Renewals count toward the long-lease threshold
The 10-year threshold that triggers the notarial registration regime is not measured on the initial term alone. Where the lessee holds an option to renew exercisable at its own election — at the lessee’s will — those renewal periods are aggregated with the first term when determining whether the lease is a “long lease” for statutory purposes.
The Subdivision of Agricultural Land Act 70 of 1970 makes this explicit in section 3(d), which prohibits long-term leases of agricultural land without ministerial consent and defines the prohibited category as a lease “which is renewable from time to time at the will of the lessee, whether by continuation of the original lease or by entry into a new lease, for an indefinite period or for periods which together with the first period of the lease total at least ten years.” The Formalities in Respect of Leases of Land Act 18 of 1969 uses materially the same structure for the general long-lease definition.
The practical consequence is straightforward but often overlooked by drafters: a lease of 9 years and 11 months with a single renewal option of the same duration, exercisable at the lessee’s election, is already a lease with a combined term of just under 20 years — squarely within the long-lease regime from the moment the contract is signed, not only if and when the option is exercised.
Drafters must therefore count the full potential term — initial period plus all renewal periods exercisable at the lessee’s will — before deciding whether notarial execution and registration are required. For agricultural land, ministerial consent under section 3(d) of the Subdivision of Agricultural Land Act is a separate, additional requirement explored in the guide to the section 3(d) consent trap.
An enforceable renewal clause needs a deadlock-breaker
The most common drafting failure in renewal clauses is to leave the renewal rental “to be agreed” between the parties when the option is exercised. South African law treats this as an agreement to agree — an undertaking to conclude a further contract in the future. Such an undertaking is unenforceable: it vests an absolute discretion in each party to agree or disagree and therefore creates no binding obligation capable of judicial or arbitral enforcement.
The vagueness analysis is separate from the question whether the parties can validly agree that a rental will be determined by a third party. As the Supreme Court of Appeal confirmed in Southernport, the parties may delegate the determination of the rental to an arbitrator (following Voet 19.2.7 and earlier authority). What they cannot do is leave the essential term open-ended without any mechanism for resolving deadlock. The line is between “to be agreed, and if not agreed, determined by an expert” (valid) and “to be agreed” alone (void).
The practical drafting rule that emerges from these cases is clear: a renewal-rental clause should always include (a) a benchmark or formula (market rental, CPI escalation, or the rental prevailing at expiry of the preceding term), and (b) an expert or arbitration mechanism expressly empowered to make a binding determination if the parties cannot agree. A general dispute-resolution clause that merely submits existing contractual disputes to arbitration is not sufficient — it must specifically extend to the determination of the renewal rental as an essential term.
Invoke the option in time, or the lease lapses
A valid renewal option — one with a determinable rental and a proper deadlock-breaker — still requires the lessee to take two steps within the prescribed time: (1) give the lessor written notice of the intention to renew, and (2) trigger the third-party determination mechanism if the parties cannot agree on the renewal rental before the existing lease expires. Failure to complete both steps before the lease term ends leaves the lessee without a renewal: the lease simply lapses by effluxion of time.
This is a strict rule. The courts have declined to relieve a lessee who gave timeous notice of renewal but then failed to invoke the determination mechanism before the lease expired, even where the lessee remained in occupation and continued to pay rent. Occupation after expiry may give rise to a monthly tenancy, but it does not constitute a valid exercise of the renewal option.
The practical lesson is that a lessee holding a renewal option must maintain a diary of two critical dates: the notice date (by which the option must be exercised in writing) and a determination trigger date (sufficiently in advance of the lease expiry to allow the expert or arbitrator process to run to conclusion before the term ends). Where no agreement is reached, the lessee should apply for expert or arbitral appointment without waiting for the lessor to cooperate. Reliance on the lessor to initiate the process — or on a court to imply an extension of the lease — is not legally sound.