16 Aug 2017

Pre-Emptive Right to Purchase Immovable Property: Constitutional Court Develops The Common Law

Practice Area(s): Litigation |

In the recent case of Mokone v Tassos Properties CC and Another [2017] ZACC 25, the Constitutional Court developed the common law dealing with a pre-emptive right to purchase immovable property. The common law position was that a right of pre-emption pertaining to the sale of land must comply with the formalities required for the sale of land for it to be enforceable. The Constitutional Court overruled this and held that, since a right of pre-emption is not in itself an agreement for the sale of land, it need not comply with the formalities of the Alienation of Land Act 68 of 1981, which requires the sale agreement for land to be signed by both parties.

Ms. Mokone, as tenant, signed a one-year lease for the rental of the property from where she conducted the business of a bottle store. The lease was renewable for a further year and provided her with a pre-emptive right to purchase the premises. After the expiry of the lease, the tenant remained on the premises in terms of an oral extension of the lease. Thereafter, the written lease was extended by an endorsement on the face of the lease agreement, signed only by the landlord and not by the tenant. The landlord sold the premises to a third-party prompting the tenant to exercise her pre-emptive right and upset the transfer of the land to the third-party.

The landlord argued the extension of the lease had to comply with the formalities contained in the Alienation of Land Act for the pre-emptive right to be valid i.e. it had to be signed by both landlord and tenant. The Constitutional Court disagreed and found that when a pre-emptive right is triggered, all that is required is for the holder of the pre-emptive right to make a written offer to purchase the land.

Having found the pre-emptive right to be valid, the Constitutional Court could see no reason why the notion of the holder of a pre-emptive right “stepping into the position of the third-party” could not be achieved in a manner that does not by-pass the requisite formalities as set out in the Alienation of Land Act. It applied a remedy known as the ‘Oryx Mechanism’ after the case of Associated South African Bakeries (Pty) Ltd v Oryx and Vereinigte Bäckereuen (Pty) Ltd 1982 (3) SA 893 (A), where the Supreme Court of Appeal held that the holder of a right of pre-emption may be allowed to step into the buyer’s place upon a sale in conflict with his rights.

The judgment in Ms. Mokone’s case gives rise to the question whether an option to purchase land should comply with the formalities provided for in the Alienation of Land Act in circumstances where a pre-emptive right does not have to comply. In principle, it is difficult to see why a right to exercise an option will be treated differently to a pre-emptive right, but until the Court has pronounced on it, contracting parties will be well advised to err on the side of caution when drafting an option to purchase land and ensure compliance.