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DAMAGES UNDER LEASE AGREEMENTS


The decision handed down by the Full Bench of the South Gauteng Local Division, Johannesburg in the matter between HYPROP INVESTMENTS LTD and Another (“the appellants”) v NCS CARRIERS AND FORWARDING CC and Another (“the respondents) (2009/12568, 2009/47543) [2010] ZAGPJHC 20), clarifies the position of what a Landlord may claim for damages arising from a tenant’s continued occupation after the agreement of lease was cancelled; a claim commonly described as one for holding over.

Facts

The facts of the case are as follows: the appellants are the joint landlords of a shopping complex, and had validly terminated the first respondent’s leases of commercial premises. They instituted motion proceedings in June 2011 against the respondents for damages arising from the first respondent’s continued occupation after the agreements were cancelled; a claim commonly described as one for holding over. The second respondent was sued as surety and co-principal debtor. The application was dismissed by Cane A.J. on the ground that there was a genuine dispute of fact regarding the quantum of damages claimed.

Issue to be determined

The matter required an examination of the nature of a holding over claim and its proper characterisation. The Court had to further determine if the appellants are correct in basing the remedy on the rental charged under the terminated agreements, in which event the claims would be liquidated and capable of supporting motion proceedings, and whether the ancillary charges are recoverable.

Court’s finding

The appellants contended that they were unable to re-let the premises from the time the leases were cancelled in February 2009 until the SCA dismissed the application for leave to appeal in September 2010 and formulated their claim for liquidated damages strictly on the basis of the amounts agreed in the leases for rental (market rental value being a liquidated claim) and ancillary charges (unliquidated damages). The ancillary charges included the monthly charges for rates and taxes, refuse and electricity meter reading recoveries, the monthly amounts payable for a parking bay, operating costs and marketing fund contributions.

The Court held that Sandown Parks 1985(1) SA 248 is the authority for the proposition that the lessor is entitled to be placed in the position he would have been had the lease been properly performed.

On whether the claim is contractual or delictual, the Court found that the simple fact that the occupier has no lawful right to remain in occupation after the lease expires is an incidence of contractual law and is also per se a wrongful act under delict (The right infringed is the landlord’s right to free and undisturbed possession unless the occupier can justify his or her continued occupation on legal grounds). In both cases, contractual and delictual, the measure of damages is identical (market related rental) because they flow naturally from the breach and are also reasonably foreseeable as a consequence of the wrongful act.

The question of whether a party must expressly plead the essential elements of a contractual or delictual cause of action was answered by reference to Lillicrap 1985 (1) SA 465 (A) where, in drawing the distinction between a contractual and delictual claim the Court in that matter found that the mere fact that the respondent might have framed his action in contract does not debar him from claiming in delict.

Having settled the question of whether the claim is contractual or delictual, the Court had to determine how the amount of the damages for holding over had to be computed. On ordinary principles a damages claim for a market related rental would be liquid, if however there is evidence to the contrary then the claim is illiquid with the result that it cannot support motion proceedings. The appellants nonetheless contended that “in the absence of evidence to the contrary, the rental value of the premises is assumed to be the rental paid under the lease” (Cooper The South African Law of Landlord and Tenant ).

In the present case, if the respondents did not set out a bona fide defense then there is no countervailing evidence regarding market related rental and per Sandown Park the actual rental charged for the holding over period will be the only acceptable evidence. If that is so then the amount is liquidated; otherwise it is illiquid and incapable of supporting motion proceedings.

The Court then had to determine what a bona fide defense was and held that Room Hire (1949 (3) SA 1155 (T)) matter was the locus classicus on what constitutes a bona fide defense. The ratio in Room Hire had to be understood by reference to the very low threshold test expressed in the earlier Full Court decision of Bakers (1948(2) SA 626 (T)) which held that: “ The crucial question is always whether there is a real dispute of fact.” and in which the principal ways in which a dispute of fact arise were laid out.

The Court also relied upon Plascon-Evans (1984 (3) SA 623 (A)) when the then Appellate Division, considered the circumstances where a dispute would not be considered bona fide.

In this matter the first substantive dispute of fact raised concerned whether the rental contained in the cancelled lease agreement constituted a market related rental and the respondents sought to rely exclusively on the Cook Report; a report which the appellants contended was materially deficient and relying on estoppel, the respondents could not rely on Mr Cook’s report because it was premised on there being a misrepresentation as to the character of the centre, an issue which was res iudicata by reason of the judgment of Mokgoathleng J. The Court, after considering case authority, rejected the appellants’ contentions.

Once the Cook Report was found to be admissible and that the issue of estoppel did not arise, the only two further issues raised by the appellants required consideration: The first being that the appellants are entitled to persist with the damages based on the lease rental and secondly, that nowhere in the Cook Report does it claim that the market related rental for a high class shopping Mall is any different to a strip mall, nor does it state the rental that was attainable at a strip Mall.

Without delving into the contents and details of the Report in this synopsis, the Court held that the Report demonstrated that the defense raised to the lease rental equaling a market rental value is bona fide even though it was not again verified under oath by its author and does not give the Rands and cents difference between a high class mall and a strip mall. The Court found that it more than adequately satisfies the bona fides test referred to in paras (a) and (c) of Room Hire as read with Plascon-Evans.

Pertaining to the ancilliary charges, the Court concurred with the findings of the Court a quo, that further evidence would be required by the appellants that they would be represent the “rental value” of the premises during the holding over period.

The appeal was thereof dismissed with costs.

Conclusion

A landlord, when instituting a motion application claiming damages for holding over, must ensure that it places sufficient evidence before court to enable it to find that the damages claimed (market related rental) are liquid and further more that the respondent does not have a bona fide dispute.

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