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When can a landlord hold a third party liable for a tenant’s debt?

The landlord can hold a third person who signed as surety and co-principal debtor, responsible for the payment of rental if the tenant is in default. In terms of Section 6 of the General Law Amendment Act 50 of 1956, suretyship must be in writing.

Section 6. Formalities in respect of contracts of suretyship. No contract of suretyship entered into after the commencement of this Act, shall be valid, unless the terms thereof are embodied in a written document signed by or on behalf of the surety: Provided that nothing in this section contained shall affect the liability of the signer of an aval under the laws relating to negotiable instruments. The third party becomes responsible when he or she signs a surety agreement that may be a separate agreement or forms part of the tenant’s lease agreement.

The suretyship binds the surety to the landlord who is entitled to demand performance of specific obligations included as part of the terms and conditions. These may relate to payment of rental, rates, damages and legal costs. The surety may agree that the landlord can claim directly from the surety all amounts owed by the tenant, without claiming from the tenant.

A surety as the co-principal debtor is a landlord’s (the creditor’s) protection against the tenant who fails to meet his or her obligations. In the event the tenant fails to pay the rentals or service charges, the landlord can sue the surety while instituting eviction proceedings against the tenant.

Barbara Tracey Trzebiatowsky claimed that she was unaware of what she was signing and simply complied with her husband’s request to come to Absa bank to sign some documents.

The court held that there was no need for the bank’s representative to alert her and the other directors who signed deeds of suretyship in their personal capacities about the risks involved. The directors as sureties cannot escape liability on the basis that they did not understand (Absa Bank Ltd v Trzebiatowsky and Others 2012 (5) SA 134 (ECP). In the case of Beaux Lane (SA) Properties (Pty) Limited v Marais [2015] JOL 32961, the landlord successfully sued Marais who signed a deed of suretyship for the tenant’s arrear rentals, rates and taxes and damages for breach of contract.

The court found that the surety was aware that by signing the deed of suretyship he attracted personal contractual liability towards the landlord.

The surety said that he made a mistake by not realising that by signing the deed of suretyship, he was liable in his personal capacity. The court held that the mistake was clearly of his own recklessness and inattention and that he was aware of the suretyship provision. The court ruled that the surety was liable to the landlord in the sum of R228538.12, including interest at the rate of 11% per annum from the date of judgment to date of final payment and R44673.75 at the legal rate of interest from the date of service of summons to the date of payment.

In a Supreme Court of Appeal case, judgment was handed down on May 29, 2015, against the landlord Dormell Properties 282 CC. Alwyn Gideon Bamberger was the sole director of Edulyn (Pty) Ltd, the tenant who signed the offer to lease on behalf of Edulyn. He also bound himself as surety for Edulyn’s obligations under the lease. The deed of suretyship was made an annexure to the memorandum of agreement of lease, but the landlord failed to sign the lease.

The landlord successfully evicted the tenant and the magistrate’s court held Edulyn and Bamberger jointly and severally liable, the one paying the other. Bamberger appealed to the Western Cape division of the high court and succeeded in overturning the decision of the Bellville Magistrates’ Court that held him liable as surety. Dormell then took the matter to the SCA, but failed because the court held that it sued Bamberger on the deed of suretyship that was not valid. The deed of suretyship was attached to an invalid memorandum of lease as a result, the suretyship was also invalid.

According to Acting Judge Savage, a contract of suretyship requires a valid principal obligation with someone other than the surety as debtor and the liability of the surety does not arise until this principal obligation was contracted. (Dormell Properties 282 CC v Bamberger (20191/14) [2015] ZASCA 89 (29 May 2015)).

When the rental property is sold and ownership is transferred to the new owner-landlord, the lease agreement is uninterrupted. The new owner is bound by the lease and will continue with the rights and obligations of the previous owner, as if there were no change in terms of the huur gaat voor koop rule (hire comes before a sale). The tenant is equally bound to the new landlord. The surety like the tenant is also bound to the new landlord.

The person who signs as surety must be aware of the serious implication that he or she is responsible for the tenant’s lease and liable for all the tenant’s debt.

Dr Sayed Iqbal Mohamed is the chairperson of the Organisation of Civic Rights & deputy chairperson of the KZN Rental Housing Tribunal. He writes in his personal capacity. For advice, contact Pretty Gumede or Loshni Naidoo on 031 304 6451 / [email protected] or [email protected]

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