Page 64 - Q&A.indd

What happens to my right of first refusal when
I renew my lease?

August 2017

“I have been renting a house for a few years, and because
I would like to eventually buy the place should the owner
decide to sell, I asked that we include a right of first refusal in
my favour in the lease agreement to buy the house. The lease
has been renewed a few times over the years. Now the owner
has decided to sell to his brother-in-law saying that my right
fell away when the lease was renewed and no longer exists.
Can he do this?”

A right of first refusal (also called a right of pre-emption) affords the holder
of the right a preference to buy a property should the owner ever wish
to sell it. Importantly, the owner does not have to sell the property, but
should the owner decide to sell then the owner must grant the holder of
the right the first opportunity to buy the property. One often encounters
such a right of first refusal being included in lease agreements for the
same reason you have such a right, namely to enable the lessee to be
able to have the first opportunity to buy the property should it come onto
the market.
Property The Constitutional Court recently had to consider the question of
whether such a right of first refusal lapses when a lease agreement is
renewed or whether it is also renewed when the lease agreement is
extended. In terms of our common law, the rule is that only essential terms
to the lease relationship, such as the time period and rental etc. will be
renewed as these are considered essential. Non-essential or collateral
terms will not automatically be renewed unless the parties clearly
indicated that these terms should also renew. The Court disregarded this
common law principle and in considering the matter, stated that this
position unduly favours the lessor and that it is inconceivable that the
ordinary lay person would be able to distinguish between what would
be essential and collateral to their relationship. Accordingly the Court
held that unless expressly or tacitly agreed otherwise, rights of first refusal
are automatically renewed when the lease is renewed.

For interest, it may also be noted that a right of first refusal can even be
registered at the Deeds Office against the title deed of a property by way
of a notarial deed, ensuring that the owner will not be able to transfer the
property to a third party without upholding the right of first refusal.

In your situation, unless renewal is specifically excluded, it does appear

58