petition to the Chief Justice, however, leave to appeal to this Court was granted.

At the beginning of the hearing of the appeal, counsel for Soteriou informed the Court that no argument would be advanced F in regard to the factual defences.

If clause 2 (b) is to be construed as granting an option, then clearly it was invalid because there was no agreement as to rental or any other terms and conditions of the lease. (Cf Aris Enterprises (Finance) (Pty) Ltd v Waterberg Koelkamers (Pty) G Ltd 1977 (2) SA 425 (A) at 434 and cases there cited, particularly Hattingh v Van Rensburg 1964 (1) SA 578 (T) at 582 - 583.) If, however, the clause can properly be construed as granting a valid right of first refusal, that construction is to be preferred. The Courts are "reluctant to hold void for uncertainty any provision that was intended to have legal H effect". (Brown v Gould 1972 Ch 53 at 56 - 58.) Lord TOMLIN said in Hillas & Co Ltd v Arcos Ltd 1932 All ER Rep 494 (HL) at 499H - I that:

"... the problem for a Court of construction must always be so to balance matters that, without the violation of essential principles, the dealings of men may as far as possible be treated as effective, and that the law may not incur the reproach of being a destroyer of bargains."

(This was quoted with approval in Collen v Rietfontein I Engineering Works 1948 (1) SA 413 (A) at 428 - 429.)

There can be no doubt that clause 2 (b) was intended to have business fficacy and to be binding on the parties. It formed part of an agreement recorded on Retco Ltd's standard form of commercial lease, which was presumably used in many leases of business premises concluded by companies in the Retco group. J The letting of premises in the building was

Nicholas JA

A part of Poynton's business. And the clause was one of considerable commercial importance to the lessee, because it promised him security of tenure for an additional period, if he should desire it.

In clause 2 (b), the parties have used the term "first refusal" and there is no reason why it should not be taken at its face value.

B A right of first refusal is well known in our law. In the context of sale it is usually called a right of pre-emption. The grantor of such a right cannot be compelled to sell the property concerned. But if he does sell, he is obliged to give the grantee the preference of purchasing, and consequently he is prevented from selling to a third person without giving the first refusal. (See Van Pletsen v Henning 1913 AD 82 at 95; C Owsianick v African Consolidated Theatres (Pty) Ltd 1967 (3) SA 310 (A) at 321F.) So, a right of pre-emption involves a negative contract not to sell the property to a third person without giving the...