Selling a Tenanted Property

Selling a Tenanted Property in South Africa: What You Need to Know

Selling a tenanted property can be a complicated process, but South African law is clear about how both landlords and tenants should be treated. The existing lease agreement takes precedence, and this remains the foundation of how a sale is managed. Below, we explore the key legal principles and practical considerations to keep in mind when selling a property with tenants in place.

The Legal Principle: Huur Gaat Voor Koop

In South Africa, a landlord may put a property up for sale at any time. However, tenants’ rights remain protected, even when the tenanted property is sold. This is because of the principle of ‘huur gaat voor koop’ – the existing lease agreement takes precedence over an agreement of sale. In practice, this means that tenants are entitled to remain in the property until their lease expires, regardless of the change in ownership. If tenants choose not to cancel, the Consumer Protection Act works alongside the principle of 'huur gaat voor koop', ensuring that the lease terms continue under the new owner with all its original conditions intact. While this protects tenants, it can narrow the pool of potential buyers, especially for those looking to occupy the property immediately, unless an early termination is agreed upon.

Early Termination and Sales Provisions

Landlords cannot act unlawfully and terminate the lease agreement unfairly before the lease ends. However, some landlords include a sales provision in the lease agreement. This clause gives both landlord and tenant flexibility in the event of a sale, allowing either party to terminate the lease early with an agreed notice period, without breaching the contract.

If no such clause exists, both the new owner and tenant are bound to honour the lease until it expires – or negotiate an agreement for early termination.

The Consumer Protection Act (CPA)

The Consumer Protection Act (CPA) allows a tenant the right to cancel the fixed-term agreement by giving 20 business days’ notice. The CPA applies when the tenant is a natural person. Should the tenant cancel the lease, the tenant must keep in mind early termination usually carries penalties. The CPA requires that these penalties must be reasonable. Typically, this covers the landlord’s actual loss, such as advertising costs, lost rental during a vacancy period, or agent’s fees, but not the full remaining value of the lease.

Communication and Transparency

Although landlords are not legally obligated to inform tenants when a property is being sold, open and transparent communication helps maintain a smooth sales process and a positive landlord-tenant relationship. Notifying tenants of the sale, clarifying any changes, and confirming rights and responsibilities under the lease all help to avoid misunderstandings and preserve a positive relationship.

Marketing the Property: Tenants’ Rights and Responsibilities

During the sales process, tenants’ right to privacy must be respected. Most lease agreements allow the landlord’s Property Practitioner to arrange viewings or show days at reasonable times, provided adequate notice is given. Typically, 24–48 hours is considered reasonable.

Tenants are expected to cooperate by allowing access for photos and viewings, and should make every effort to present the property in a neat and clean condition. To avoid tension, it is often best for the Property Practitioner and tenant to agree on set times and dates for viewings that work for both parties.

Transferring Deposits

When ownership of a tenanted property transfers, the seller must pass the tenant’s full security deposit, including any interest accrued, on to the buyer. This ensures the tenant’s rights remain protected under the new owner. When the property is professionally managed by a reputable property practitioner, the deposit will remain in the interest-bearing trust account of that practitioner, assuming that the new landlord continues with the property management sercives.

Final Thoughts

Selling a tenanted property can be challenging, and at times may put strain on an otherwise amicable landlord-tenant relationship. But with clear communication, respect for tenants’ rights, and a willingness to compromise, the process can be managed smoothly. Done right, it can lead to a favourable outcome for all parties involved.