Written by Darren Swartz
It often happens where both parties to a contract incorrectly interpret a term, or err under a mistaken assumption, for example that a lease agreement is due to terminate earlier than what is stated therein. In this case, could one say that a ‘common mistake’ occurred, in that both the landlord and tenant laboured under the same incorrect perception of facts external to the minds of the parties? What happens when the landlord later realises, after the tenant has vacated the leased premises, that the lease agreement is actually meant to terminate not for several more months?
Does a common mistake render a lease agreement to be void? The SCA, in Van Reenen Steel (Pty) Ltd v Smith NO & another 2002 ( 4) SA 264 (SCA), and subsequently confirmed in Transnet Ltd v Rubenstein (238 of 2004) [2005] (SCA), held that where an assumption is common to both parties, it amounts to common mistake concerning a motive in concluding a contract: “A party cannot vitiate a contract based upon a mistaken motive relating to an existing fact, even if the motive is common, unless the contract is made dependent upon the motive, or if the requirements for a misrepresentation are present.”
What does the lease agreement say? If the lease agreement contain a non-variation clause, the aforesaid mistaken assumption may hold no weight. If the assumption that the agreement was due to terminate prematurely was expressed by the parties verbally, then it cannot be binding.
However, it is possible that the lease agreement was amended by the landlord and tenant when they expressed consensus regarding a termination date that was earlier than that stated in the lease agreement if it was expressed through email or some other type of electronic messaging. The legal validity of electronic messages was confirmed by the SCA in Spring Forest Trading 599 CC v Wilberry (Pty) Ltd t/a Ecowash and Another (2015). The court held that the use of an email and an ordinary signature when varying or cancelling a contract which contains a non-variation clause was legally valid.
The legal requirement for an agreement to be in writing, beyond a contract that must be reduced to writing, is met if it is a ‘data message’ (a message sent, received and stored by electronic means). Furthermore, for an amendment to be valid, the sender and recipient of the data message need to sign their names at the end of it. Thus, if the facts of the matter tell us that there were data messages, i.e., emails, between the landlord and tenant demonstrating that they both intended to amend the lease agreement to terminate early, and that both parties signed, we may be dealing with a valid amendment.
Moreover and in particular to the above scenario, both the landlord and tenant did not try to amend the lease agreement. They did not think the lease agreement needed amending; they were merely under a wrong impression. There was no consensus ad idem between the parties. To have consensus ad idem, both parties need to have the same understanding of the contract being formed. The landlord and tenant had assumed that the lease agreement ended sooner than it did; neither of them had the understanding that they were forming a new contract or making an amendment to the lease agreement – rather, they incorrectly thought they were following through with what was already stated in the lease agreement.
Accordingly, the status quo of the lease agreement should be restored as no legally binding agreement was entered into between the parties beyond the lease agreement. In the case that the tenant breaches the lease agreement and simply abandons the premises before the lease agreement is due to terminate, the landlord may rely on specific performance. The tenant may then be ordered to comply fully with the terms of the lease agreement, meaning the tenant may have to return to the leased premises and pay the rental for the entire lease period in the normal course thereof. Alternatively, a court may grant the landlord the right to cancel the lease agreement, and grant an order for damages in favour of the landlord. The damages may be equivalent to the rent due for the entire period of the lease agreement, subject to the landlord’s common law duty to mitigate its damages.
As is evident from the above, the tenant would remain bound to the lease agreement irrespective of whether both the landlord and tenant erred under an incorrect assumption that the lease was due to terminate earlier and the landlord in this instance, upon realisation of such incorrect assumption, has restored the status quo of the lease agreement.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).