Is a term undertaking to agree legally enforceable?
06 Feb 2020
In some agreements, most specifically lease agreement (as a case in point) terms are usually included which state that specific terms shall be negotiated and agreed to between the parties (at a later stage). The question that the Supreme Court Appeal was faced with was whether the specific performance of such a term (to agree) is possible and if so, whether tacit terms flowing from there are similarly enforceable?
Shepherd Real Estate Investments (Pty) Ltd v Roux Le Roux Motors CC (1318/2018)  ZASCA 178
The facts of the case and issues are briefly as follows:
The agreement was concluded on 7 November 2007 between Shepherd Industrial Commercial Real Estate CC (Shepherd Industrial) and the respondent, Roux Le Roux Motors CC, pursuant to which, the former let to the latter, a commercial property situated at the corner of Jan van Riebeek Drive and Wamkelekile Street, Paarl (the property) for the purpose of conducting the business of a petrol station. The commencement date of the lease was 1 December 2007. It was to endure for an initial term of five years, with a renewal period of ‘5 plus 5 years’. The rental at commencement was R 18 000 per month, escalating at 8 per cent per annum over the initial term.
Clause 6 of the lease agreement, headed ‘Renewal Period’, provided:
‘The Tenant shall have the option to renew this Lease of the Premises for a further period as set out in the Terms of Lease subject to the following:
6.1 The strict adherence & compliance to all terms and conditions of this agreement by the Tenant and all moneys due being paid by him;…
6.3 The Tenant requesting such renewal in writing from the Landlord no later than 6 (Six) months prior to the expiry of the lease period. The Landlord will remind the Tenant to exercise the option 8 (Eight) months prior to the expiry of the lease period.
Such first renewal period shall be on terms and conditions in compliance with this agreement and the rental payable by the Tenant to the Landlord during the option period shall be increased on each anniversary of the commencement date by 8% of the monthly rental, which was payable during the year proceeding the option period.’
The respondent validly exercised the option in terms of clause 6 during the initial term and the agreement came to be renewed for ‘the first renewal period’, namely a second five-year term. The second five-year term was due to end on 30 November 2017. Prior thereto, on 11 October 2017, Shepherd Industrial ceded its rights and delegated its obligations under the agreement to the appellant, Shepherd Real Estate Investments (Pty) Ltd.
When the respondent attempted to exercise the second option to renew for a third five-year term, the appellant adopted the stance that it was amenable to the proposed renewal at an agreed rental of R150 000 per month, plus VAT. In response, the respondent contended that a fair rental was an 8 per cent per annum escalation on the then prevailing rental. That, however, was not acceptable to the appellant. Nor was the suggestion that the dispute be referred to arbitration in terms of clause 34.
Agreement to Agree
In considering the position the court considered Walford v Miles, the House of Lords affirmed the correctness of Courtney & Fairbairn. Lord Ackner took the view that:
‘The reason why an agreement to negotiate, like an agreement to agree, is unenforceable is simply because it lacks the necessary certainty.’
Moreover, according to the Court, an arbitrator would have been ill-equipped to fill in the blanks or resolve the questions that the parties could not. An arbitrator could not complete or enforce the agreement as it were. Be that as it may, the arbitration clause did not survive the agreement. Thus, once the agreement terminated by effluxion of time, the respondent could no longer invoke the arbitration clause.
The Tacit Term
So, in regards to the tacit term, as it was put it in Robin v Guarantee Life Assurance Ltd:
‘A tacit term cannot be imported into a contract in respect of any matter to which the parties have applied their minds and for which they have made express provision in the agreement.
“A term is sought to be implied [a tacit term in the terminology of Alfred McAlpine in an agreement for the very reason that the parties failed to agree expressly thereon. Where the parties have expressly agreed upon a term and given expression to that agreement in the written contract in unambiguous terms, no reference can be had to surrounding circumstances in order to subvert the meaning to be derived from a consideration of the language of the agreement only…”’
The tacit term therefore cannot alter the agreement, it must align thereto.
A term to agree cannot be enforced by a court in an order for specific performance, and when an agreement has lapsed, dispute resolution clauses do not survive termination. Tacit terms are not included in agreements because of their inherent link to express terms and therefore, need not be included. Tacit terms are not able to alter the agreement. Explicit agreement and recording same accordingly is key in avoiding lengthy and costly court battles, contact an expert at SchoemanLaw for assistance today.
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