New court judgment affects commercial and residential properties

Landlords should carefully check their mortgage agreements on both commercial and residential properties. If they contain a cession of rentals they need to obtain the bank’s permission before they may sue for unpaid rentals.

In Picardi Hotels Limited versus Thekweni Properties (680/7) (2008) ZASCA 128, the SCA held that a landlord could not sue his tenant for unpaid arrear rentals if the mortgage agreement concluded between the bank and the landlord contained a cession of rentals. Thus, unless otherwise agreed, the landlord had given up his right to sue for unpaid rent by ceding this income to the bank when concluding the mortgage agreement.

Landlords with mortgage bonds registered over their rental properties may have unwittingly surrendered their right to sue defaulting tenants where the mortgage bond contains a cession. Mortgage bonds typically contain a clause such as this:

Cession of rentals and revenues
Should the Mortgagee give its consent to the letting of the mortgaged property, the Mortgagor cedes, transfers and assigns to the Mortgagee all the Mortgagor’s rights, title and interest in and to all rentals and other revenues of whatsoever nature, which may accrue from the mortgaged property as additional security for the due payment by the Mortgagor of all amounts owing to or claimable by the Mortgagee at any time in terms of this bond, with the express right in favour of the Mortgagee irrevocably and in rem suam:

1 to institute proceedings against lessees for the recovery of unpaid rentals, and/or eviction from the mortgaged property;
2 to let the mortgaged property or any part thereof, to cancel or renew and enter into leases in such manner as the Mortgagee decides, and to evict any trespasser or other person from the mortgaged property…

Landlords should carefully check their mortgage agreements on both commercial and residential properties. If they contain a cession of rentals they need to obtain the bank’s permission before they may sue for unpaid rentals. This decision affects both commercial and residential rental properties as the above cession is included as a term of most commercial and many residential mortgage loan agreements.

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