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South Africa Rental Housing Act Overview

The document outlines the legal framework governing lease agreements in South Africa, detailing the transition from common law and the Rent Control Act to the Rental Housing Act 50 of 1999, which aims to promote adequate housing and establish Rental Housing Tribunals. It discusses the definitions, requirements, and essential elements of lease contracts, as well as the rights and obligations of lessors and lessees under the Rental Housing Act and the Consumer Protection Act. Additionally, it summarizes relevant case law that clarifies the interpretation and enforcement of these laws.

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0% found this document useful (0 votes)

37 views56 pages

South Africa Rental Housing Act Overview

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karabo.tsukudu1

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Available Formats

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PASS AND PROPER

Unit 2
Theme 1
Introduction Overview
❖ Roman law recognized three types of letting and hiring contracts:
➢ locatio-conductio rei (letting and hiring of a thing),
➢ locatio-conductio operarum (letting and hiring of services),
➢ and locatio-conductio operis (letting and hiring of a job).
❖ Until August 1, 2000, property lease agreements in South Africa
were governed by common law and the Rent Control Act of 1976,
which limited rent and eviction grounds.
➢ The Rental Housing Act 50 of 1999 repealed the Rent Control
Act, removing these restrictions but the Consumer Protection
Act 68 of 2008 might still influence lease agreements.
➢ The Rental Housing Amendment Act 35 of 2014, though not yet in
force, may introduce further changes.
❖ Since August 1, 2000, lease agreements for housing have been
governed by the Rental Housing Act 50 of 1999, which aims to
promote adequate housing, establish Rental Housing Tribunals, and
resolve conflicts between tenants and landlords.
➢ It repealed the Rent Control Act and provides mechanisms for
addressing disputes and unfair practices.
❖ The Rental Housing Act supports the right to adequate housing as
per the South African Constitution.
❖ Rental Housing Tribunals enforce the Rental Housing Act, handling
complaints about unfair practices by investigating disputes and
possibly mediating or ruling on them.
➢ Non-compliance with tribunal rulings can lead to criminal
penalties.
❖ The Rental Housing Act applies specifically to residential leases,
while commercial leases or other property uses fall outside its
scope.
❖ The Consumer Protection Act 68 of 2008 may apply to both
residential and commercial leases if the lessor operates in the
ordinary course of business but does not cover juristic-person
lessees with significant net asset value or turnover.

Important sections:
❖ Rental Housing Act 50 of 1999:
➢ Section 13(1) of the Rental Housing Act allows complaints about
unfair practices to be lodged with Rental Housing Tribunals.

Disclaimer: These notes are provided by Pass and Prosper for free and are drafted by Pass
and Prosper tutors for their own studying benefit. These notes are not sold for profit and
therefore, there may occasionally be minor mistakes. In such an event, please contact the
tutor to effect the correction. Note we are in no way affiliated or a branch of the UP Law
Faculty as we are an independent service.
PASS AND PROPER

➢ Section 13(2) outlines the tribunal's process for handling

disputes, including investigation, mediation, and hearings.
➢ Section 13(4)(c) allows tribunals to end unfair practices such as
overcrowding or poor living conditions.
➢ Section 16 provides for criminal penalties for non-compliance
with tribunal rulings.
➢ Section 4(5)(c) of the Rental Housing Act pertains to lease
termination and unfair practices.
Definitions Overview
❖ A lease of things is a reciprocal agreement where the lessor gives
the lessee temporary use and enjoyment of a thing in exchange for
counter-performance.
❖ Under the Rental Housing Act, a lease refers to an agreement
between a tenant and landlord for housing purposes.
❖ A landlord is defined as the owner of a dwelling or their authorized
agent, or a person with the lawful right to lease it.
❖ A tenant is the lessee of the dwelling leased by the landlord.
❖ The term "dwelling" includes various structures like houses, rooms,
flats, and parking spaces leased as part of the agreement.
❖ The Consumer Protection Act defines a service as including access
to or use of premises or property under a rental agreement.
❖ A rental agreement involves temporary possession or use of
property by the consumer but excludes leases under the National
Credit Act.
❖ The National Credit Act applies to hire-purchase agreements of
movables, which are not considered common-law leases.
❖ Common-law leases without deferred payments are not regulated
by the National Credit Act.
General Requirements for Overview
Conclusion of the Lease ❖ A lease is primarily a contract.
❖ The agreement must comply with general contract requirements:
consensus, contractual capacity, legality, physical possibility of
performance, and formalities.
❖ These general requirements were discussed in earlier chapters.
❖ This chapter focuses on the specific application of these
requirements to leases.
❖ Relevant provisions of the Rental Housing Act and Consumer
Protection Act are included for applicable lease agreements.
Formalities Overview
❖ A lease can be concluded tacitly, verbally, or in writing.

❖ The Consumer Protection Act [section 50] empowers the Minister of

Trade and Industry to prescribe consumer agreements that must be
in writing, but no such categories were prescribed at the time of
writing.
❖ Leases involving movables must be in writing under the National
Credit Act 34 of 2005, which treats these leases as contracts of sale
on credit.
❖ Non-compliance with the National Credit Act can result in fines or
imprisonment, but does not invalidate the lease.
❖ Long leases must be in writing to bind the lessor’s creditors or
successors unless they are aware of the lease.
❖ If an agreement is reduced to writing, it must be determined whether
writing is required for validity or just for proof.
❖ Section 5(2) of the Rental Housing Act allows the lessee to request
the lessor to reduce the lease to writing, and the Rental Housing
Amendment Act 35 of 2014 will make this mandatory.
❖ The written lease must include details such as the names and
addresses of the lessee and lessor, description of the dwelling,
rental amount and escalation, payment frequency, deposit, lease
period or notice period, obligations of both parties, and additional
charges.
❖ Failure to reduce a lease agreement to writing is an offense,
punishable by a fine and/or imprisonment of up to two years
[section 16].
Essentialia of the Contract of Overview
Lease ❖ Lease must comply with three additional aspects: the leased
property, temporary use, and the rent.
❖ Rental Housing Act and Consumer Protection Act may introduce
further essential terms for lease contracts.

Leased Property:
❖ Consensus must be reached on the leased property, which can
include immovable, movable, corporeal, or incorporeal things.
❖ The leased property must be identified or identifiable to avoid the
contract being void.
❖ Movables intended to accompany the leased property are included
in the lease.
❖ If land is leased without mentioning immovable structures, they are
deemed included.
❖ Distinction between rural and urban tenements is based on their
use, not location.

Temporary Conferment of Power of Use and Enjoyment:

❖ The lessee acquires temporary use and enjoyment of the property,
not the right to consume or destroy it.
❖ Property cannot be leased in perpetuity; duration may vary,
including fixed dates or periodic leases.
❖ Section 14 of the Consumer Protection Act limits fixed-term
agreements to 24 months unless a longer term benefits the lessee

Nature and Extent of the Counter-Performance:

❖ Agreement on the nature and extent of the rent is required.
❖ Debate exists on whether the rent must be monetary or can include
services or improvements.
❖ Until the legislature changes the law, rent must consist of money,
not labor or other forms of compensation.
❖ Rent can be calculated by fixed amounts, formulas, or third-party
determination.
❖ The court can correct unjust rent determinations but cannot compel
performance based on such corrections.
❖ Nominal rent, if agreed, must be analyzed to ensure the lease is
valid and not a donation.
❖ Rent increases must be certain, and lessee consent is required
unless there is an objective criterion for the increase.

Conclusion Overview
❖ If the essential elements of a lease are absent, the agreement is not
considered a lease, but could be another type of contract, such as a
partnership or loan agreement.
❖ The intention of the parties is determined by applying the ordinary
rules of interpretation.
❖ The courts prioritize the substance of the contract over its form
when determining the true intention of the parties.
❖ Even if rent is paid for an activity like removing stone from a property,
the court may not consider it a lease.
❖ If the agreement is not a lease, the lessee cannot claim protections
specific to leases, such as the "huur gaat voor koop" rule.
❖ A contract is typically taken at face value, and the party challenging
its nature must provide proof.
Cases: Maphango
❖ SCA: not isolated incident; must be incessant/systemic
❖ CC: can be single act, e.g. terminating lease contrary to RHA
Disclaimer: These notes are provided by Pass and Prosper for free and are drafted by Pass
and Prosper tutors for their own studying benefit. These notes are not sold for profit and
therefore, there may occasionally be minor mistakes. In such an event, please contact the
tutor to effect the correction. Note we are in no way affiliated or a branch of the UP Law
Faculty as we are an independent service.
PASS AND PROPER

❖ This case addresses the significance of the Rental Housing Tribunal

(established under the Rental Housing Act) and clarifies the
definition of “unfair practice.”
❖ Facts:
➢ The tenants contended that their lease agreements were unfairly
terminated because the landlord sought to evict them to
renovate the property and raise the rent.
❖ SCA Decision:
➢ The Supreme Court of Appeal ruled that the landlord’s actions
did not qualify as an “unfair practice,” stating that “practice”
implies repeated occurrences, so a single act would not meet
the threshold.
❖ CC Decision:
➢ The Constitutional Court disagreed, asserting that even a single
occurrence can be deemed an unfair practice, such as
terminating a lease in violation of the Rental Housing Act.
❖ The Court referred the matter back to the Tribunal, emphasizing its
role in making the final determination.
❖ The Court clarified that “unfair practice” includes any act or
omission by a landlord or tenant that contravenes the Rental
Housing Act or unreasonably harms the rights of either party, as
outlined in Section 1 of the Act.

Benlou
❖ This case addresses the issue of counter-performance, specifically
rental payments, and confirms several key principles in lease law.
❖ Principles Confirmed:
➢ Rent is considered part of the essential elements of a lease
agreement and must be either determined or determinable.
❖ Facts:
➢ In this case, the lessor had the discretion to increase the rental if
expenses rose, which made practical sense. However, the
general rule is that rent cannot be left solely to the discretion of
one party.
❖ The case confirmed that while one party may have the power to
increase the rent, it cannot have absolute discretion to do so. Any
such discretion must be exercised based on an objective standard.
❖ Decision:
➢ In this case, the lessor did not have an unrestricted discretion to
raise the rent. The lease agreement contained an objective

standard for determining rental increases, which justified the

lessor’s action.

Ferndale Crossroads
❖ This case addressed a statutory requirement related to lease
agreements in Johannesburg.
❖ Statutory Requirement:
➢ The relevant statute mandates that the City of Johannesburg
must first advertise before entering into a lease agreement with a
lessee.
❖ Facts:
➢ In this case, no advertisement was made prior to concluding the
lease agreement, which was argued to be in violation of the
statute.
➢ The issue raised was whether this noncompliance rendered the
lease void.
❖ Counter-Argument:
➢ The defense contended that the agreement was not actually a
lease, and statutory noncompliance would only be relevant if it
were indeed a lease.
➢ If the agreement was valid but not a lease, the advertising
requirement would not apply.
❖ Court's Approach:
➢ The court emphasized the need to assess the true intention of
the parties involved.
➢ It confirmed the essential elements (essentials) of a lease
agreement, which are the minimum requirements for an
agreement to qualify as a lease.
❖ Decision:
➢ The court concluded that the true intention of the parties was to
form a lease agreement, as there was clear consensus on the
essential elements.
➢ Therefore, the failure to comply with the statutory advertising
requirement rendered the agreement void.
Theme 2
Introduction Overview
❖ A lease is a reciprocal agreement where both the lessor and lessee
have rights and obligations as outlined in the contract.
❖ If neither the Rental Housing Act 50 of 1999 nor the Consumer
Protection Act 68 of 2008 applies, the content of these rights and
obligations can be determined by the contract itself.
Disclaimer: These notes are provided by Pass and Prosper for free and are drafted by Pass
and Prosper tutors for their own studying benefit. These notes are not sold for profit and
therefore, there may occasionally be minor mistakes. In such an event, please contact the
tutor to effect the correction. Note we are in no way affiliated or a branch of the UP Law
Faculty as we are an independent service.
PASS AND PROPER

❖ The chapter discusses the common-law duties of the lessor and

lessee.
❖ The Consumer Protection Act impacts the common-law duties,
particularly those of the lessor, for applicable lease agreements,
and this impact is examined.
Duties of the Lessor Delivery of the leased property
❖ The lessor must make the property available for temporary use by
the lessee.
➢ Delivery can be symbolic (e.g., handing over keys) or actual.
❖ The property must be delivered in the agreed-upon condition,
including any required attachments or additions.
❖ If no specific condition is agreed upon, the property must be
delivered in the condition it was in at the time of contracting.
❖ If let for a specific purpose, the property must be suitable for that
use, and the lessor must comply with any legal requirements.
❖ The Consumer Protection Act (CPA) gives consumers the right to
demand quality service, affecting "as is" lease agreements.
❖ The CPA requires leased property to be free from defects unless
explicitly excluded in the agreement.

Maintenance of the leased property

❖ The lessor must maintain the property unless otherwise agreed,
ensuring it is suitable for the leased purpose.
❖ A lessee responsible for maintenance must handle repairs due to
wear and tear.
❖ The lessor is not liable for damage caused by the lessee or minor
repairs presumed to be the lessee’s responsibility.
❖ The CPA provides the right to timely maintenance and notice of
delays.

Remedies available to the lessee

❖ Remedies include specific performance, rescission, and damages.
❖ Specific performance may be granted at the court’s discretion,
especially if the lessor’s failure affects constitutional rights.
❖ Rescission is available if the defect is significant, and damages can
be claimed for foreseeable breaches.
❖ Rent reduction is possible if the use and enjoyment of the property
are diminished.
❖ The lessee can repair the property if the lessor fails to do so and
recover the costs.

Providing undisturbed use and enjoyment

❖ The lessor guarantees undisturbed use and enjoyment, regardless of
property ownership.
❖ If the lessor disturbs the lessee’s use, remedies include specific
performance, rescission, or damages.
❖ The lessor has the right to inspect the property with reasonable
notice, and the lessee must tolerate essential repairs, with potential
rent reduction depending on the disturbance.

Disturbance by Third Parties

❖ The lessor must not disturb the lessee and guarantees that no one
with a better title will infringe upon the lessee’s rights.
❖ If a third party with a better title causes a disturbance, the lessee
must notify the lessor to help defend their rights.
➢ If the lessor fails to act, the lessee must defend their occupation
vigorously but is entitled to damages if the third party’s claim is
indisputable.
❖ The lessor is not responsible for disturbances caused by a third
party with no title or a lesser title; the lessee must handle such
issues themselves and may claim damages from the third party.

Huur Gaat Voor Koop

❖ In Roman law, lessees had only personal rights and no real rights; a
lease could be overridden by a third party with a real right.
❖ Roman-Dutch law introduced the principle of "huur gaat voor koop"
(lease takes precedence over sale), which protects lessees' rights
against new property owners.
❖ In South African law, the principle applies to both long and short
leases, with specific protections based on lease duration and
registration.
❖ For short leases, protection applies if the lessee is in occupation.
❖ For long leases, protection lasts the lease term if registered;
otherwise, it is limited to ten years.
❖ New rights in the land are subject to the lease, and the lease binds
subsequent owners only under certain conditions.
❖ The rule does not apply to land expropriation and is specific to
leases of land and buildings.
❖ When a property is sold, the new owner replaces the seller as lessor,
inheriting the lease obligations.

➢ Delegation may be required for this replacement.

❖ The new lessor (purchaser) is entitled to rent from the transfer date
and must honor the essential lease terms but not additional
obligations like an option to purchase.
❖ Lessees must exercise options to purchase against the original
lessor, not the purchaser.
➢ If the lease term is extended, the purchaser must respect the
extension period.
Compensation for Overview
attachments and ❖ If the lessor allows the lessee to make attachments and
improvements improvements to the leased property and agrees to compensate the
lessee, compensation is due.
❖ Issues arise when permission was not granted or granted without
compensation.
❖ The Placcaat of 1658, re-enacted in 1696, governs compensation for
attachments and improvements in South African law.
❖ There was uncertainty about whether the Placcaat applied to rural or
urban tenements.
❖ In 2006, the Supreme Court of Appeal ruled that the Placcaat
applies only to rural land.
❖ For urban land, lessees may rely on unjustified enrichment
principles for compensation.

Compensation
❖ No compensation is recoverable for improvements made without
permission; such improvements can be removed but the property
must not be left in worse condition.
❖ Lessees cannot claim a lien over the property for such
improvements.
❖ With permission, lessees may claim compensation based on
unjustified enrichment for improvements:
➢ full expenditure for necessary improvements,
➢ the increase in market value
➢ cost of useful improvements.
❖ If there was an agreement between parties:
❖ Lessor will compensate lessee as agreed in the contract.
❖ If there was no permission or no agreement on compensation:
➢ No permission:
▪ Refer to Placaat of 1658/1696 (only applies to rural land).
Disclaimer: These notes are provided by Pass and Prosper for free and are drafted by Pass
and Prosper tutors for their own studying benefit. These notes are not sold for profit and
therefore, there may occasionally be minor mistakes. In such an event, please contact the
tutor to effect the correction. Note we are in no way affiliated or a branch of the UP Law
Faculty as we are an independent service.
PASS AND PROPER

▪ No compensation is due if the lessee had no permission.

▪ Lessee may remove improvements before the lease ends but
must avoid causing damage.
❖ Permission but no agreement on compensation (for immovable
property):
➢ The rules of unjustified enrichment apply:
▪ Necessary improvements: Compensation for all expenses
related to maintaining or protecting the property.
▪ Useful expenses: Compensation if the improvements
increased the market value of the property.
▪ Key notes:
▪ Placaat will not be assessed.
▪ If the Placaat is not applicable, no permission means no
compensation.
Cases: Mpange
❖ The common law says that the property must be maintained in such
a way that it is suitable for the purpose for which it was hired/leased.
❖ Prior to the Mpange case, courts were generally reluctant to grant
specific performance in lease disputes, as it was believed that
forcing parties to continue with a lease they no longer wanted would
be unfair.
❖ However, in the Mpange case, the court granted specific
performance due to the unique circumstances of the case.
❖ Key Points Confirmed by the Court:
➢ Although there had been reluctance in the past, this was not an
absolute rule.
➢ Courts retain discretion to grant specific performance.
➢ Specific performance should be considered where a failure to
perform maintenance (such as maintaining the property)
negatively impacts the lessee’s housing rights.
➢ This case connected to the Section 26 constitutional right to
adequate housing.
➢ The court held that specific performance should be granted
when the lessor’s failure to maintain the property infringes on the
lessee’s constitutional rights to adequate housing, dignity, and
privacy.
❖ Conclusion:
➢ When an issue relates to a constitutional right, the law must
evolve. Courts should adopt a more lenient approach when
granting specific performance in such cases.

Arnold v Viljoen
❖ In this case, the court ruled that the lessee’s obligation to pay rent is
tied to the occupation of the property, rather than the use or
enjoyment of it.
❖ If the lessee remains in occupation, they must pay the full rent. Only
after vacating the property can the lessee claim damages, such as a
reduction in rent.
❖ Key Points:
➢ The liability to pay rent depends on whether the lessee is
occupying the property, not on the enjoyment or benefit derived
from it.
➢ If the lessee is in occupation, they must pay the full rent.
➢ A lessee can only claim a reduction in rent as damages after they
have vacated the property.
➢ Vacating the property is considered a form of cancellation of the
lease agreement.

Steynberg v Kruger
❖ The court in this case disagreed with the Arnold case.
❖ It held that if the lessee is entitled to cancel the lease due to a
breach of duty by the lessor but decides not to cancel, the lessee
should still be allowed to claim both a reduction in rent and
damages.
❖ This decision reflects a shift, allowing the lessee to seek
compensation for the breach even if they choose to continue with
the lease agreement.

Ntshiqa v Andreas Supermarket and Thompson v Scholtz cases,

❖ it was established that a lessee does not need to vacate the leased
property before claiming a reduction in rent as damages.
❖ The reduction in rent is not dependent on the lessee’s occupation of
the property but on the reduced use and enjoyment due to the
lessor’s failure to fulfill their duties.
❖ Key Points:
➢ The lessee can claim a reduction in rent without vacating the
property.
➢ Even if the lessee is not entitled to cancel the agreement, they
can still seek a reduction in rent due to the lessor’s non-
compliance with their obligations.

➢ The current legal position aligns with the principles established

in these cases.
➢ Pothier’s opinion was affirmed, stating that the reduced rent
should be proportional to the reduced use and enjoyment, and
that the lessee is not required to vacate the property to claim this
remedy.

Mpange v Sithole
❖ In this case, the landlord leased rooms in a dangerous building to
vulnerable lessees, many of whom were homeless and living in poor
conditions.
❖ Although there was no written lease agreement, the lessor failed to
meet his common law duty to maintain the property in a reasonable
condition.
❖ Key Points:
➢ The lessees, being destitute and with no alternative housing
options, could not simply cancel the lease and find new
accommodation.
▪ Their only option would be homelessness.
➢ The court recognized that typical legal remedies, such as
cancellation and damages, were not practical in this situation.
Instead, the court aimed to assist the lessees and
simultaneously develop the law.
➢ The court ruled that the lessees were entitled to a reduction in
rent, proportional to the reduced use and enjoyment of the
property, until the property was repaired.
➢ Additionally, the court emphasized that the lessor could not
claim the full rent unless he fulfilled his duty to maintain the
property.
▪ This decision pressured the lessor to repair and upgrade the
property.
➢ This case marked a development in the common law, with the
court applying Section 39(2) of the Constitution to adapt the law
to the circumstances.
▪ The court granted specific performance and ruled that a
reduction in rent was appropriate in these circumstances,
applying two remedies simultaneously.
➢ The ruling confirmed that when a lessee continues to pay rent
despite defects in the property, they are entitled to a rent
reduction in proportion to the diminished use and enjoyment of
the property.

University of Pretoria v Roger

❖ Issue:
➢ Complaints from students at university residences about noise
from nearby bars and nightclubs.
❖ Action:
➢ University sought an interdict against third parties (bars and
nightclubs) for creating a noise nuisance.
❖ Complaint:
➢ Noise exceeded levels permitted by land use rights.
❖ Court Decision:
➢ The court granted an interdict prohibiting the third parties from
producing noise above the permitted levels.

Theme 3
Duties of the Lessee Overview
❖ The lessee’s three main duties are:
➢ payment of the rent;
➢ proper use of the leased property; and
➢ return of the property on termination of the lease.
Payment of rent Duties of the Lessee and Rent Payment:
❖ Lessee’s primary duty is to pay rent as agreed in the lease.
❖ Rent should be paid at the end of each period unless agreed
otherwise, or in advance if specified.
❖ Payment must be made even on Sundays or public holidays.
❖ If the lessor refuses to accept rent, the lessee is not in default but
the lessor is in breach.

Responsibility for Payment

❖ Lessee is responsible for ensuring timely payment.
❖ Risk of loss or late payment is with the lessee if payment is by mail.
❖ Payment by cheque is considered conditional and needs to reach
the lessor by the payment deadline.

Payment Location
❖ If no place is agreed, the lessee must pay at the lessor’s location if a
payment date is set.

Reduction of Rent

❖ Rent can be reduced if the property is not in agreed condition, not

properly maintained, or if there is interference with use and
enjoyment.
❖ Under the Consumer Protection Act, lessees can request a refund
for unfulfilled obligations.
❖ Rent reduction may also apply in cases of property damage due to
vis maior (e.g., natural disasters).

Remedies of the Lessor

❖ For non-payment, the lessor can choose specific performance,
rescission, or damages.
❖ A claim for arrears is specific performance, not damages.
❖ If the lease ends, claims for unjustified enrichment can be made.
❖ A tacit hypothec covers movable assets and property fruits for
unpaid rent.
❖ Hypothec only applies if specific conditions are met and lapses
when rent is paid.

Proper Use and Return of Property:

❖ Lessee must use property as a reasonable person would, avoid
damage, and not alter property without consent.
❖ At lease end, property must be returned in the same condition,
allowing for ordinary wear and tear.
❖ If the property is damaged or altered without permission, the lessor
can claim specific performance or damages.
❖ The lessee has the onus to prove that damage was not caused by
their actions.
❖ If property is not returned or is damaged, the lessor may seek
eviction, damages, or loss of rent.

Eviction and Legal Considerations

❖ Eviction must comply with relevant statutes and constitutional
provisions, including the Prevention of Illegal Eviction Act and the
Constitution.
❖ The lessor cannot refuse to accept damaged property but can claim
damages based on repair costs and loss of rent.
❖ Damages claims arise only after lease termination.
Rights and Duties Imposed by Rental Housing Act 50 of 1999 - Lease Agreement Terms:
the Rental Housing Act ❖ Lessor must provide a written receipt for all payments received from
the lessee, including details of the payment and property.

❖ The receipt should indicate whether the payment was for rent,
arrears, deposit, or other, and specify the payment period.
❖ Deposits required by the lessor must not exceed the amount
specified in the lease agreement.
❖ Deposits must be invested in an interest-bearing account, with
interest paid to the lessee. Proof of interest must be provided upon
request.
❖ A joint inspection of the dwelling for defects must occur before the
lessee moves in, with any defects listed in the lease agreement.
❖ A joint inspection at lease expiry must occur to check for damages.
If not inspected, the lessor cannot claim damages and must refund
the deposit and interest.
❖ If the property is inspected after the lease, the lessor can deduct
repair costs from the deposit, with receipts provided, and must
refund the balance within 21 days.
❖ Deposits and interest can be applied to settle outstanding amounts,
with any remaining balance refunded within 14 days of property
restoration.
❖ If no amounts are owing, the deposit and interest must be refunded
within seven days of lease expiry.
❖ If the lessee vacates early without notice, the lease is considered
expired on the date of vacating, and the lessor retains all rights.
❖ House rules must be attached as an annexure to the lease
agreement.
❖ Costs related to the lease are payable by the lessee only with proof
of expenditure.

General Provisions
❖ Lessee and lessor cannot waive the above provisions.
❖ Lessor must not unfairly discriminate against lessees or their
households based on various personal attributes.
❖ Lessee has rights to privacy, protection from searches or seizures
without legal authority, and non-infringement of communication
privacy.
❖ These rights extend to the lessee’s household members and visitors.
❖ Lessor’s rights include prompt rent payment, recovery of unpaid rent
through legal means, lease termination for valid reasons, receiving
the property in good repair, repossession with court order, and
compensation for damages.

Enforcement

❖ Rental Housing Tribunals enforce the Rental Housing Act, with a

tribunal to be established in each province as per the Rental
Housing Amendment Act 35 of 2014.
Sub-lease, Cession, Overview
Delegation and Assignment ❖ Sub-letting, cession, and assignment are often confused in leases.

Sub-lease
❖ A sub-lease involves a sub-lessor granting temporary use of a
property to a sub-lessee in exchange for rent, creating a second
lease.
❖ No legal relationship exists between the original lessor and the sub-
lessee; thus, the original lessor cannot claim rent from the sub-
lessee.
❖ The sub-lease term cannot exceed that of the original lease.
❖ Not all third-party occupation is a sub-lease, e.g., when no rent is
charged.
❖ Urban lessees can sub-let unless prohibited; rural lessees need the
lessor's written consent to sub-let.
❖ Breaching a sub-letting prohibition is a material breach, allowing the
lessor to cancel the lease and seek eviction.

Cession
❖ Cession involves transferring lease rights from the lessee (cedent) to
a third party (cessionary), without creating a new contract.
❖ The original lessee remains the debtor; the cessionary steps into the
lessee's role as a creditor.
❖ The lessor can also cede rights to a third party, and in cession in
securitatem debiti, retains rights such as lease cancellation.
❖ Lessees of houses can cede rights freely, while rural lessees need
written consent from the lessor.
➢ Agreements allowing cession usually also permit sub-letting.

Delegation and Assignment

❖ Delegation transfers obligations with the consent of the debtor,
creditor, and new debtor.
❖ Assignment transfers both rights and obligations to a third party,
without forming a new lease.
Termination of the Lease Overview
❖ A lease can be terminated through fulfilment, agreement, setoff,
prescription, supervening impossibility, or the specific manners
outlined below.
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Effluxion of Time
❖ A lease must be concluded for a determined or determinable period.
❖ For leases not covered by the Consumer Protection Act (CPA), they
end on the expiry of the period or occurrence of an event without
needing notice.
❖ For CPA leases, section 14 applies, excluding leases between
juristic persons.
➢ The Minister can prescribe maximum periods for fixed-term
agreements, currently 24 months.
➢ Longer periods are allowed if agreed upon by both parties and
financially beneficial for the lessee.
➢ After 24 months, the lease continues month-to-month unless
terminated or renewed.
❖ The lessor must notify the lessee 40-80 business days before the
lease expires, including any material changes and options for
continuation or termination.

Notice
❖ For periodic leases not covered by the CPA, termination requires
reasonable notice, with the length dependent on circumstances like
payment frequency.
➢ The notice must give the lessee time to make alternative
arrangements and the lessor time to find a new lessee.
➢ In public rental housing, termination on notice alone is
considered oppressive without additional reasons.
❖ For leases with indefinite terms, termination occurs when either
party exercises their choice or upon the death of the person who
reserved the choice, with reasonable notice given.
❖ Under the CPA, a lessee can cancel a lease after the fixed term or
during the term with 20 business days' notice, with no penalty for
fixed-term cancellations.
➢ However, the lessee is liable for amounts owing and a
reasonable cancellation penalty, as specified in the regulations.

Rescission Due to Breach of Contract

❖ Under the CPA, a lessee can cancel or rescind a lease at any time
during the term with 20 business days' notice, including due to a
breach by the lessor.

❖ A lessor can rescind a fixed-term lease with 20 business days' notice

if the lessee fails to comply with the lease terms, unless rectified in
that period.
➢ This applies despite any contrary lease agreement terms. The 20
business-day notice applies only to fixed-term leases, not
month-to-month leases.
Death Overview
❖ Generally, a lease is not terminated by the death of a contracting
party, except:
➢ If the lease explicitly states termination upon the death of any
party.
➢ If the lease is valid only as long as the lessor’s will, it terminates
upon the lessor's death.
➢ If the lease is valid only as long as the lessee’s will, it terminates
upon the lessee's death.
❖ A usufruct cannot last longer than the usufructuary’s life and ends
upon their death, unless the lessee was unaware of the lessor's
limited rights to the property.
❖ In such cases, the lessee cannot demand specific performance but
can claim damages from the lessor’s deceased estate.

Insolvency Insolvency of the lessor

❖ A lease is not terminated by the insolvency of the lessor.
❖ For immovables, the lease is sold subject to the huur gaat voor koop
rule unless another real right (e.g., mortgage) was established
earlier.
❖ If the highest bid for the property is insufficient to redeem the
mortgage, the property is sold free of the lease.

Insolvency of the lessee

❖ Common law terminated a lease upon the lessee’s insolvency, but
Section 37 of the Insolvency Act 24 of 1936 provides that the lease is
not automatically terminated.
❖ The trustee has the option to terminate the lease by notice within
three months of appointment; otherwise, the lease is deemed
terminated after three months.
❖ If the trustee cancels the lease, the claim for improvements is lost,
but the lessor can still sue for damages.
❖ A stipulation in a lease agreement that terminates the lease upon
the lessee’s sequestration is null and void.
Disclaimer: These notes are provided by Pass and Prosper for free and are drafted by Pass
and Prosper tutors for their own studying benefit. These notes are not sold for profit and
therefore, there may occasionally be minor mistakes. In such an event, please contact the
tutor to effect the correction. Note we are in no way affiliated or a branch of the UP Law
Faculty as we are an independent service.
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Dissolution of partnership
❖ Dissolution of a partnership does not terminate the lease unless
otherwise agreed.
❖ After dissolution, the partners are co-lessees and liable jointly for
the rent.
Renewal of the Lease By agreement
❖ Lessor and lessee can agree to a new lease after the original one
ends, known as relocation.
❖ Continued use of the property does not necessarily mean the lease
was tacitly renewed.
❖ Court cases indicate that facts and circumstances must be
analyzed to determine if a new lease exists.
❖ New lease is usually on the same terms as the original, but recent
rulings may include additional terms like pre-emptive rights if not
clearly excluded.

By operation of law
❖ Rental Housing Act 50 of 1999 stipulates that if a lessee remains in
the property with consent after lease expiry, it is considered a
periodic lease, requiring one month's notice to terminate.

Option to renew
❖ Lease options to renew may be conditional; lessee must clearly
communicate their choice within specified time frames.
❖ Option must include essential lease terms; if rental amount is not
specified, the renewal option may be unenforceable.
❖ Consumer Protection Act and Rental Housing Act may apply
concurrently, with the more protective provision prevailing if
conflicts arise.
Cases: Mighty Solutions
❖ The court addressed the common law position regarding the
eviction of a sub-lessee when the original lease agreement has
expired.
❖ Key Facts:
➢ Engen (the lessor) had a valid lease with the property owner, but
the lease expired.
➢ Engen had sublet the property to Mighty Solutions (M). After the
lease expired, M continued occupying the property without
paying rent.

➢ Engen sought to evict M, but M argued that because the original

lease had expired, Engen could not evict them.
❖ Issues Considered:
➢ Whether Engen had the standing to apply for an eviction order.
➢ Whether M could rely on possessory rights from their fuel retail
license under the Petroleum Products Act (PPA) to prevent
eviction.
❖ Court’s Ruling:
➢ The court confirmed that under common law, a lessee (and by
extension a sub-lessee) cannot use the lack of title of the lessor
as a defense against eviction.
▪ Even if the original lease has expired, this does not affect the
lessor’s right to evict.
➢ The court upheld that a lease does not depend on the lessor’s
ownership of the property, meaning that M could not argue they
had a right to remain in occupation based on the lessor’s lack of
title.
➢ Engen had the right to evict M, and there was no need to develop
the common law since the existing rule did not conflict with the
Constitution.
▪ The court found no constitutional basis for changing the
common law in this case.
❖ Development of Common Law:
➢ The court outlined the process for developing common law,
which includes determining the current position, assessing
whether it conflicts with constitutional principles, and
considering the broader consequences of any changes.
➢ In this case, the court found that there was no need to alter the
common law, as the existing rule did not contravene the
Constitution, nor would changing it be just or commercially
sensible.
❖ Conclusion:
➢ M could not succeed in their argument that the expiration of the
original lease affected their eviction because the common law
rule does not require a lessor to have title to the property to
enforce eviction.
➢ The court emphasized that to allow M to remain in the property
based on the original lessor’s lack of title would be unjust and
commercially reckless.

❖ Quick Summary –JUST TO UNDERSTAND AS PER LECTURE

➢ When the original lease expires, a sub-lessee cannot use the

lessor’s lack of title as a defense against eviction.
➢ The common law does not require a lessor to have title for a
lease to be valid or for eviction to be enforced.
➢ The court confirmed that there was no need to develop the
common law in this case, as the existing rule did not violate the
Constitution.

Mokone case
❖ The court addressed the development of common law principles to
better align with constitutional principles and current practices.
❖ The case is significant because it marks the court’s approach to
modifying established common law rules.
❖ Key Facts:
➢ The case involved the renewal of a lease agreement, and the
issue was whether incidental terms of the original lease
automatically became part of the renewed lease.
❖ Common Law Position Before the Case:
➢ Prior to this case, the common law position was that incidental
terms of the original lease (such as a right of preemption) did not
automatically become part of the renewed lease agreement.
❖ Court’s Decision:
➢ The Constitutional Court decided to develop the common law
and amend the existing principle.
➢ It ruled that incidental terms of the original lease (e.g., the right
of preemption) do automatically form part of the renewed lease
agreement.
❖ Reasoning Behind the Decision:
➢ The court acknowledged that sometimes the common law needs
to be developed to align with the Constitution, even if the existing
principle is not necessarily contrary to it.
▪ In this case, the court sought to adapt the common law to
reflect modern practices and the expectations of ordinary
people (laypersons).
➢ The court emphasized that a layperson would likely consider a
renewal of a lease to involve renewing the lease in its entirety,
rather than distinguishing between the core terms and incidental
terms.
▪ This approach reflects a more practical understanding of
lease renewals, where the assumption is that everything in
the original lease continues unless expressly modified.

❖ Impact of the Decision:

➢ After this decision, the common law position shifted: all terms of
the original lease, including incidental terms, now automatically
become part of the renewal unless expressly excluded.
➢ The court’s ruling aligns with a broader, more inclusive
understanding of lease renewals, aligning legal practice with
common expectations.
❖ Conclusion:
➢ Demonstrates how courts can develop and amend common law
principles to ensure they are in line with constitutional values
and modern-day practices.
➢ This decision specifically addressed the renewal of leases,
clarifying that all terms, even those incidental to the primary
lease, are now automatically considered part of the renewal
agreement.
Unit 3
Theme 1
Introduction and Basic OVERVIEW
Concepts ❖ Agency refers to a legal situation where an agent, duly authorized,
performs a juristic act on behalf of a principal, such as concluding a
contract with a third party.
❖ It is common when it is inconvenient or impossible for the principal
to act, for instance, when the principal is a company or a person
under legal incapacity (e.g., minors or mentally incapacitated
individuals)
❖ Agency involves a tripartite relationship: principal, agent, and third
party.
❖ The agent must have authority (or permission) to act on behalf of the
principal, which can come from contract, law, or other means.
❖ If the agent acts within the scope of authority, the rights and duties
between the principal and third party arise as if the principal acted
directly.
❖ The agent is not a party to the legal relationship but acts as a conduit
between the principal and third party.
❖ Authority is the power or consent given to the agent to bind the
principal, which can be granted contractually or arise from
ratification, estoppel, or by law.
Act of Agency OVERVIEW
❖ The act of agency refers to the juristic act performed by the agent on
behalf of the principal, such as concluding a contract.

❖ The legal consequences of the agent's act are attributed to the

principal, provided the agent acted within the authority granted.
❖ For a contract concluded by an agent to bind the principal, all
contractual requirements (consensus, capacity, legality, possibility
of performance, formalities) must be met.
❖ The agent must have the necessary authority and must not act
beyond that authority for the contract to bind the principal.
❖ Some juristic acts cannot be performed by an agent due to their
personal nature, such as marriage, or when statutory rules require
the principal's direct involvement.
Cases: Ongevallekommissaris v Onderlinge Versekerings Genootskap
AVBOB
❖ This case addresses the distinction between agency and
employment in the context of a funeral undertaker, X, who was
injured in a car accident while working for AVBOB.
❖ The central issue was whether X was an employee or an agent of
AVBOB, as this would determine his eligibility for compensation.
❖ Key Facts:
➢ X worked as a funeral undertaker for AVBOB, and the question
arose as to whether he was an employee or an agent.
➢ X was injured in a car accident, and his right to compensation
depended on his classification.
❖ Court’s Analysis:
➢ The element of control is the key distinction between agency and
employment.
➢ If the employer provides the equipment needed to carry out
tasks, this is more indicative of an employment relationship,
where the employee is expected to follow specific directions.
➢ However, in X’s case, the court found that X enjoyed great
freedom in how he performed his duties.
➢ The court specifically looked at the letter of appointment but
emphasized that the wording of the letter was not the decisive
factor.
➢ The most important point was that X had freedom in performing
his work, which aligned more with an agency relationship rather
than an employment one.
❖ Conclusion & Take-Away:
➢ The court held that X was an agent of AVBOB, rather than an
employee.

➢ The general rule is: If the agent is not subject to the control of the
employer and can act independently and at their own discretion,
they are classified as an agent, not an employee.
Theme 2
Authority OVERVIEW
❖ Authority is central to the law of agency; agents must act within
lawful authority to bind the principal.
❖ Authority can derive from contracts, ratification, estoppel, or by
operation of law.
❖ Contractual authority typically arises through a contract between
the agent and principal, often in the form of a mandate.
❖ The contract must meet the requirements for a valid contract,
including both parties having the necessary capacity.
❖ An agent's authority can sometimes derive from an employment
contract, depending on its terms.
❖ Express contractual authority does not need to be in writing; it can
be oral.
❖ Ratification occurs when a principal approves an agent's
unauthorized actions after the fact, making the act valid
retrospectively.
❖ The requirements for valid ratification include the principal’s
existence at the time of the act and their intention to ratify within a
reasonable time.
❖ Implied authority can arise by law, such as in cases involving
trustees, curators, or partners.
❖ Ostensible authority is based on estoppel, where a principal creates
the impression that the agent has authority, even if they do not.
❖ Estoppel applies if a third party is misled into believing an agent has
authority, and they suffer prejudice as a result.
❖ The Makate v Vodacom Ltd case blurred the distinction between
ostensible and actual authority, leading to criticism and potential
uncertainties in company law.
Scope of cope of authority OVERVIEW
❖ General Authority
➢ The agent's authority must be determined by its source, such as
a contract, ratification, or enactment.
➢ Authority can be specific to a single act or broader, covering
multiple juristic acts or related purposes.
➢ Agents can only perform acts that are legal and possible.
➢ Agents rarely have unlimited authority; typically, their actions are
confined by the terms of the authority.
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➢ If an agent acts beyond the scope of their authority, the principal

is not bound, and the agent may be liable under a warranty of
authority.

❖ Extension of Authority
➢ The scope of authority can sometimes exceed its explicit source,
extending through tacit, implied, or ostensible authority.

❖ Express Authority
➢ This is the most straightforward form of authority, where the
principal clearly expresses the agent’s powers, either verbally or
in writing.
➢ The express authority defines the limits of what the agent can do,
though the principal may allow discretion in some aspects, such
as choosing contracts or terms.

❖ Tacit Authority
➢ Tacit authority is granted implicitly through the principal’s
unspoken intentions or through consensus between parties.
➢ To determine tacit authority, one can apply the "objective
bystander" test: would an onlooker naturally assume the
authority exists?

❖ Instances of Tacit Authority

➢ General authority: If an agent is given general tasks or appointed
to a specific role, they may also have tacit authority to perform
related tasks necessary for the role.
➢ Special authority: When given special authority for a task, the
agent is tacitly authorized to do everything needed for its
execution.
➢ Professional authority: Professionals, like attorneys, are tacitly
authorized to act in ways customary for their profession unless
specifically restricted.

❖ Ostensible Authority
➢ Ostensible authority arises when the principal's actions or words
create an impression of the agent’s authority to third parties,
even if actual authority is absent.
➢ This type of authority is determined based on the impression the
principal gives to third parties.

Formalities when granting OVERVIEW

authority: power of attorney ❖ Authority can be granted contractually without formal requirements,
and oral authority is usually sufficient.
❖ Written authority is required in specific cases and is referred to as a
"power of attorney."
❖ A power of attorney must be in writing, signed by the principal, and
clearly state the agent’s authority.

❖ Legal instances requiring a power of attorney:

➢ Section 2(1) of the Alienation of Land Act 68 of 1981: Authority to
purchase land on behalf of another must be in writing.
➢ A conveyancer must have a power of attorney to transfer land
ownership or register a mortgage bond.
➢ A legal practitioner must have a power of attorney to lodge or
oppose an appeal in the High Court.
Termination of authority OVERVIEW
❖ Authority terminates when the task given to the agent is completed,
or when the agent can no longer perform.
❖ Authority ends when it was granted for a specific period and that
period expires.
❖ Agreement between the principal and agent can terminate the
authority.
❖ If the authority was based on a specific legal relationship and that
relationship ends, authority also terminates.
❖ Authority ends when the principal or agent's status changes, such
as mental illness, death, or insolvency (for the principal).
❖ The principal can revoke the authority, but this is not possible if it
was irrevocable or already executed. Third parties must be
informed.
❖ The agent can renounce authority, but not if the principal will suffer a
loss unless the agent has a valid reason, like bad health.
CASES; Nel v South African Railways & Harbours
❖ The case involved N, who purchased a car and asked X to transport
it to Potchefstroom.
➢ X decided to ship the car at railway risk, but N refused to pay the
higher railage charge, arguing that he had not explicitly
authorized this.
➢ The court ruled that there is no distinction between express and
implied agency regarding the scope and limitations of authority.

Makate v Vodacom Ltd

❖ The approach to ostensible authority was significantly changed, with

key points as follows:
❖ Key Legal Change:
➢ The court held that ostensible authority is not based on
estoppel.
➢ In the past, ostensible authority was often linked to the doctrine
of estoppel, which required certain elements like reliance and
detriment to the claimant. However, the court clarified that
ostensible authority does not require all the elements of
estoppel.
❖ New Approach:
➢ Ostensible authority only requires the element of an impression
that the agent has authority to act on behalf of the principal, and
it is not dependent on estoppel.
➢ This is a significant departure from the traditional view where
estoppel was often necessary to assert ostensible authority.
➢ Ostensible authority is now seen as a form of actual authority,
not merely a defense.
➢ This means that the agent, who appears to have authority, can
bind the principal just like an agent with actual authority.
➢ It is no longer just an argument to defend actions that appear
unauthorized; instead, it now carries more weight and can be
used to hold the principal liable for the agent’s actions.
❖ Broadened Concept of Ostensible Authority:
➢ The case expanded the concept of ostensible authority, making it
easier for a third party to assert that an agent had authority to
bind the principal, based on the impression created by the
principal, even without the formal elements required in
traditional estoppel.
➢ This change in approach aligns more closely with commercial
realities, where third parties often rely on appearances and
representations made by agents.
Theme 3
Relationship between OVERVIEW
Principal and Agent ❖ The legal relationship between a principal and an agent involves
rights and duties. These duties are based on the contract of
mandate.
❖ The duties of one party correspond to the rights of the other
Duties of Principal OVERVIEW
❖ To Compensate Agent

➢ The agent is not automatically entitled to compensation unless

agreed upon, either expressly or tacitly.
➢ The agent must prove the existence of an agreement for
compensation.
➢ Payment is usually due when the agent completes the task or
upon a specific event, such as the payment of a purchase price.
➢ Even if the principal does not benefit from the agent’s work, they
must still compensate the agent unless agreed otherwise.
➢ Compensation can be a specific amount, a method (e.g.,
percentage of a sale), or the usual/customary fee for the work.
➢ If no specific amount is agreed upon, compensation is
determined based on usual fees, trade usage, or the court’s
decision.
➢ The agent is not entitled to compensation if they act outside their
authority, cause damage through negligence, make secret
profits, have a conflict of interest, or breach the contract.
➢ If payment is conditional on an event, the agent is not entitled to
payment if the event does not occur unless the principal
deliberately prevents it from happening.
❖ To Indemnify Agent Against Loss
➢ The principal must indemnify the agent for losses or liabilities
incurred during the execution of the mandate
❖ To Reimburse Agent for Expenses
➢ The agent is entitled to reimbursement for necessary and
reasonable expenses incurred while performing the task.
➢ The principal is not obligated to reimburse expenses caused by
the agent's negligence or failure to perform their duties.
➢ The duty to reimburse expenses can be excluded contractually.
➢ This duty to reimburse expenses is different from the duty to
compensate for work done. Reimbursement is automatic unless
excluded.
❖ To Account to Agent
➢ The principal must provide regular accounts to the agent
regarding compensation or commission owed.
➢ The extent of this duty depends on the tasks and circumstances
of the transaction.

❖ Special Ways to Enforce Principal’s Duty to Pay: Lien and Set-Off

➢ The agent can use two powers to enforce the principal's duty to
pay:

▪ A lien over the principal’s property in the agent’s possession,

allowing the agent to retain the property until payment is
made.
▪ Set-off, which allows the agent to deduct what is owed to
them from money they owe the principal and pay only the
difference.
Duties of agent OVERVIEW
❖ To perform his mandate
➢ The agent’s primary duty is to execute the task assigned to him. If
he does not, he forfeits his right to compensation and may be
liable for damages to the principal.
➢ The agent must not exceed his authority; if he does, he will be
liable for any damages, and the principal will not be bound by
unauthorized contracts.
➢ The agent must perform the task according to the agreed time or,
if unspecified, within a reasonable time based on
circumstances.
➢ The agent must perform the task personally, unless authorized to
delegate. If delegation is allowed, the agent is responsible for the
substitute’s performance.

❖ With knowledge, care, and skill

➢ The agent must perform his task with the necessary knowledge,
care, and skill. Failing this, he is liable for any damages to the
principal.
➢ The required level of care depends on the circumstances, but if
unclear, the test is how a reasonable agent would act under the
circumstances.

❖ To act in good faith

➢ The relationship between agent and principal is based on good
faith.
➢ The agent must prioritize the principal’s interests, especially
where conflicts arise.

❖ Conflict of interest
➢ The agent must act only in the principal’s interest, avoiding
conflicts of interest, including acting for both the principal and a
third party.
➢ The agent cannot buy the principal’s property or sell his own
property to the principal unless authorized.

❖ Secret profits
➢ The agent must hand over any unforeseen profits made during
agency to the principal unless authorized to retain them.
➢ If the agent hides additional profits, the principal may terminate
the authority or claim damages.

❖ Bribery
➢ Bribery occurs if a third party influences the agent without the
principal’s knowledge. The principal may repudiate the contract
influenced by the bribe.
➢ Bribery may also constitute a criminal offense under certain
laws.

❖ Secret information
➢ The agent cannot disclose or use the principal’s secret
information, even after the authority ends. All relevant
information obtained during the mandate must be shared with
the principal.

❖ To account to principal
➢ The agent must maintain records of all transactions and provide
the principal with a proper account. The principal has the right to
inspect these records.

❖ To keep principal’s property separate

➢ The agent must keep the principal’s property, including money,
separate from his own to avoid liability for damages.

❖ To return principal’s property

➢ The agent must return the principal’s property after the authority
ends, unless there is a valid set-off or lien for reimbursement of
expenses.

Miscellaneous Aspects of a OVERVIEW

Tripartite Relationship ❖ Relationship between Principal and Third Party
➢ The legal relationship is based on the contract between the third
party and the agent, if the agent acts within the scope of
authority granted by the principal.
➢ If the agent exceeds authority, the principal is not bound, and the
agent might be personally liable.

❖ Liability toward Third Parties

➢ The principal is liable for the agent’s delicts if the agent is an
employee and the delict was committed during employment
(vicarious liability), or if the principal authorized or was aware of
the act.
➢ If an agent commits a fraudulent misrepresentation causing
damage to a third party, the principal is liable if the
misrepresentation occurred within the agent’s authority.
➢ If an agent sells property in their own name, the principal can
reclaim the property from the third party using the rei vindicatio
remedy but must repay the purchase price.

❖ Relationship between Agent and Third Party

➢ No legal relationship exists between the agent and third party;
only the principal and third party acquire rights and duties from
the agent’s actions.
➢ In specific cases, the agent could be liable toward the third party.

❖ Absence of Authority
➢ If the agent acts without proper authority, the principal is not
bound unless the principal ratifies the agent’s actions. The agent
is liable for damages caused by unauthorized actions.
➢ Exceptions to agent liability include when both the agent and
third party mistakenly believe authority exists, or the third party
knew or should have known that the agent lacked authority.

❖ Express Warranty
➢ If an agent falsely warrants having authority to contract on behalf
of the principal, the agent is liable for breach of warranty, and the
third party can claim contractual damages.

❖ Misrepresentations
➢ If an agent misrepresents their authority, they may be liable for
damages suffered by the third party. Liability can arise through
fraudulent or negligent misrepresentation under delict or breach
of an implied warranty of authority.

Special Types of Principals OVERVIEW

❖ Two special kinds of principals are highlighted for consideration in
agency law.

❖ Non-existing Principal
➢ General rule: Contracts cannot be concluded on behalf of a non-
existent principal.
➢ No ratification is possible if the principal comes into existence
later.
➢ Exception in company law: Pre-incorporation contracts under
Section 21 of the Companies Act 71 of 2008.
➢ An agent can conclude a contract on behalf of a company that
doesn't yet exist.

❖ The agent is jointly and severally liable if:

➢ The entity is not incorporated as intended.
➢ The company rejects part of the contract after incorporation.

❖ If the company later agrees to the same contract terms, the agent is
not liable.

❖ Undisclosed Principal
➢ When an agent acts without disclosing their principal, the
contract forms between both the principal and third party, and
the agent and third party.
➢ The third party can choose to enforce rights against either the
agent or the principal upon discovering the agency relationship.
Special Types of Agents OVERVIEW
❖ Introduction
➢ Agency occurs in various contexts, with special rules for certain
types of agents.

❖ Brokers
➢ A broker assists or concludes contracts on behalf of others,
often as an intermediary.
➢ Brokers can act in various industries, including real estate and
financial services.

❖ Estate Agents
➢ Estate agents, a type of broker, are governed by the Estate
Agency Affairs Act, 1976, soon to be replaced by the Property
Practitioners Act.
➢ Estate agents are defined as persons who sell, buy, lease, or
collect money for immovable property or business undertakings.

➢ The 2018 Bill broadens the scope of property practitioners,

including mortgage originators, valuers, and property managers.
➢ Both Acts impose requirements for estate agents, including the
establishment of the Estate Agents Board and the creation of a
Fidelity Fund.

❖ Features of Statutory Framework

➢ The 1976 Act establishes the Estate Agents Board and the Estate
Agents Fidelity Fund.
➢ The 2018 Bill introduces the Property Practitioners Regulatory
Authority and the Property Practitioners Fidelity Fund.
➢ Estate agents must maintain trust accounts and keep
accounting records.

❖ Duties of Estate Agent

➢ Estate agents' primary role is to find a buyer or lessee for a
property.
➢ They are entitled to commission upon completing their task but
are not required to succeed in every case.

❖ Remuneration of Agents
➢ Estate agent remuneration is conditional upon finding a buyer or
completing a sale.
➢ The effective cause principle determines when an agent is
entitled to remuneration.
➢ An agent’s role in introducing a willing and able buyer can affect
the duty to pay.

❖ Auctioneers
➢ Auctioneers sell property at public auctions for a principal, and
their remuneration is typically set in a mandate.
➢ Auctions are subject to statutory rules, including the Consumer
Protection Act.

❖ Company Representatives
➢ Company representatives act on behalf of a company, which is a
juristic person.
➢ The Companies Act gives the board of directors the authority to
delegate powers to others.

❖ Intermediaries under the Consumer Protection Act

➢ The Consumer Protection Act defines an intermediary as

someone who represents another person in business for
remuneration.
➢ Intermediaries must disclose certain information to clients
under section 27 of the Act.

Cases: Cullinan v Noordkaaplandse Aartappelkernmoerkwekers

Koöperasie Bpk
❖ The court examined the concept of the undisclosed principal, a
doctrine rooted in English law.
➢ Despite objections, the court accepted the doctrine and
provided reasons for its decision.
❖ The objections to this doctrine were primarily based on contract law
principles, which assert that only actual parties to a contract can be
bound by it and acquire rights and duties.
➢ According to the objections, the doctrine would allow a party to
gain rights and obligations against someone they never
contracted with.
❖ The court, however, ’upported the doctrine for several reasons:
➢ It had been applied in South African commercial transactions for
over 100 years.
➢ Many transactions had already been made under this doctrine,
and rejecting it would retroactively invalidate rights and duties in
these cases.
➢ The doctrine was also reflected in legislation, such as Section 16
of the Transfer Duty Act.
❖ The court clarified that the doctrine of the undisclosed principal
should apply only to situations involving one undisclosed principal.
❖ Once the third party becomes aware that the agent acted on behalf
of an undisclosed principal, they can choose whether to hold the
principal or the agent liable. Once this choice is made, the third
party is bound by it.

Barnabas Plein & Co v Sol Jacobson & Son

❖ An important case in relation to the compensation of specific types
of agents, such as estate agents or property practitioners, discusses
the general principles of agent compensation.
❖ The key points are as follows:
➢ The principal is obligated to pay the agent the usual
compensation that an agent of that particular type is typically
entitled to.

➢ If the usual compensation is not easily determined, the next step

is to examine the trade usage for that specific industry.
➢ The principal must then pay the agent an amount that aligns with
the common practice in the trade.
➢ If the compensation cannot be determined through the usual
methods, the court has the authority to decide on a reasonable
amount, taking into account all the circumstances of the case.

Gordon v Slotar
❖ The court confirmed that in determining which agent's actions were
the effective cause of a sale, the question must be answered based
on the specific facts of the case.
❖ If it is impossible to determine which agent's actions were the
decisive factor, the principal may be required to compensate both
agents.
❖ In such cases, the principal would only have themselves to blame
for failing to properly manage and regulate the relationship with the
separate agents.

Aida Real Estate v Lipschitz

❖ In this case, a potential buyer initially considered purchasing a
property through an agent but backed out due to financial
constraints.
➢ Later, the buyer approached the principal directly, now
financially able to purchase the property, and concluded a sale.
➢ The question was whether the agent was entitled to payment for
initially introducing the buyer to the property, given that without
the introduction, the sale might not have occurred.
❖ The court ruled that it must be determined whether the agent's
introduction of the buyer was the effective cause of the sale, or if an
intervening event between the introduction and the sale effectively
negated the impact of the agent's actions.
➢ The decision depends on the specific facts of the case.
❖ The current position is that for an agent to be entitled to
remuneration, the buyer must not only have been introduced to the
property but also be willing and able to purchase it.
➢ For instance, if a sale is concluded but later lapses due to the
buyer’s inability to pay, the agent will not be entitled to
remuneration simply because the sale was initially concluded.

Mouton v Die Mynwerkersunie

❖ In this case, the court addressed the attorney’s duty of care and the
standard of conduct expected of an attorney in a particular
situation, focusing on what a reasonable attorney would do under
similar circumstances.
❖ The court ruled that an attorney would be liable for negligence if they
failed to carry out their mandate with the necessary degree of
knowledge, care, and skill.
➢ The required standard is that of an average attorney—meaning
the degree of knowledge, care, and skill expected from a typical
legal professional.
❖ The court found that the appellant had acted In a manner that a
reasonable attorney would not have, emphasizing the importance of
legal professionals adhering to ethical standards in their practice.

Plaaslike Boeredienste (Edms) Bpk v Chemfos Bpk

❖ This case addresses the issue of bribery and corruption involving an
agent.
➢ Bribery occurs when an agent receives a gift or remuneration
from a third party, with the intention of influencing the agent to
act in the third party's interest, rather than in the best interest of
their principal.
❖ The court emphasized that bribery is both immoral and unlawful.
➢ As a result, a third party is not permitted to enforce a contract
that was obtained through such immoral and unlawful conduct,
including bribery.
➢ This upholds the principle that contracts secured through
unethical means are not legally enforceable.

Unit 4
Theme 1
General Introduction to Real OVERVIEW
Security and Suretyship ❖ Debt relationships between creditors and debtors are common in
legal systems, arising from delict, contract, or other legal causes like
negotiorum gestio or enrichment.
❖ Creditors may demand security to protect themselves if the debtor
is unable to pay.
❖ Personal security (suretyship) involves a third party binding
themselves to the obligation.
❖ Real security involves the debtor pledging assets as security for the
debt.

❖ Debtors can also cede personal rights or claims to creditors as

security, treated similarly to real security.
❖ Real security is preferred over personal security due to its
advantages for creditors.
❖ Suretyship carries the risk of non-payment from both the principal
debtor and the surety.
❖ Real security gives the creditor priority over others and involves
securing a specific asset.
❖ Both personal and real security depend on the existence of a valid
principal debt.
❖ The creditor can enforce the debt by obtaining a court order and
attaching assets in case of non-payment.
❖ Real security reduces the risk of non-payment, especially if the
debtor becomes insolvent.
Theme 2
Suretyship OVERVIEW
❖ A suretyship contract involves a third party (surety) binding
themselves to a creditor to guarantee the performance of the debt of
another (principal debtor).

❖ Nature of Suretyship Contract

➢ The suretyship contract depends on the existence of a valid
principal debt.
➢ It is an accessory obligation, meaning if the principal obligation
ends, the suretyship also ends.
➢ The principal debt can arise from various causes such as
contract, delict, enrichment, or natural obligation.
➢ A person may bind themselves as a rear surety, whose liability
depends on the original surety's liability.

❖ Accessory vs Primary Obligations

➢ Suretyship involves a primary obligation (principal debt) and a
secondary obligation (surety’s responsibility), which depends on
the former's existence.
➢ Unlike contracts of indemnity, suretyship is distinguished by its
secondary nature:
➢ Guarantee: A promise to another that a price will not increase.
➢ Indemnity: A promise to protect someone from damages.
➢ Insurance: An agreement to cover damages from a specific
event.

❖ Suretyship vs Delegation and Co-debtors

➢ Suretyship differs from a delegation of obligations where a new
debtor replaces the original debtor.
➢ It also differs from situations where two or more people act as
co-debtors.
➢ In suretyship, the creditor can still claim from the surety even
after excussing the principal debtor.

❖ Surety and Co-principal Debtor

➢ A surety and co-principal debtor situation leads to joint and
several liabilities.
➢ The defences of excussion and splitting of debts are usually
waived.
➢ The surety retains a right of recourse against the principal debtor
after payment.

❖ Formation of Suretyship Contract

➢ Suretyship arises through a contract between the principal
creditor and surety.
➢ The general principles of contract law apply, but public interest
may impact its validity.
➢ The principal debtor does not need to be aware of the contract,
and fraud or misrepresentation by third parties does not void it.
➢ A valid suretyship contract must comply with the formal
requirements of the General Law Amendment Act 50 of 1956,
including being in writing and signed.

❖ Legal Formalities
➢ Any changes to a suretyship contract must also comply with
formalities.
➢ Spouses married in community of property require consent from
the other spouse to act as surety, except in business contexts.
➢ However, a creditor may assume that such consent has been
obtained if the spouse indicates they have legal capacity to enter
the contract.
Equences of suretyship OVERVIEW
Consequences ❖ Surety is liable when the principal debtor defaults unless otherwise
agreed or if the surety can rely on excussion.
❖ If the surety is also a co-principal debtor, they are liable from the
time the debt becomes due and enforceable.

❖ The surety may rely on any defense available to the principal debtor
except those attached to the person of the debtor (e.g., minority,
insolvency).
❖ Sureties can raise defenses like illegality, duress, misrepresentation,
or res judicata.
❖ The surety's liability is limited by the in duplum rule, meaning
interest on default cannot exceed the capital debt.
Benefits of Surety OVERVIEW
❖ Benefit of Excussion
➢ Surety can require the creditor to demand performance from the
principal debtor first.
➢ This defense must be raised at the start of proceedings or it
lapses.
➢ The surety can waive this benefit, and co-principal debtors are
deemed to have waived it.

❖ Benefit of Division
➢ If there are multiple sureties, one surety can demand the debt be
divided proportionately among them.
➢ Sureties not liable (insolvents, minors) are not considered for
division.
➢ The benefit of division must be pleaded as part of the defense.

❖ Benefit of Cession of Actions

➢ The surety who performs can demand a transfer or cession of
securities and rights from the creditor.
➢ A cession allows the surety to obtain rights the creditor had,
such as security rights.
➢ Through cession, the surety can become the creditor of the
principal debtor.

❖ Recourse against Co-sureties

➢ The surety who pays the full debt can claim a proportionate
amount from co-sureties.
➢ This right arises from unjustified enrichment unless a
contractual agreement between co-sureties exists.
➢ Co-sureties do not need to be aware of each other or be bound
by the same suretyship.

❖ Recourse against Principal Debtor

➢ The surety who pays the full debt is entitled to claim the amount
from the principal debtor.
➢ This right may be lost if the surety failed to raise a valid defense
or inform the debtor of the payment.
➢ In cases where there’s an agreement, the right of recourse is
based on a contract of mandate; without an agreement, it's
based on unauthorized administration.
➢ If suretyship was against the debtor's will, the surety needs a
cession of actions before recovering from the debto
Termination of suretyship OVERVIEW
❖ The suretyship contract is accessory in nature and depends on a
valid principal obligation.
❖ The termination of the principal debt also ends the suretyship
contract.
❖ Payment or performance by the principal debtor releases the surety.

❖ The suretyship contract may specify circumstances for the surety’s

release, such as:
➢ The lapse of a specified time period.
➢ Material alterations to the contract without the surety’s consent,
especially if it prejudices the surety.
➢ Examples include allowing the debtor to deviate from payment
terms, the creditor refusing payment from an insolvent debtor,
releasing co-sureties, or failing to accept securities.

❖ The suretyship may be terminated through ordinary ways like

performance, compromise, release, or prescription.
❖ An interruption or delay in the prescription period in favor of the
principal debtor also applies to the surety.
The impact of the National OVERVIEW
Credit Act on suretyship ❖ The National Credit Act 34 of 2005 applies to specific types of credit
agreements, subject to certain requirements.
❖ Credit agreements include credit transactions, credit facilities, and
credit guarantees.
❖ A credit guarantee involves a commitment to fulfill another person's
obligation under a credit facility or transaction.
❖ In the case Firstrand Bank Ltd v Carl Beck Estates (Pty) Ltd, it was
determined that common-law suretyship is considered a credit
guarantee under the Act if the principal debt falls under the Act's
provisions.

❖ The Act may also extend to suretyships associated with credit

facilities or transactions.
❖ The Act prioritizes consumer protection, which also benefits
sureties involved in these agreements.
Business rescue and OVERVIEW
suretyships in terms of the ❖ Section 133(2) of the Companies Act 71 of 2008 provides a
Companies Act moratorium for companies in business rescue regarding their
liability as debtors, including suretyship and guarantees.
❖ The enforcement of a suretyship or guarantee against the company
requires court leave, which is subject to equitable terms.
❖ Section 152(4) and section 154(1) state that an adopted business
rescue plan is binding on the company and all creditors, regardless
of their presence or vote at the meeting.
❖ Creditors must agree to the discharge of a debt owed by the
company to them.
❖ Legal questions arise about a surety's liability for a shortfall
following the acceptance of a business rescue plan.
❖ Case law presents differing views on surety liability after a
company’s business rescue plan is accepted.
❖ In Tuning Fork (Pty) Ltd trading as Balanced Audio v JM Jonker &
Others, the court ruled that a compromise reached between a
company and its creditors also applies to claims against sureties.
❖ The Supreme Court of Appeal in New Port Finance Company (Pty)
Ltd v Nedbank Ltd expressed uncertainty about the correctness of
the Tuning Fork decision, asserting that a creditor’s rights against a
surety are not limited by compromises of the principal debtor’s
liability.
❖ In DH Brothers Industries (Pty) Ltd v Gribnitz NO and Others, the
court noted that creditors who agree to discharge part or all of a
debt may lose the right to enforce that claim.
Cases Sapirstein v Anglo African Shipping Co (SA) Ltd
❖ In this case, the court considered the validity of a suretyship
agreement where the principal debt was not yet in existence and the
identities of the parties were not yet certain at the time the
suretyship was concluded.
➢ The question was whether this situation violated Section 6 of the
General Law Amendment Act (GLA).
❖ The court ruled that a suretyship can be entered into for a debt that
will be incurred in the future, if there is extrinsic evidence available
to show that the future debt did in fact come into existence and that
the identities of the parties involved were clarified and ascertained.
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If such extrinsic evidence cannot be provided, the court held that

the formalities required by Section 6 of the GLA are not met, and
therefore no valid suretyship contract (SC) would be established.
❖ Regarding the terms that must be in writing for a suretyship to be
valid, these include:
➢ The identity of the creditor
➢ The identity of the debtor
➢ The identity of the surety
➢ The nature of the principal debt (including the type of debt and
how it arose)
➢ The amount of the secured debt

Fourlamel (Pty) Ltd v Maddison

❖ In this case, the court dealt with a situation where a suretyship was
entered into, but the document contained blank spaces for the
names of the co-surety, debtor, and creditor.
❖ The surety signed the form before the missing information was
added. The question was whether this still complied with Section 6
of the General Law Amendment Act (GLA) or if the suretyship was
void.
❖ The court ruled that this did not ”ompl’ with Section 6 of the GLA,
making it a void suretyship contract.
➢ For a suretyship to be valid, the document must contain all the
necessary terms at the time of signing or, at the very latest,
before it is received by the creditor.
➢ The court also clarified that cross-referencing to another
document for missing information is not allowed.
➢ All necessary details must be included within the suretyship
document itself.
❖ The purpose of these formalities is to ensure legal certainty and to
avoid discrepancies in the contract, ensuring that the terms are
clear and agreed upon by all parties involved.

Jurgens v Volkskas Bank Ltd

❖ In this case, the court dealt with a situation where a surety signed a
document, but the missing information was filled in by the secretary
of the surety after the document was signed and before it was sent
to the creditor.
❖ The key issue was whether the missing information could be added
after the surety had signed the document but before it was sent to
the creditor.

❖ The court ruled that a suretyship does not come Into existence until
the creditor accepts the offer.
➢ It confirmed that a surety cannot sign a blank document and
allow the creditor to complete the missing information after the
signature.
➢ However, the court allowed for the possibility that a document
can be signed first, and then the missing information can be
completed by an authorized agent (such as a secretary),
provided that all the information is completed before the
document is sent to the creditor.
❖ In essence, the document does not need to be signed after it is filled
in, but all the necessary terms must be completed before the
creditor accepts the suretyship.
❖ This ensures that all terms are present at the time of acceptance,
allowing for consensus and compliance with the formalities
required by the law.

Neon and Cold Cathode Illuminations (Pty) Ltd v Ephron

❖ In this case, N entered into a lease agreement with company X for
the lease of a neon sign.
➢ E, the director of X, personally bound himself as a surety and co-
principal debtor, jointly and severally, for X's obligations under
the lease.
➢ When X fell behind on payments, N initially sued E in his capacity
as the lessee (incorrectly), but the court rejected the claim
because E was not the lessee, X was. N then sued E again, this
time in his capacity as surety and co-principal debtor.
❖ Several key concepts were confirmed by the court in this case:
➢ Suretyship and Lease Agreement:
▪ The contract of suretyship is separate and accessory to the
lease agreement.
▪ The suretyship does not become part of the main contract
between N and X.
➢ Surety vs. Co-principal Debtor:
▪ If a person signs both as a surety and as a co-principal
debtor, their liability is based on suretyship, not co-
debtorship.
▪ This means E's liability arises under the suretyship
agreement, not the lease agreement itself.
➢ Defenses in Suretyship:

▪ The defenses of excussion (requiring the creditor to first

pursue the principal debtor) and division (splitting the debt
among co-debtors) are not available to a surety and co-
principal debtor.
➢ Impact of Co-debtorship:
▪ Co-debtorship does not transform suretyship into another
contract.
▪ E remains liable in his capacity as surety and co-principal
debtor, but he is not a party to the main contract between X
and N.
➢ Rights of the Surety:
▪ E retains the right of recourse or regress, meaning he can
claim the money he paid from X, the original debtor, since
they are jointly and severally liable.
▪ However, because E signed as both a surety and a co-
principal debtor, he loses certain benefits typical of a surety,
such as excussion, division, and cession (stepping into the
shoes of the principal debtor).
➢ Cession of Rights:
▪ Despite losing some surety benefits, E retains the right to
request cession of the creditor’s rights against X.
▪ In other words, E can step into N’s position and sue X directly.
➢ Liability of Surety:
▪ The surety's liability to pay arises as soon as the primary debt
becomes due.
▪ If E signed as both a surety and a co-principal debtor, this
means he is liable immediately upon default by X.
❖ The court clarified the distinction between a surety and a co-
principal debtor, emphasizing that suretyship is a separate legal
obligation, and that the rights and liabilities of a surety differ
depending on whether they are also a co-principal debtor.

Unit 5
Theme 1
Introduction OVERVIEW
❖ The Origin of the Contract of Letting and Hiring of Work
➢ Romans recognized three types of contracts:
▪ Locatio conductio rei: letting and hiring of an object or
property.
▪ Locatio conductio operis: letting and hiring for completion of
a piece of work.
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▪ Locatio conductio operarum: letting and hiring of services

(employment contract).

❖ Distinction between employment contracts and contracts for work:

➢ Employees work under the control and supervision of employers.
➢ Independent contractors deliver work without being employed or
controlled by the client.

❖ Relevance of these contracts:

❖ Particularly important in construction, engineering, and similar
fields.
❖ Examples include plumbing, electrical repairs, software
development, project management, and hairdressing services.

❖ Related to the mandate concept:

➢ One party completes instructions from another in exchange for
compensation.

❖ Development of special rules:

➢ Various industries have established specific rules for these
agreements.
➢ Chapter provides general principles for contracts related to
service delivery and work completion, with limited industry-
specific references.

❖ Definition of a Contract for Letting and Hiring of Work or Delivery of

Services
➢ A contract for completing work is a reciprocal agreement
between:
➢ Client (lessor): commissions the work.
➢ Contractor (lessee): undertakes to deliver the finished product
within an agreed timeframe.

❖ Compensation:
➢ The contractor receives remuneration from the client in
exchange for the completed work.

❖ Use of the term "construction contract":

➢ Refers to all contracts for specific services or work completion
beyond the scope of employment.
Parties to the contract Parti OVERVIEW

❖ Types of Contracts
➢ Traditional terminology defines parties as lessor
(client/employer) and lessee (contractor)
➢ Modern terminology uses client/employer for lessor and
contractor for lessee
➢ Contractors may also be called service providers or suppliers
➢ Contractors can be identified by their profession (e.g., engineer,
architect)
➢ Clients typically contract with a single contractor or project
manager
➢ Contractors engage subcontractors (e.g., electricians, plumbers)
for specific tasks
➢ Subcontractors are not directly bound to clients unless specified

❖ Identifying Parties
➢ Natural persons should be identified by full names and
identification numbers
➢ Companies must be identified by their registered name and
registration number
➢ A juristic person must be represented by an authorized natural
person
➢ The Consumer Protection Act applies limitedly to juristic persons
with annual turnover or asset value under R2 million

❖ Subcontractors
➢ Original contractors can enter separate subcontracts with
subcontractors
➢ The original client has no direct legal obligation to
subcontractors
➢ Selected subcontractors are chosen by the principal contractor;
no relationship with the client
➢ Nominated subcontractors are appointed by the client for
specific work
➢ Key requirements for nominated subcontractors include:
➢ Client reserves the right to nominate
➢ Contractor must accept and contract with the nominated
subcontractor
➢ No direct relationship exists between client and subcontractor
➢ Client is liable for expenses due to delays in nomination

➢ Client bears costs from cancellations due to subcontractor

default

Theme 2
Conclusion and Contents of OVERVIEW
Contracts ❖ Conclusion of the Contract
➢ The normal requirements for a valid contract include:
▪ Consensus
▪ Contractual capacity
▪ Legality
▪ Possibility
▪ Certainty
▪ Formalities

❖ Consensus
➢ Consensus is achieved through offer and acceptance.
➢ Many offers and counter-offers may occur, but only one
acceptance creates a valid contract.
➢ A client can enter a contract with a chosen contractor or follow a
tender procedure (tender and proposal are synonyms for an
offer).
➢ “Award of a tender” refers to the acceptance of the tender.

➢ Options and Preferential Rights

➢ An irrevocable offer can be made, which remains available for
acceptance for a set time (an option).
➢ A contract may grant one party a preferential right to receive or
make a future offer (right of first refusal).

➢ Time and Place for Conclusion of Contract

➢ Contracts are typically concluded when the offeror confirms
acceptance by the offeree, regardless of communication
method.
➢ Exceptions include:
➢ Reception theory: Contract concluded when acceptance is
received by the intended recipient (applies to electronic
communications).
➢ Expedition theory: Contract concluded when the acceptance is
sent via post or telegram.
➢ Agreement on specific time and place for the contract's
commencement.
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❖ Essentialia
➢ For construction or service delivery contracts, parties must
agree on essential elements:
➢ The contractor completes specified work or delivers a service
using the client's materials.
➢ The contractor may purchase materials on behalf of the client.
➢ Intellectual property rights typically vest in the client upon
completion, unless reserved by the contractor.
➢ The scope of "services" is defined under the Consumer
Protection Act, including various types of work performed for the
benefit of another.

Contents of the contract OVERVIEW

❖ Proper Terminology
➢ Importance of correct terminology in contracts to avoid
confusion.
➢ Total contract content consists of various provisions, commonly
called terms and conditions.
➢ "Condition" or "term" has a distinct legal meaning; use
"contractual clauses or provisions" to refer to all contract
elements.

❖ Essentialia, Naturalia, and Incidentalia

➢ Contracts for letting and hiring of work must include essentialia.
➢ Natural provisions apply by law unless excluded or limited by
specific incidentalia.
➢ Additional incidentalia can be included as desired by parties.
➢ Consumer Protection Act 68 of 2008 establishes consumer
rights for fair terms.

❖ Conditions
➢ Conditions affect contract enforceability based on uncertain
future events.
➢ A condition can be suspensive (suspends contract until fulfilled)
or resolutive (contract ends upon condition being met).
➢ "Condition precedent" is a term from English law, typically a
suspensive condition.

❖ Time Periods or Terms

➢ Contracts may depend on the occurrence of future events within

a specified time period.
➢ Terms can also be suspensive or resolutive; the term may be
used broadly in practice.

❖ Right of Rescission or Cancellation

➢ Lex commissoria allows cancellation of a contract due to
breach, regardless of common law provisions.
➢ Typically requires notice to rectify the breach before cancellation
can occur.
➢ Consumer Protection Act specifies conditions for cancellation,
including a notice period.

❖ Penalty Clauses
➢ Penalty clauses simplify damage claims and deter breaches by
allowing direct penalties.
➢ Regulated by Conventional Penalties Act 15 of 1962; penalties
and damages cannot be claimed cumulatively.
➢ A court can reduce excessive penalty claims compared to actual
prejudice suffered.

❖ Standing Time Clauses

➢ Standard practice to include clauses for time extensions due to
client non-compliance.
➢ Contractors can claim costs incurred due to client delays,
incentivizing cooperation.

❖ Substitution of Contractor Clause

➢ Allows the client to appoint a substitute contractor if dissatisfied
with the original contractor's work.
➢ Prevents potential liability for breach of contract by the
employer.
➢ Usually combined with a penalty clause for additional costs
incurred.

❖ Acceleration Clauses and Early Completion Clauses

➢ Acceleration clauses make future performances due
immediately upon breach.
➢ Early completion clauses provide bonuses for contractors who
finish ahead of schedule.

❖ Warranties or Guarantees
➢ Contractors may guarantee their work for a specific period and
rectify malperformance at their expense.
➢ Distinction between warranty period and support/maintenance,
the latter focusing on wear and tear.
➢ Consumer Protection Act introduces statutory warranties for
quality and repaired goods.

❖ Support and Maintenance

➢ Parties must agree on post-completion support and
maintenance, often via separate contracts.

❖ Exclusion and Limitation of Liability Clauses

➢ Contracts often include clauses that limit or exclude liability for
breaches.
➢ Courts interpret these clauses restrictively; liability for negligent
actions can only be excluded, not intentional acts.
➢ Consumer Protection Act restricts the inclusion of such clauses.

❖ Clauses on Jurisdiction and Costs

➢ It’s advisable to agree on applicable law and jurisdiction for
dispute resolution in contracts.
➢ Parties may agree on liability for legal costs, specifying the scale
of those costs.
➢ Alternative dispute resolution should be prioritized over litigation
to maintain relationships.

❖ Implied Terms
➢ Certain terms may be implied by law or trade usage, even if not
explicitly stated.
➢ Parties can exclude these terms through express agreement.
➢ Implied terms in contracts for letting and hiring of work include
cooperation, access to site, skill level, compliance with laws,
risk management, and insurance coverage.
➢ Natural terms may be amended or extended by express
agreement between the parties.
Theme 3
Duties of the contractor OVERVIEW
❖ Initial Duties
➢ Contractor must inspect the work environment and plan
execution accordingly.
Disclaimer: These notes are provided by Pass and Prosper for free and are drafted by Pass
and Prosper tutors for their own studying benefit. These notes are not sold for profit and
therefore, there may occasionally be minor mistakes. In such an event, please contact the
tutor to effect the correction. Note we are in no way affiliated or a branch of the UP Law
Faculty as we are an independent service.
PASS AND PROPER

➢ Required securities, such as suretyships or performance

guarantees, must be provided on time.

❖ Completion of the Work

➢ Main duty is to complete work properly as agreed and meet
statutory requirements.
➢ Contractor undertakes to have the necessary skills and care to
complete the work.
➢ Completion subject to statutory warranties from the Consumer
Protection Act (warranty of quality and warranty on repaired
goods).
➢ Completed work must be accepted or certified by the client or a
representative (e.g., architect, engineer).
➢ Work must be completed within the prescribed time limit, with
possible extensions for delays caused by the client or natural
forces.
➢ If no time limit is set, work must be completed within a
reasonable time, and contractor may only breach contract after
receiving a warning with a fixed performance date.

❖ Completion of Additional Work

➢ No duty to perform additional work unless specifically agreed.
➢ Claims for additional work can be based on an additional
contract or unjust enrichment.

❖ Repairing Defects and Maintenance Support

➢ Importance of completing work correctly highlighted.
➢ Client may request repairs for defects at the contractor’s
expense; this duty is time-limited based on any express warranty.
➢ Acceptance of completed work by the client lapses the
contractor’s duty to repair unless a warranty exists.
➢ Contractor is obligated to provide maintenance or support only if
expressly agreed upon in the contract.

❖ Final Duties
➢ Contractor must hand over completed work and vacate the
premises.
➢ Must leave the site as initially found and remove all tools and
equipment.
➢ Contractor must transfer possession of plans, specifications,
user guides, and issue necessary receipts.

➢ Parties may agree on a full statement of account for amounts

received.
Non-compliance with OVERVIEW
contractor’s duties ❖ Breach of Contract
➢ General principles regarding breach of contract apply.
➢ Three main remedies available by law:
➢ Specific performance:
➢ Courts are reluctant to order specific performance due to
practical enforcement issues.
➢ Clients typically seek cancellation and damages or other
remedies such as retention of fees and appointing a substitute
contractor.

❖ Cancellation:
➢ Clients cannot cancel immediately due to a contractor's breach
unless:
➢ The contract includes a lex commissoria (right of cancellation).
➢ Time is deemed essential.
➢ Proper notice is given in cases of mora debitoris or mora
creditoris.
➢ Positive malperformance or repudiation is substantial or
material.
➢ Cancellation is the only remedy when performance is prevented
and delivery is impossible.
➢ Restitution is required after cancellation.
➢ The right to cancel is lost if restitution is made impossible by the
cancelling party.

❖ Damages:
➢ Clients can claim damages to restore their position as if proper
performance had occurred.
➢ If calculating damages is difficult, negative interest claims may
be allowed.
➢ Damages can include repair costs and price differences between
contractors.
➢ Special or consequential damages are usually too remote unless
exceptional circumstances exist.

❖ Additional Remedies
➢ Clients have access to additional remedies:
➢ Retaining fees:

➢ Clients can withhold payments to cover repairs or damages.

➢ The extent of retention depends on party agreements.
➢ Reciprocity defense allows withholding performance until the
other party performs properly.

❖ Substitution of contractor:
➢ Clients can appoint a substitute contractor if dissatisfied with
the contractor's work.
➢ This may include issuing a work stoppage order and can lead to
penalties for the defaulting contractor.

❖ Other contractual remedies:

➢ Penalty clauses and calling up securities may be available.
➢ Forfeiture clauses may transfer ownership of the contractor's
goods on the client's premises until proper performance occurs.
Duties of the client OVERVIEW
❖ Initial Duties
➢ The client must provide access to the site and necessary plans,
specifications, tools, and equipment for the contractor to
complete the work.

➢ Approval of Completed Work: Issuing of Certificates

➢ Payment to the contractor is contingent upon approval of the
completed work by the client or representative.
➢ Approval is indicated through certificates issued by the engineer
or architect, including:
➢ Interim Certificate: Issued for approved work, authorizing pro
rata payment to the contractor.
➢ Penultimate Certificate: Issued when final certification is
delayed, indicating final amounts due to subcontractors.
➢ Final Certificate: Issued within three months of substantial
completion, serving as proof of proper performance.

❖ Certificate Requirements:
➢ Issued by an authorized person.
➢ Can be written or verbal unless specified otherwise.
➢ May be conditional.

❖ A certificate acknowledges debt and can support provisional

sentence by a court.
➢ In Smith v Mouton, key points include:

➢ The architect/engineer acts as the client's representative.

➢ The client is bound by the certificate as if they signed it.
➢ The client cannot challenge the certificate’s validity based on
negligence.
➢ Liability for damages exists for negligent issuance of
certificates for defective work or excessive amounts.
➢ Defects must be repaired before final certification and fee
repayment.
➢ Clients can defend against payment claims based on
defective performance.

❖ Duty to Pay
➢ The client's primary duty is to pay the contractor as per the
remuneration agreed upon.
➢ Payment is due only upon proper completion of work, unless
agreed otherwise.
➢ Acceptance of completed work implies a tacit agreement for
payment, potentially leading to quantum meruit claims for fair
compensation.
➢ If the contractor delivers defective performance, the client may
withhold payment until proper performance is rendered.
➢ In BK Tooling, the court ruled that partial payment could be
granted under certain equitable circumstances.
➢ If performance is objectively impossible, the contractor carries
the risk unless otherwise agreed.
➢ If performance is divisible and a portion is accepted, the
contractor is entitled to pro rata payment for completed work.
Non-compliance with the OVERVIEW
client’s duties ❖ The contractor has three legal remedies: specific performance,
cancellation, and damages.
❖ The Apportionment of Damages Act 34 of 1956 states that if both
parties contribute to the damages through negligence, the delictual
damages must be apportioned between them.
➢ This principle applies only to delictual acts and does not extend
to breach of contract.
❖ The contractor is entitled to a lien on completed work. If the client
fails to perform properly, the contractor can retain possession of the
work until payment is received, and the client cannot remove this
possession.

❖ Parties often agree on additional remedies, such as immediate

cancellation rights, financial penalty clauses, or standing time
clauses.
Miscellaneous matters OVERVIEW
❖ The contractor assumes the risk of damage or loss due to force
majeure until the client accepts the work and takes possession. The
risk transfer can be adjusted by mutual agreement.
❖ It is crucial for any party at risk to obtain proper insurance, and
contracts often specify that insurance cover is required, including
the scope of such cover.
❖ Generally, the client is not vicariously liable for the delictual actions
of contractors in a letting and hiring contract, unlike an employer's
liability for employees.
❖ There are two exceptions to this rule:
➢ If the client requests the contractor to perform dangerous work
that could reasonably cause loss or damage to third parties
without taking proper preventative measures.
➢ If the client has a continuous legal duty to prevent loss or
damage and fails to fulfill this duty.
Theme 4
Termination of Contracts OVERVIEW
❖ Specific Methods of Termination
➢ Notice: Requires an express agreement on termination terms by
unilateral notice.
➢ Agreement: Waiving contractual rights must be accepted by the
other party for termination.
➢ Resolutive Term: Termination at an agreed date, regardless of
performance, is discouraged. The Consumer Protection Act
outlines termination provisions for fixed-term agreements,
allowing cancellation without penalty after the term ends or with
20 business days' notice. Suppliers must notify consumers of
impending expiry and renewal options 40 to 80 days in advance.
If no termination instruction is given, the agreement continues
monthly.
➢ Compromise: Total agreement termination requires a complete
compromise, addressing all future aspects, not just disputes.
➢ Prescription: General prescription principles apply; claims
prescribe after three years from the claim date or when the
plaintiff is aware of the claim.
➢ Insolvency or Liquidation: In case of insolvency or liquidation,
the trustee decides whether to maintain or terminate the
Disclaimer: These notes are provided by Pass and Prosper for free and are drafted by Pass
and Prosper tutors for their own studying benefit. These notes are not sold for profit and
therefore, there may occasionally be minor mistakes. In such an event, please contact the
tutor to effect the correction. Note we are in no way affiliated or a branch of the UP Law
Faculty as we are an independent service.
PASS AND PROPER

contract, with the other party having a claim against the

insolvent estate. Immediate termination upon insolvency can be
agreed upon.
Cases Tulloch v Marsh
❖ Dentists used own material to manufacture a plate of false teeth for
his patient.
❖ The Court held that the contract is one of sale and not L&HW.
❖ What if:
➢ Contractor uses own materials to install something (e.g. a roof)
In client’s house?
➢ From Tulloch case would apply,

Sifris v Vermeulen
Held:
❖ Exception in Building Contracts:
➢ Building contracts differ from ordinary contracts due to the
nature of the product involved.
❖ Contractor's Contribution:
➢ The contractor provides only a part of the total product, often
labor and materials.
❖ Merger with Land:
➢ The result of the contractor’s work (e.g., a building) merges
with the land and cannot exist independently.
❖ No Independent Existence:
➢ Once the work is completed, it forms part of the immovable
property (land), losing any separate identity.
❖ Impact on Legal Principles:
➢ This merger creates an exception to some contractual
principles, as the contractor’s work is tied to the land and not
treated as a distinct, movable object.

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