Author: Matthew Davidse

Whether you’re purchasing an investment property or looking for a property to move into yourself in the future, considering a property with tenants could be an attractive option. 

There are however a few considerations to take into account before signing the offer to purchase.

The South African common law maxim of ‘huur gaat voor koop’ would apply, unless specifically excluded in the existing lease agreement (e.g. a sales provision between tenant and existing landlord). The principle essentially means that any lease agreement validly concluded prior to the sale of a property would remain in existence until the lease term expires due to the natural passing of time. Therefore, any purchaser who buys a tenanted property, would have to honour the terms of the existing lease agreement. The purchaser will then simply step into the shoes of the seller, thus becoming the new landlord and inheriting the rights the seller/previous landlord had towards the existing tenant.

Because of the above, the purchaser should discuss the following with the seller/agent:

• The existing lease agreement and the terms therein, prior to signing an offer to purchase;
• What steps were taken by the seller to ‘screen’ the existing tenant prior to conclusion of the lease (the tenant’s payment history, credit record and references, if applicable);
• How the damages deposit (as paid by the existing tenant) would be transferred from the seller to the purchaser upon transfer of the property;
• What the rental amount is and how the tenant will be informed of the change in how monthly rental must be paid after transfer of ownership;
• Whether an ingoing inspection was concluded with tenant, and the current condition of the property at point of sale (i.e., whether the tenant appears to have looked after the property as expected);
• Whether the tenant hopes to renew the lease when it expires;
• If buying in a sectional title scheme, how well the body corporate functions in enforcing conduct rules, financial management of the scheme, the levies payable, and maintenance of common property.  Requesting the recent Audited Financial Statement and Annual General Meeting minutes, would provide insight in how a scheme has been managed.

Should you wish to purchase a property to move into yourself, you could insert a clause in the offer to purchase whereby vacant occupation is provided to you by the seller. If the property is tenanted at point of sale, it would require the seller to terminate the existing lease. Cancellation of the lease by the seller must be done lawfully and in compliance with the notice periods as noted in the existing lease agreement.

Consider consulting with one of our experienced attorneys prior to purchasing a property that is currently tenanted.