Most landlords will argue that they will have no trouble in terminating a lease agreement and evicting the tenant should the lessee go under business rescue, liquidation or sequestration, as a clause was included in their agreement which enables them to terminate in these circumstances.

The clause mentioned above, does not however provide any protection to the landlord as Section 37 (5) of the Insolvency Act specifically stipulates that such a term in a lease shall be null and void.

Thus, if the lease is still intact at the time of issuing of a sequestration or liquidation application, then the landlord will not be in a position to terminate. The decision to continue with the lease, will fall within the sole discretion of the trustee appointed to liquidate the insolvent estate. The trustee now has a discretion to, within 3 months after his appointment, notify the landlord whether he/she desires to continue with the lease on behalf of the estate, alternatively to proceed with cancellation of the agreement.

The rent due for this 3 month period will form part of the cost of the sequestration.

Consequently, the landlord will have a preferent claim against the tenant’s estate, but will have to wait for money to be paid out of the liquidation/sequestration.

How does one prevent such an unpleasant situation?

In short, it is imperative that a notice, as envisaged in each lease agreement, notifying the tenant of its breach or arrear payments, should be sent as soon as reasonably possible, on each and every occasion of default by the tenant.

This advice is based on the matter of Ellerine Brothers (Pty) Ltd v McCarthy Ltd (SCA), where it was held that should such a notice be served before provisional liquidation, and the tenant/trustee fails to comply with payments required, then the landlord will still be entitled to terminate the agreement, even though the tenant is subsequently liquidated or sequestrated.

Thus, the sooner you demand payment in terms of the lease agreement, the better the chance of terminating the agreement if the tenant becomes insolvent.

Charl Ackermann

Director: Rental collection and commercial evictions department