INVALID LEASE AGREEMENT – LANDLORD’s RIGHT TO MITIGATE LOSSES
Care must be taken when entering into agreements with legal entities as the legal status of such an entity is crucial for the validity of such an agreement. If a legal entity has been deregistered by the Companies and Intellectual Commission (CIPC), such entity cannot enter into valid agreements as it does not exist for all intents and purposes.
A case in point:
ANVA PROPERTIES CC / END STREET ENTERTAINMENT ENTERPRISES CC (22109/2014) ZAWCHC (14 APRIL 2015):
A brief summary of the case is as follows:
Anva Properties CC entered into a lease agreement with End Street Entertainment Enterprises CC in respect of parts of a building owned by Anva. End Street conducted a night club business from the premises.
Anva made an arrangement with End Street to first pay the electricity consumption on a monthly basis and then recover a proportionate share from End Street and other tenants.
Despite various demands, End Street fell in arrears with their electricity payments and in 2014 Anva issued summons seeking an order to allow termination of the electricity supply at the premises.
End Street defended the summons by claiming that the lease was invalid, due to the fact that End Street was deregistered at the Companies and Intellectual Commission (CIPC) when entering into the lease agreement. The lease agreement was therefore regarded as null and void as Anva could not act against the defunct close corporation in terms of the lease agreement.
The Court held:
- Deregistration of an entity puts an end to the existence of a corporate entity;
- No steps have been taken to reinstate End Street in CIPC’s records;
- No valid lease agreement existed between Anva and End Street;
However, apart from reliance on the lease agreement, Anva did make out a case for the relief it sought, because:
- Anva, as registered owner, was obliged to make payments to the City in respect of the entire building, otherwise all other tenants would have been jeopardised by the cut in electricity supply;
- In essence Anva was subsidising End Street’s business, which state of affairs could not be allowed to continue;
- Anva could not take the law in its own hands by cutting the electricity supply;
- Anva was successful in the application and obtained an order whereby they could instruct an electrician to disconnect and seal off the supply to End Street, so that the supply to the remaining tenants remained intact.
Wietz Viljoen, WVA INC.
This article is for general information purposes and is aimed at advising the public. It should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.