Rental Advice: How Does 'Huur Gaat Voor Koop' Work?

Real estate investors who decide to sell a residential property where there is still a tenant in residence need to be aware of the “huur gaat voor koop” rule in SA law.

What it basically means, says Greg Harris, CEO of Chas Everitt Rental Properties, is that the lease takes precedence over the sale when a rental property changes hands.

The practical effects of this are that:

• The tenants who have a lease have a right to stay on in the property until the term of that lease expires – even if the property is transferred to the new owner before that date; and
• The seller needs to ensure that the buyer of the property is aware that it is currently tenanted and that the tenants cannot be asked to move out before the end of their lease.

“Of course this could be a problem for prospective buyers who are considering the property with the intention of living in it themselves, but buyers who are also investors might be glad to purchase a property that already has a reliable tenant in place and is thus already generating an income.”

From the tenants’ point of view, Harris says, a change of ownership might make them uncomfortable, especially if their lease does not have long to run and they are concerned that the new owner might raise the rent or otherwise change the terms of their tenancy.

“However, we strongly suggest that before they start making plans to move, they should check their lease to see what it says about the property being sold while they are still in occupation."

“In some cases, they may find that there is actually a provision that gives them the right to cancel the lease without incurring any penalty if the property is ever listed for sale. But in most cases there will not be any such provision and what that means, thanks to the standing ‘huur gaat voor koop’ rule, is that the lease will remain in effect as is under the new owner, and that both they and the new owner will be obliged to abide by its terms and conditions until it runs out."

“In other words, if they try to cancel their lease and move out before it expires, they could well have to pay a penalty of some kind.” Consequently, he says, tenants who find themselves in this situation would do far better to meet with the new owners or their managing agent and try to find out what their plans are. “They might be pleasantly surprised to find that the new owners would really like them to stay on and are quite amenable to renewing the lease very much on the current terms."

“Alternatively, if the new owners are planning a major change, the tenants will at least know what is coming and have sufficient time to find new accommodation, hand in their notice according to the lease and get their deposit back without any acrimony - and without incurring any penalty.”

Issued by Chas Everitt International
For more information contact
Tel: 011 801-2500
Or visit www.chaseveritt.co.z