The right of first refusal

A right of first refusal is a mechanism in a contract that affords the holder of such right the preference to buy a particular property, should the owner ever choose to sell it.

Buying Property On Auction | Property Blog Articles

However, it is worth noting that the holder of the right to first refusal is under no obligation to purchase the property should it become available.

Lease agreements

This right will often be encountered in lease agreements. This affords the tenant the opportunity to buy the property should the landlord ever choose to sell it which is often beneficial to both the tenant (or buyer) and the landlord (or seller).

For a landlord, if the tenant chooses to exercise the right of first refusal and purchase the property, it means immediate access to a buyer and reduced costs typically involved in marketing and selling a property. In addition, many tenants become attached to the house they rent and have already put their own personality into it; being the first in line to purchase the property means that the tenant has certainty that they can continue to live in this home.

The selling price

The owner of the property is not bound by a specific price, but may not accept any offer from a third party unless the holder of the right has exercised such.

Tenants should be aware that when exercising such right, if a competing offer from a third party is made which is more attractive, the landlord can accept this offer should the tenant be unable to match the offer.

Disputing the right to first refusal

In the case of Mokone v Tassos Properties CC and Another (2017) CC, a clause affording a right of first refusal was disputed. This simple, and some might say standard, term of the lease agreement lead to the parties being entrenched in litigious proceedings with the tenant disputing the transfer of the property by the landlord to a third party.

The main issue in the Mokone case was whether the right of first refusal was granted without the signature of both parties. The right was granted in the original lease, however the lease was later extended verbally and subsequently through written endorsement and the question then arose whether the right was renewed without expressly mentioning such.

In terms of our common law, the rule is that essential terms of the agreement will be renewed while collateral terms will not unless the parties expressly agree that these should also be included in the renewal.

The Court’s finding

In the above matter, the Constitutional Court held that when lay person(s) are renewing a lease on the same terms and conditions that were originally agreed upon, such collateral terms will also be renewed.

The Court’s reasoning behind the Mokone matter was that it was the intention of the parties to include the right of first refusal. As such, the court wanted to give effect to such intention, and on this basis overruled the common law practice. The Court held that if the common law principle was to be followed, this would unduly favour the landlord and it is not common for the ordinary lay person to distinguish between essential and collateral terms.

The effect is that the right of first refusal can be renewed without specifically including it in the renewal document.

Taking this into account, it is advisable to specifically discuss the terms of a lease prior to entering into or renewing such a contract whether this be for commercial or residential property. Such agreement should then be put into writing to avoid any points that could lead to a dispute at a later stage. Both landlords and tenants should make sure that their rights and obligations and the termination date of the lease is clearly set out.

Follow Snymans on Facebook for more legal information, tips and news about property.

Recommended for you

Buying tenanted properties - don’t get caught out
Contractual Matters

Electronic signatures and the virtual commissioning of affidavits[post_view before=""]

In our June newsletter, we looked at an interesting court decision handed down in 2020 by the Eastern Cape Division of the High Court of South Africa, related to the application of electronic signatures to offers to purchase land. Last year, the electronic signing of documents once again came under the spotlight in the case of Firstrand Bank Limited v Jacques Louis Briedenhann. Interestingly, this decision was also handed down by the Eastern Cape Division of the High Court, which appears to be making groundbreaking decisions in this regard.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Contractual Matters

The property professional’s checklist for dealmaking[post_view before=""]

The property professional plays a critical role in the process of buying and selling real estate. When ‘making the deal’, they must engage with the seller to collect information and documentation that will be needed throughout the process. At the time of taking the mandate, it is crucial that they clarify certain facts and obtain specific information and documentation in order to pre-empt any issues that may arise, thus saving time.

Read More
Buying tenanted properties - don’t get caught out
Contractual Matters

Electronic signatures and OTPs[post_view before=""]

As we live in an online world, and because of the recent pandemic, electronic signatures are becoming more commonplace – and an increasing number of buyers and sellers are asking to sign their OTPs electronically.

Read More
Minors and immovable property
Contractual Matters

When ownership of immovable property is vested in a company[post_view before=""]

There are instances where ownership of land is vested in a company. Typically, a company is registered, usually with one or two directors, and such company then takes transfer of the immovable property. The land is then held in the name of the legal entity (being the company), with the individuals or directors who intend to stay there holding shares in the company.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Contractual Matters

An ethical approach to fee discounts[post_view before=""]

Legal fees are regulated by tariff guidelines, which are issued by the Rules Board in terms of the Legal Practice Act. Although these tariffs are guidelines, they are typically followed in the conveyancing industry. As a result, if fees are ever queried, they can usually be backed up by the regulations issued in the Government Gazette from time to time.

Read More

Need more Snymans content?

Sign up for our monthly newsletter.

The right of first refusal

A right of first refusal is a mechanism in a contract that affords the holder of such right the preference to buy a particular property, should the owner ever choose to sell it.

Buying Property On Auction | Property Blog Articles

However, it is worth noting that the holder of the right to first refusal is under no obligation to purchase the property should it become available.

Lease agreements

This right will often be encountered in lease agreements. This affords the tenant the opportunity to buy the property should the landlord ever choose to sell it which is often beneficial to both the tenant (or buyer) and the landlord (or seller).

For a landlord, if the tenant chooses to exercise the right of first refusal and purchase the property, it means immediate access to a buyer and reduced costs typically involved in marketing and selling a property. In addition, many tenants become attached to the house they rent and have already put their own personality into it; being the first in line to purchase the property means that the tenant has certainty that they can continue to live in this home.

The selling price

The owner of the property is not bound by a specific price, but may not accept any offer from a third party unless the holder of the right has exercised such.

Tenants should be aware that when exercising such right, if a competing offer from a third party is made which is more attractive, the landlord can accept this offer should the tenant be unable to match the offer.

Disputing the right to first refusal

In the case of Mokone v Tassos Properties CC and Another (2017) CC, a clause affording a right of first refusal was disputed. This simple, and some might say standard, term of the lease agreement lead to the parties being entrenched in litigious proceedings with the tenant disputing the transfer of the property by the landlord to a third party.

The main issue in the Mokone case was whether the right of first refusal was granted without the signature of both parties. The right was granted in the original lease, however the lease was later extended verbally and subsequently through written endorsement and the question then arose whether the right was renewed without expressly mentioning such.

In terms of our common law, the rule is that essential terms of the agreement will be renewed while collateral terms will not unless the parties expressly agree that these should also be included in the renewal.

The Court’s finding

In the above matter, the Constitutional Court held that when lay person(s) are renewing a lease on the same terms and conditions that were originally agreed upon, such collateral terms will also be renewed.

The Court’s reasoning behind the Mokone matter was that it was the intention of the parties to include the right of first refusal. As such, the court wanted to give effect to such intention, and on this basis overruled the common law practice. The Court held that if the common law principle was to be followed, this would unduly favour the landlord and it is not common for the ordinary lay person to distinguish between essential and collateral terms.

The effect is that the right of first refusal can be renewed without specifically including it in the renewal document.

Taking this into account, it is advisable to specifically discuss the terms of a lease prior to entering into or renewing such a contract whether this be for commercial or residential property. Such agreement should then be put into writing to avoid any points that could lead to a dispute at a later stage. Both landlords and tenants should make sure that their rights and obligations and the termination date of the lease is clearly set out.

Follow Snymans on Facebook for more legal information, tips and news about property.