In a recent Rental Training Club webinar, we were joined by renowned rental attorney Ismaiel Mohamed, director of Mohamed & Leon Attorneys. Together, we delved into a real-world case study submitted by one of our members—a testament to the practical value of being part of the Rental Training Club. This member consultation highlighted several critical legal issues that rental agents need to be aware of when a landlord decides to sell a property that is currently tenanted, and the property transfers during the course of the tenancy.
Our Rental Training Club offers members exclusive access to insightful sessions like this one, held twice a month, where we cover timely and relevant topics. In this session, we tackled three critical questions that arise when a property transfers while under a lease: the future of the lease agreement, the rental mandate, and the handling of the tenant’s deposit.
What Happens to the Lease Agreement on the Transfer of a Rented Property?
One of the most important questions that arise when a rented property is sold is the fate of the existing lease agreement. According to the law, when a property is sold with a tenant in place, the principle of huur gaat voor koop (which translates to “lease trumps sale”) applies. This means that the lease remains in effect, and the new owner assumes the role of the landlord. The new owner cannot simply evict the tenant, nor can they alter the terms of the lease agreement unless mutually agreed upon with the tenant.
The takeaway here is that rental agents must communicate clearly with their landlord clients and the mandated sales agent, ensuring they understand that selling a property does not dissolve the lease. The tenant’s rights remain intact, and the new owner inherits the legal responsibility of the lease.
Most fixed term leases have a clause that entitles the owner/s to give the tenant/s notice to vacate the property if they decide to sell the property and/or if the property is sold, but we sourced legal advice on this clause from a variety of experts and there are differing opinions in the legal fraternity regarding the enforceability of this clause if it would be challenged legally from the tenant. From our enquiries it would appear as if there has never been a challenge of this clause that has led to any finding court ruling, so it would seem as if this particular issues is still in the ‘many shades of grey’ area of rentals and rental law.
The most current indication of how the courts may interpret this matter – the debate essentially stems from a possible conflict between the Rental Housing Act and the Consumer Protection Act – is a recent judgement in the case of Venter and Another v Els and Another that played out in the Western Cape High Court. The circumstances of that case were very specific, but it’s the only judgement we are aware of that may give us an indication of how the courts may approach a legal challenge on this matter. Click here to find out more about this judgement.
What Happens to the Managing Agent’s Mandate on Transfer of the Property?
Another point we discussed was what happens to the management mandate when a rented property is sold. A common misconception is that when a property is sold, the management mandate between the landlord and the rental agent automatically continues. However, this is not the case. The managing agent’s mandate is a personal agreement between the agent and the landlord and pertains to the specific property that is management, so it does not automatically transfer to the new owner.
For rental agents, this means that they must address this issue in advance with both the landlord and any potential buyers. If the new owner wishes to continue using the current managing agent, a new management mandate will need to be signed. If not, the existing mandate is terminated with the sale of the property. This of course means that the agent’s income terminates, as well as their authority to act on the property owner’s behalf with respect to the management and administration of the lease agreement.
It is highly recommended that rental agents include a clause in their mandates requiring landlords to notify them before listing the property for sale. This enables the agent to be involved in discussions with the sales agent, ensuring the sale and handover process respects the tenant’s lease and other legalities, such as vacant possession.
What Happens to the Tenant’s Deposit?
Handling the tenant’s deposit during a property transfer is another critical issue. The deposit remains the tenant’s money, albeit held in trust as security for the landlord. On transfer of the property this security transfers to the new landlord concurrently with the transfer of the lease agreement, so the deposit, including any interest, must be transferred to the new owner or the new managing agent upon sale. The tenant’s deposit is held in trust and cannot be released or used by the seller. The new landlord takes over the responsibility for the deposit and must ensure its safekeeping in terms of the RHA until the lease concludes and any deductions are made in accordance with the lease terms.
It is crucial for rental agents to oversee the transfer of the deposit during the sale, ensuring that both the seller and the buyer understand their obligations. Mismanagement of the tenant’s deposit can lead to legal disputes and complications, which can reflect poorly on the rental agent involved.
A Proactive Clause for Rental Agents
A key takeaway from this case study, and one of the core recommendations made during the webinar, is that rental agents should include a specific clause in their mandates. This clause should require the landlord to notify the rental agent before listing the property for sale. This step ensures that the rental agent can collaborate with the sales agent regarding the tenant’s rights, the lease agreement, and whether the property will be sold with vacant possession or the tenant in place. Without this clause, agents may find themselves excluded from important discussions, leading to potential legal issues down the road.
Of course, the additional benefit of this clause is that you will hopefully be the first person to be informed of the owner/s decision to sell, which puts you in the prime position to sign up a sales mandate!
Conclusion
This real-life case study underscored the value of the Rental Training Club. Our members not only receive expert legal advice, but they also get the opportunity to consult directly with industry experts on our exclusive members-only webinar training sessions. These webinars ensure that rental agents stay ahead of legal changes and industry best practices, equipping them to provide the best possible service to their landlord clients.
If you’re not yet a member of the Rental Training Club, now is the time to join. With access to twice-monthly webinars and ongoing support from experts, you’ll have everything you need to succeed as a rental agent.
