Is there an obligation to renew a lease agreement?

In a recent case Roazer CC v The Falls Supermarket CC, the respondent, Falls Supermarket, was a retailer that leased the premises on which it operated from the appellant, Roazar.

The lease agreement made provision for the renewal of the lease by Falls Supermarket for an additional period of five years to be negotiated by the parties before the expiration of the original lease. The agreement made no provision for a deadlock-breaking mechanism if the parties could not reach agreement.

The issue in Roazer was whether an agreement to negotiate in good faith is enforceable in the absence of a deadlock-breaking mechanism. It is trite that negotiations are enforceable if the agreement provides for an effective deadlock-breaking mechanism.

The court reasoned that a sensible interpretation of the agreement was that Falls Supermarket had to notify Roazar at least one month before the expiry of the current lease period that it wished to exercise its right of renewal. It did not have to do so in writing.

In that event the lease agreement would continue on a month to month basis, subject to one month’s notice by either party, until an agreement was reached or negotiations failed and notice was given by one of the parties. If Falls Supermarket elected not to exercise its right to renew the lease at least one month before the expiry of the lease period, the lease would terminate. If an agreement was reached to renew the lease, that agreement had to be in writing.

Roazar chose to invoke the terms of the agreement and terminated the contract by giving one month’s notice. That should have been the end of the matter, but Falls Supermarket contended that the contract could not be terminated until good faith negotiations had taken place. For that reason it contended that the notice of termination and the application for eviction were premature.

The court pointed out that the parties consciously bound themselves to a contract that provided that each party could terminate it on one month’s notice in the event that there was no agreement on the renewal terms. There was no obligation on Roazar to renew the agreement. It was not competent for the court to import a term not intended by parties simply on the basis of the principle of ‘ubuntu’.

The appeal was upheld with costs.

This article was first published in De Rebus in 2018 (May) DR 33.

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