Cession of rights under long-term lease

30 November 2021 16:00 by Merilyn Kader

In University of Johannesburg v Auckland Park Theological Seminary and Another 2021 (3) BCLR 807 (CC), contextual evidence is not precluded by the parol evidence rule in a delectus personae inquiry as it does not seek to add to, vary, modify or contradict the terms of an agreement but gives context and background when interpreting the rights under the agreement.

By Merilyn Rowena Kader LLB (Unisa), Legal Editor at LexisNexis South Africa.

Lease - Cession of rights under long-term lease: Applicant, the University of Johannesburg (UJ) and first respondent, Auckland Park Theological Seminary (ATS) in University of Johannesburg v Auckland Park Theological Seminary and Another 2021 (3) BCLR 807 (CC) concluded a co-operation agreement in 1993, which provided, inter alia, that students who registered for theological degrees, would be taught some courses by UJ and others by ATS. In December 1996, UJ and ATS also concluded a written long-term lease agreement whereby UJ leased some immovable property belonging to it to ATS on which ATS intended to establish a theological college. The lease was registered against the title deed of the property. It was to endure for a period of 30 years, renewable with six months’ written notice by ATS prior to the expiry of the period. ATS paid UJ a once-off rental of R700 000. This all occurred with the approval of the Minister of Education. ATS did not ultimately establish a theological college on the leased premises. Instead, it ceded its rights under the lease agreement to second respondent (Wamjay) by means of a written cession. Wamjay paid ATS R6 500 000 for the rights under the lease agreement. Wamjay’s intention was to establish a religious-based school for primary and high school education on the leased premises. This occurred without UJ, or the Minister being notified beforehand. When UJ learnt of the cession, it took the view that the rights in the lease agreement were personal to ATS and that ATS had, therefore, repudiated the lease agreement by purporting to cede to Wamjay rights that were incapable of cession. UJ thus purported to accept ATS’s repudiation and cancelled the lease agreement. ATS and Wamjay disputed UJ’s right to cancel the lease agreement. UJ applied to the High Court for orders evicting ATS and Wamjay from the leased premises and cancelling the registration of the notarial lease against the title deed.

The High Court found in favour of UJ, holding that the lease was delectus personae. An appeal to the Full Court by ATS and Wamjay failed. ATS and Wamjay appealed the finding of the Full Court to the SCA, which upheld their appeal and replaced the order of the High Court with an order dismissing UJ’s claim. The SCA, held that all contractual rights can be transmitted unless their nature involves a delectus personae or the contract shows that the rights were not intended to be ceded. The restriction on cession imposed by the delectus personae concept was simply a manifestation of the general principle that a cession should not disadvantage the debtor. In a long lease the lessor does not expect that the obligations of the lease will be carried out personally by the lessee throughout the whole term and that there is, therefore, no delectus personae. A lessee could therefore cede its rights under a lease without the consent of a landlord, unless the terms of the lease forbade it from doing so. It held that in this case there was nothing in the lease itself that indicated that ATS’s rights were not intended to be ceded. UJ had sought to meet that difficulty by adducing oral evidence, but such evidence was plainly inadmissible on the basis of the parole evidence rule. UJ’s introduction of that evidence, the SCA found, was done under the guise that it was adduced in respect of the context in which the lease had been concluded. However, properly construed, such evidence was introduced in order to add to, vary or contradict the general words of the lease. The parole evidence rule applied. The evidence should not have been allowed by the High Court. The SCA held that as the basis of UJ’s claim could not be supported, the High Court’s judgment could not be sustained.

UJ approached the CC seeking leave to appeal against the judgment of the SCA.

The CC in a unanimous judgment per Khampepe J (Mogoeng CJ, Jafta, Madlanga, Mhlantla, Theron Tshiqi JJ and Mathopo AJ concurring) granted leave to appeal and upheld the appeal.

The court considered the principles surrounding the concept of delectus personae, together with the general principles of contractual interpretation. The court confirmed that a court interpreting a contract has to, from the outset, consider the contract’s factual matrix, its purpose, the circumstances leading up to its conclusion, and the knowledge at the time of those who negotiated and produced the contract. Although this does not mean that extrinsic evidence is always admissible, there will be times where contextual evidence will be necessary for interpretive purposes. To the extent that the SCA purported to revert to a position where contextual evidence may be adduced only when a contract or its terms are ambiguous, it erred. Context must be considered when interpreting any contractual provision and it must be considered from the outset as part of the unitary exercise of interpretation. The position is no different when the interpretive exercise involves a delectus personae inquiry. Contextual evidence ought to have been admitted in this case to determine whether the rights in question were personal to ATS. Contextual evidence in that sense is not precluded by the parol evidence rule because it does not seek to add to, vary, modify or contradict the terms of the agreement. Rather, that evidence gave context and background to the lease agreement, which could be used by a court in its interpretation of that agreement. It assisted in seeking to ascertain whether the circumstances gave rise to an intention of the parties (at the time of the conclusion of the agreement) that the rights were personal to ATS.

The CC found that in adopting such an interpretive approach the High Court’s finding could not be faulted. The rights were clearly personal to ATS. Given the nature of the rights, ATS’s cession of those rights to Wamjay effectively rendered the contract inoperative. UJ could thus reasonably conclude that ATS had repudiated the lease agreement. UJ was accordingly entitled to cancel the agreement.

Merilyn Rowena Kader
Legal Editor at LexisNexis