What happens to the owner-landlord if the tenant in a share block is considered a threat to shareholders?
Consumer / 7 August 2019, 07:00am / Dr Sayed Iqbal Mohamed
RENTAL WATCH: What happens to the owner-landlord if the tenant in a share block is considered a threat to shareholders?
A person or entity can’t simply exercise a right in a contract when it affects the other party. Often, a legal process must be followed for the entitlement, so that through this due process of the law, the affected party has the opportunity of placing before the court why such a right should not be granted.
A landlord has the right to defend his tenant’s legal action in the same way the tenant can’t be deprived of her rights arbitrarily. An owner is similarly protected by legal safeguards and the judicial system, and can’t be deprived of property through autocratic means.
In a share block, members own shares in the company, but it’s the company that owns the land and the building. Unlike a sectional title scheme, where each owner owns a section in a complex or development (for example, a flat, unit, townhouse or semi-detached house) with an undivided share of the common property.
A sectional title owner is given a title deed for the unit, whereas a shareholder is not an owner who is issued with a share certificate.
A shareholder on the other hand obtains the exclusive right to use and occupy a space (for example, a flat), which effectively confers full rights of occupation, but not ownership right. This is done through a use agreement, which entitles the shareholder to personally occupy the flat or to enter into a lease agreement with a tenant.
A shareholder can be deprived of his or her shares if found in violation or in breach of the management regulations of the scheme, articles of association or the use agreement. Herein lies the challenge for the company faced with a negligent shareholder or an unruly tenant.
Let’s take an example where the landlord, under pressure from the shareholders, lodges a complaint with the provincial rental housing tribunal against his tenant. The complaint is resolved through mediation.
Armed with a mediation agreement partly in his favour, the tenant increases the tempo of his nuisance. The company, out of frustration, gives the shareholder (landlord) 14 days to get rid of his tenant, or threatens to revoke the use agreement.
While the shareholder is bewildered, the tenant is unfazed by his anti-social behaviour and could not care less about the directors, who are justifiably frustrated and furious.
Suppose the tribunal’s mediation agreement was made a ruling (a magistrate’s court judgment) with the tenant undertaking to move out once the lease comes to an end. The mediator’s advice and guidance during the mediation process appeared to be wise, fair and just in getting the tenant to agree to move out once the lease has ended.
The shareholder could have cancelled the lease for breach and thereafter instituted legal action to remove the tenant. Should the tenant defend the eviction, this could take many months, certainly past the end of term of the lease. While there is no guarantee that the tenant will vacate as promised, the ruling of the tribunal of the agreed settlement terms of the mediation would assist in the legal eviction proceedings.
The fact that the shareholder took steps to deal with the miscreant tenant means any attempt to revoke the use agreement may be unlawful and could be challenged, perhaps raising constitutional issues. Section 25 of the Constitution states that no one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.
If it is argued that the shareholder is not being deprived of property, the company will certainly have to deal with the tenant. Once the use agreement is cancelled, the shareholder is no longer in charge of the flat and the unruly tenant. The company would have to start legal proceedings for the tenant’s eviction. This is so because in terms of Section 26 (3) of the Constitution, no one may be evicted from their home, or have their home demolished, without an order of court made after considering all the relevant circumstances. No legislation may permit arbitrary evictions.
Both the shareholder and the tenant are entitled to a due process and have the right to access to courts in terms of Section 34 of the Constitution: “Everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum”.
According to Judge Chiman Patel in Flexi Holiday Club v La Lucia Sands Share Block Limited 2006 JDR 0265 (D), the owner is entitled to an undisturbed use of a designated portion of the immovable property in a building not only during his lifetime, but is able to devolve his shares on to his heirs.
The share block company will have to bring a court action to enforce the entitlement of revoking the shareholder’s right to the use agreement to prevent him access to his unit. It can’t unilaterally and arbitrarily exercise such powers, as was pointed out by Judge Brian Spilg in Delpech v Holloway and Others 2011 (2) SA 194.
It’s a different matter if the shareholder ignored the concerns raised by the share block about his tenant and refused to deal with the matter decisively. It would help if the share block company worked with the shareholder to rid the building of the troublesome tenant, and in this way also avoid unnecessary legal costs.
Such tenants affect the rights of shareholders and good tenants who have the legal right to undisturbed, full use and enjoyment of their properties.
Dr Mohamed is the chairperson of the Organisation of Civic Rights and deputy chairperson of the KZN Rental Housing Tribunal. He writes in his personal capacity. For advice, contact Pretty Gumede or Loshni Naidoo at 0313046451 / [email protected] or [email protected]