Friday, March 16, 2012

Constitutional Court Ruling

There is a difficult balance which needs to be struck between balancing the rights of the tenant to adequate housing and the landlord’s right to market related rentals including his right to a return on his investment.

The Constitutional Court recently handed down a judgement in a case concerning evictions that arose from a rental dispute between tenants of a Johannesburg apartment building and their landlord.

The landlord, who specialises in buying neglected buildings, had bought and refurbished a tenanted building. After completing the refurbishment the landlord wished to increase the rentals to market related prices, this would have the effect of 200 – 300% increases for the tenants.

The tenants had all originally signed fixed term agreements including escalation clauses of 10% per annum and which were now on a month-to-month basis. The tenants argued the proposed escalation was not in line with their escalation clauses. The landlord invoked their right to cancel as the leases were on a month-to-month basis by giving the necessary notice to the tenants; but invited the tenants to sign new leases at the new proposed increased rental.

The tenants sought relief at the Gauteng Rental Housing Tribunal (Tribunal) arguing unfair practice by the landlord. Mediation was unsuccessfully and the Tribunal set down a date for arbitration. Before arbitration could take place, the landlord brought a case of eviction against the tenants at the High Court, claiming cancellation had been given to the tenants who were now illegal occupiers. The High Court ruled in favour of the landlord the eviction order was granted. The tenants appealed but the Supreme Court of Appeal (SCA) dismissed their appeal.

The tenants then approached the Constitutional Court, their defence had not changed; it was an unfair practice to cancel the lease simply to increase the rent.

The majority of the Constitutional Court found that the critical question was whether the landlord was entitled to exercise the bare power of termination in the leases for the sole purpose of securing higher rentals. The Court found that the High Court and the SCA failed to give adequate weight to the Rental Housing Act (Act) and that the landlord’s conduct may have amounted to an “unfair practice”. The Tribunal is empowered to determine whether a landlord committed an “unfair practice”, and it might accordingly have rule in the tenant’s favour.

The Constitutional Court also noted that the Act provides that an unfair practice ruling “may include a determination regarding the amount of rental payable by a tenant”. It “must be made in a manner that is just and equitable to both the tenant and the landlord” taking into account:
• Prevailing economic conditions of supply and demand
• The investors need for a realistic return on investment
• Incentives, mechanisms, norms and standards

Effectively the Constitutional Court has referred either party back to the Tribunal before the 2 May 2012, with further leave to appeal any Tribunal ruling back at the Constitutional Court within 15 days of the Tribunals finding. The next chapter continues and I am sure whichever way the Tribunal finds this case will find itself back at the Constitutional Court.

Click here to read the summary

Click here to read the full judgement

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