A long-term lease agreement as a trigger event for a right of pre-emption

Abstract

A lacuna in the South African law exists with regard to whether the registration of a long-term lease agreement over property (a real right) triggers the operation of an existing pre-emptive right (personal right) over the same property. In this study, a legal analysis is conducted with reference to the English law, German law and Dutch law regarding their approach to competing interests of pre-emptive rights and a lessee’s rights under a long-term lease agreement. The aggrieved party’s remedies are also considered. It is necessary to establish whether a long-term lease agreement is considered as a “trigger event” for pre-emption. The trigger event is usually the owner’s desire to sell the property. It may happen that a third party approach the owner with a desire to purchase the property, but due to the right of pre-emption the owner’s right of ownership (to sell) is limited. To avoid the operation of the pre-emptive right, the owner and the third party may consider concluding a long-term lease agreement, with or without the third party’s knowledge of the pre-emptive right. The problem that arises is where a long-term lease agreement is concluded with the aim to circumvent the operation of the pre-emptive, and whether this agreement triggers the pre-emptive right, alternatively, will this transaction, which conceals the true nature and purpose of the agreement, constitute a simulated contract? Will the aggrieved party have a remedy at their disposal in a situation where their personal right of pre-emption is infringed by a third party and against whom can they enforce its remedy? The application of the doctrine of notice, i.e., whether the third party had knowledge of the pre-emptive holder’s rights, affects the position, This doctrine of notice will determine against whom the respective parties have remedies at their disposal. Regardless of this doctrine and whether the subsequent contract is considered as a simulated contract, the aggrieved party will have a remedy at their disposal.