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What is a pre-emptive right?

A pre-emptive right is a right in terms of which the holder of the right has a preference to purchase a particular property, if the grantor should wish to sell it. In terms of a pre-emptive, or also called, a right to “first refusal”, the grantor is not obliged to sell, but merely grants the grantee a first opportunity to purchase the property, should he/she or it decide to do so.

This right typically arises where “X” leases a property to “Y” on the understanding that if “X” should ever decide to sell the property, “Y” will have a pre-emptive right to purchase same. In essence this mean that “X” must offer the property to “Y” before he can sell it to a third-party outsider.

 

In the recent case of Plattekloof RMS Boerdery (Pty) Ltd v Dahlia Investment Holdings (Pty) Ltd and Another (7836/2020) [2021] ZAWCHC the court had to decide on the validity of the lessee’s pre-emptive right it held in terms of a lease agreement with the lessor. The facts of the matter in short were as follow:

 

Dahlia Investments Holdings (Pty) Ltd (Dahlia), the owner of certain farmland consisting of eight separate portions, leased two portions thereof to Plattekloof RMS Boerdery (Pty) Ltd (Applicant). Clause 10 of the lease agreement granted the Applicant a right of pre-emption in respect of the two portions of the farmland so leased (pre-emption property).

 

The relevant provisions of clause 10 read as follows –

 

“10.1 Provided that the Lessee has complied with all of its obligations under this agreement, the lessee shall have the right of first refusal to purchase the Premises on terms and conditions the same as nor (sic) no less favourable than those offered by a bona fide third party to the Lessor and the Lessor shall deliver written notice to the Lessee specifying the terms and conditions of such offer, and the Lessee shall have 14 (fourteen) days thereafter in which to accept or reject the offer by written notice, failing which the Lessor shall be entitled… to dispose of the property…”

 

Dahlia entered into an Agreement of Sale in April 2020 in terms of which it sold all eight portions, including the portions to which the Applicant held a pre-emptive right, to Swellendam Plase (Pty) Ltd (Swellendam) for an all-inclusive amount of R 17 000 000. When the applicant became aware of the imminent sale, it proceeded to enforce its pre-emptive right.

 

The applicant requested an order directing Dahlia to comply with the terms of the lease and first offer the leased property to the Applicant for an amount of R 4 000 000 and further on the same terms and conditions as the Sale Agreement it entered into with Swellendam.

 

Although the applicant’s application was dismissed by the court due to the fact that it was not convinced that the leased property in question was only worth R 4 000 000, the court did however held that the pre-emptive right contained in clause 10 of the lease were, in fact, triggered by the Sale Agreement and that Dahlia was obliged to give the Applicant written notice specifying the terms and conditions of the Sale Agreement, in terms of which the Applicant could then decide whether it wanted to purchase the pre-emption property.

 

It is positive to note that the court still gave prevalence to the pre-emptive right in terms of the lease agreement, and if enforced correctly and in line with the pre-emptive clause, a grantee will still enjoy protection of its pre-emptive right.

 

As a concluding remark, please note that the granting of a pre-emptive right does not need to be in writing and signed by both parties to be binding. It can be enforced against a property owner even if it was granted verbally . If a grantee wishes to gain more security though, it can register its right of first refusal against the title deed of a property.