14 July 2021
“I rent a portion of a farm which forms part of a larger group of properties. In my lease agreement I have a standard right of pre-emption. It has come to my attention that the owner wishes to sell the entire portfolio of properties as a single transaction, including the portion I am leasing. I don’t want to lose the property, but I’m not sure if my right of pre-emption still applies if the group of properties is being sold?”
The right of pre-emption is a common clause found in lease agreements where the lessee usually also has an interest in wishing to buy the property should the owner decide to sell. Such provisions usually provide that the property may not be sold to a third party that made an offer to purchase the leased property without the property first being offered to the holder of the right of pre-emption, in this case the lessee. This allows the lessee the right to consider whether they wish to buy the property.
The position of such a right of pre-emption when the property forms part of a larger group of properties that are being sold, was recently considered by the Western Cape High Court in Plattekloof RMS Boerdery v Dahlia Investment Holdings. The court found in such cases, that the right of pre-emption still remains applicable even though the lessee only leases a portion of the properties to be sold, but that ultimately the right of pre-emption and the specific wording of the contract needed to be considered. In this case, the contract required that the exact same terms in the offer to purchase must be offered to the lessee, which then had the effect that if the lessee of a portion of a larger package of properties wishes to make use of the right of pre-emption, the offer that the lessee had to make would have to be in respect of the larger portion of properties. The result is that the lessee, if wishing to exercise the right of pre-emption, would have to match the offer made in respect of the larger group of properties and not just the portion being leased.
The court noted that as the right of pre-emption is founded in the words of the pre-emption clause, the specific wording of the clause would be critical in establishing the continued existence and extent of the right of pre-emption.
Generally, this is a major red flag for owners and tenants to review their lease agreements where potentially a larger group of properties could be involved and to ensure that the provisions of the right of pre-emption are clear as to which properties the right of pre-emption would apply to and what happens if the larger group is to be sold.
In your situation, I would recommend that you consult your attorney as to the wording of your right of pre-emption to establish what your rights are under your lease agreement.