A purchase option does not run with the land
The Roman-Dutch maxim huur gaat voor koop — “hire goes before sale” — protects a lessee’s right of occupation. When leased property changes hands, the buyer is substituted ex lege for the original lessor and must honour the lease for the remaining term. But the substitution covers only the material terms of the lease relationship: the right to receive rent, the obligation to provide undisturbed occupation, the duration, and rights of renewal. It does not cover collateral rights unconnected with the lease — rights that relate to a competition for dominium (ownership) rather than to the lessee’s occupation as lessee.
An option to purchase is the paradigm collateral right. As the Appellate Division observed in Mignoel Properties (Pty) Ltd v Kneebone 1989 (4) SA 1042 (A), the buyer acquires all the rights of the original lessor except collateral rights unconnected with the lease. The Supreme Court of Appeal confirmed in Spearhead that an option to purchase does not relate to occupation but to a competition for ownership, and that the rationale of huur gaat voor koop cannot extend to obliging an innocent purchaser to transfer ownership at a price potentially below what he paid. The full treatment of what does and does not pass to a new owner is set out in the guide to huur gaat voor koop.
The practical consequence is significant for any lessee who was induced to enter a long lease by an embedded option to purchase. If the property is subsequently sold to a third party who had no knowledge of the option, the lessee cannot enforce the option against that buyer. The lessee retains a claim for damages against the original lessor for breach of the option, but the right to compel a transfer of ownership is gone. Lessees who regard the option as a key commercial inducement should ensure it is separately registered or that transfer is deferred until after the option is exercised.
Formalities for an embedded purchase option (Alienation of Land Act s 2(1))
An option to purchase land is itself a deed of alienation within the meaning of the Alienation of Land Act 68 of 1981. It is an agreement by which land is alienated — or the grantor undertakes to alienate land at the election of the grantee. It therefore falls squarely within the writing requirements of section 2(1) of the Act, which provide:
No alienation of land after the commencement of this section shall, subject to the provisions of section 28, be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority.
Note — The words 'subject to the provisions of section 28' preserve a limited exception for residential property sold on instalment — that exception has no bearing on commercial options to purchase embedded in long leases.
The consequences of failing to satisfy s 2(1) are absolute: the option is void, not merely voidable. An option to purchase verbally agreed between the parties, or recorded in a letter signed only by one party, or buried in a long lease deed that was signed by the lessor alone, is of no force or effect — even if both parties intended to be bound and even if the lease itself is perfectly valid.
The requirement that the deed be signed by the parties thereto is exacting. Both the lessor (as grantor of the option) and the lessee (as grantee and prospective buyer) must sign. A notarial lease executed in the usual form by both parties — and incorporating the option in the body of the deed — will ordinarily satisfy this requirement, because the parties sign the notarial deed as a whole. The difficulty arises where the option appears only in a covering commercial lease agreement that was not executed with the same formality as the registered deed, or where the option is contained in a side letter signed by the lessor only.
The court in Spearhead also noted that s 2(1) has its own bearing on options to purchase: whether a particular document satisfies its requirements is a threshold question that must be resolved before the huur gaat voor koop analysis even begins. A lessee who cannot establish a valid s 2(1) option has nothing to enforce, against the original lessor or against any successor in title.
A non-owner lessor
A question that sometimes arises in the context of long leases — including those that incorporate an option to purchase — is whether the validity of the lease or the option is affected by the fact that the lessor is not the registered owner of the leased property at the time of contracting. The Appellate Division settled this question for lease agreements in Frye’s (Pty) Ltd v Ries.
The principle from Frye’s is a useful practical backstop: a lessee who enters a long lease — or accepts an option to purchase — from a person who is not yet the registered owner (for example, where the lessor holds a deed of sale but transfer has not yet passed) does not thereby render either the lease or the option invalid. The obligations flow between the parties to the contract, and the question whether the lessor can ultimately deliver occupation or effect transfer is a separate matter of performance.
That said, for a lessee relying on an option to purchase from a non-owner lessor, the position at the moment of exercising the option is more precarious. The lessee’s right remains personal; it binds the lessor contractually but may not compel transfer unless the lessor has (by the time of exercise) acquired the property. Lessees in this position should seek legal advice on the interplay between the option, any existing mortgage bond, and the lessor’s own title chain before committing to a long-term arrangement with a non-owner landlord.