Unlawful lease agreementsContract Law
facts
In BW Brightwater Way Props (Pty) Ltd v Eastern Cape Development Corporation (1235/2019) [2021] ZASCA 47 (19 April 2021), the Supreme Court of Appeal dealt with whether a court can extend the duration of a lease agreement, notwithstanding its invalidity.
The company had previously entered into a 20-year lease agreement with the ECDC for land located at Coffee Bay, upon which the Ocean View Hotel is situated.
Subsequently, the company instituted proceedings in the High Court to compel the ECDC to comply with its contractual duty to give vacant possession of the property. It required the ECDC to evict the owner of a lodge, also situated on the property. In response, the ECDC applied to have the agreement set aside on the basis that the signatory for the ECDC lacked authority to have signed the document.
The High Court found that the agreement had been concluded unlawfully. However, it did not set aside the agreement. Instead, the High Court exercised the discretion afforded to it by the Constitution by ordering that the company was not divested of any rights to which it was entitled under the agreement.
On appeal to the SCA, the issue was whether the company was allowed to remain in occupation for the remainder of the lease period, i.e. the full 20 years.
judgment
The SCA emphasized that the Constitution empowers a court to make any order that it deems just and equitable in the circumstances of a matter. Here, the SCA disagreed with the High Court’s decision to find that the agreement was unlawful and to uphold the agreement in all respects, including the company’s future rights. This had the effect of nullifying the High Court’s finding that the agreement was unlawful. The decision went beyond what was empowered by the Constitution.
Generally, a court has no power to enforce a term or condition of an agreement that has been found to be unlawful. However, the SCA recognized that a court has discretion to permit a party to recover the value of what has already been performed. That was not the situation here. The agreement was indeed unlawful and the company had no right to remain in occupation of the property.