Cape Town - The Supreme Court of Appeal (SCA) has upheld an appeal against an order of the Western Cape Division of the High Court, over a lease agreement between Capital Propfund 4 (Pty) Ltd and Harbour Arch Investment Holdings (Pty) Ltd.
In its application to the high court, Capital Propfund had sought enforcement against Harbour Arch Investment Holdings, of a payment obligation provided for in that agreement.
However, Harbour Arch Investment argued before the SCA that its acquisition of the property it had previously rented meant that contractual obligations under the original lease agreement had been subsumed by ownership rights.
Back in 1996, Capital Propfund concluded a 30-year Notarial Land Lease Agreement with Transnet Ltd, in respect of a portion of commercial land owned by Transnet in Culemborg, near the Cape Town Harbour.
When the property was sold as a going concern, at a purchase price of R235 million, Capital Propfund assigned to Harbour Arch Investment all its rights and obligations under both the land lease and the various tenant leases.
Until then, clause 18 of the lease assignment agreement had said in the event that Harbour Arch Investment developed additional floor space on the property, it had to pay Capital Propfund an amount of money, computed on a specified formula.
When Harbour Arch Investment advertised its plans to construct additional floor space on the property, Capital Propfund demanded payment, as provided in the lease assignment agreement.
Harbour Arch said that the payment obligation was no longer applicable, since it was now the owner of the property.
Capital Propfund’s application to the high court, for an order declaring the lease assignment agreement valid and for the enforcement of the payment obligation, succeeded after the high court ruled that the merger of the land lease and the property rights had no bearing on the payment obligation because the leases assignment agreement made no provision for its termination.
The SCA has now found that the payment obligation was only applicable as long as the land lease remained valid.
It found that nothing in the wording of clause 18.3, or anywhere in the lease assignment agreement, showed an intention that the payment obligation would be applicable even when the land lease terminated.
The SCA said that Capital Propfund could not create – under the leases assignment agreement – a perpetual benefit, when its own rights were limited to the existence of the land lease.