No occupancy certificates

1 March 2018

In terms of section 14(4)(a)(i) of the National Building Regulations and Building Standards Act 103 of 1977 (“the Building Standards Act”), it is an offence for an owner of a building to occupy, use or permit occupation or use of such building unless a certificate of occupancy has been issued in terms of section 14(1)(a) in respect of such building.

There has been some uncertainty as to how this statutory prohibition impacted upon the validity and enforceability of lease agreements pertaining to premises in respect of which no occupancy certificates had been issued. Tenants argued that the absence of an occupancy certificate rendered lease agreements invalid and unenforceable, while landlords argued the opposite.

If the absence of an occupancy certificate rendered lease agreements invalid or unenforceable, it would mean that landlords would not be entitled to collect rent in respect of buildings without being in possession of valid occupancy certificates. This would mean that a claim for arrear rental could be defeated by an argument that it would be unlawful for the landlord to claim rental in respect of premises that were not lawfully occupiable.

Conversely, if the absence of an occupancy certificate did not affect the validity or enforceability of lease agreements, it would mean that landlords could claim and collect rental even where they may have failed to ensure that their buildings were lawfully occupiable.

In Berg River Municipality v Zelpy 2065 (Pty) Ltd (7715/12) [2013] ZAWCHC 53; 2013 (4) SA 154 (WCC) (8 April 2013), the municipality sought an interdict against the owner of a property who constructed a building without approved building plans and then made use of the building without an occupancy certificate. Rogers J granted the interdict and prohibited the owner from occupying or using the building without a valid occupancy certificate. Although the matter did not involve a dispute between a landlord and a tenant, it recognised the principle that a guest lodge owner may not allow the use (including short term rental) of a building without an occupancy certificate. By necessary implication, it meant that it would be unlawful for the lodge owner to generate income from such unlawful conduct.

The principle was again tested in the matter of Wierda Road West Properties (Pty) Ltd v SizweNtsalubaGobodo Inc (1156/2016) [2017] ZASCA 170 (1 December 2017). In that matter, the landlord claimed rental in excess of R7 million from the tenant. The tenant defended the claim and contended that the lease agreement was invalid and unenforceable, because there was no occupancy certificate in respect of the building. The High Court agreed with the tenant and dismissed the landlord’s claim, holding that it was unlawful for the landlord to allow occupation of a building without an occupancy certificate. The High Court was accordingly not prepared to sanction the landlord’s unlawful conduct by allowing it to recover rent from the tenant.

The landlord was not satisfied with the judgment of the High Court and took the matter on appeal. The Supreme Court of Appeal (“the SCA”) reversed the judgment on 1 December 2017 and found that the absence of an occupancy certificate did not invalidate the lease agreement, or render it unenforceable. In its judgment, the SCA found that the Building Standards Act contained criminal penalties that could be invoked against the landlord, but that the unlawfulness of the landlord’s conduct did not render the lease agreement invalid or unenforceable. The SCA accordingly allowed the landlord’s claim for rental despite the fact that the building was allowed to be occupied without an occupancy certificate.

The question that arises is whether the SCA, in allowing the landlord’s claim for arrear rental under those circumstances, sanctioned an illegality.

It will be recalled that the Constitutional Court previously delivered a landmark judgment in Cool Ideas 1186 CC v Hubbard & Another [2014] ZACC 16; 2014 (4) SA 474 (CC), in which it refused to enforce an arbitration award which allowed a property developer to claim payment under a building contract, on the basis that the developer was not registered as a homebuilder with the NHBRC. In refusing the developer’s claim, the Constitutional Court held that to allow the developer to obtain payment in violation of a statutory prohibition, would be to sanction an illegality, which the Constitutional Court was not prepared to do.

The landmark decision in the Hubbard case sent a very strong message that the Constitutional Court will not tolerate, sanction or condone acts that violate statutory prohibitions. The decision of the Constitutional Court was however not unanimous, with Froneman J, Cameron J, Dambuza AJ (as he then was) and Van der Westhuizen J having delivered a dissenting judgment. In addition, the hearing before the Constitutional Court in the Hubbard matter was preceded by hearings before the SCA and the High Court. The South Gauteng High Court (per Victor J) enforced the arbitration award which allowed the developer’s claim for payment under the building contract, whereas the SCA refused to enforce the arbitration award, on the basis that its enforcement would sanction an illegality.

The fact that the Constitutional Court was so divided on the issue in the Hubbard case, demonstrated that there was no uniform consensus as to the impact of an illegality upon the enforcement of a contractual claim. The SCA decision was also not unanimous, with Wallis JA delivering a dissenting judgment and finding that the refusal to enforce the arbitration award would give rise to an unjust result.

Interestingly, in the Wierda Road case, the SCA dealt with the Hubbard judgment but found that the facts and the law in the Wierda Road case were distinguishable from those in the Hubbard case. The SCA held that section 10(1)(b) of the Housing Consumers Protection Measures Act 95 of 1998 expressly provided that a homebuilder will not be entitled to remuneration under a building contract unless registered with the NHBRC, while the Building Standards Act made provision for criminal sanctions where a building was occupied without an occupancy certificate.

It remains to be seen whether the Wierda Road case can and will be taken on further appeal to the Constitutional Court and, if so, whether the Constitutional Court will agree that a landlord can claim rent in respect of a building that is being used in contravention of a statutory prohibition. It should be borne in mind that the reason why Hubbard’s case was heard by the Constitutional Court, was because it raised a constitutional issue, namely: the developer’s complaint the SCA’s refusal to allow the claim amounted to an arbitrary deprivation of property. It is difficult to conceive on what constitutional basis the Wierda Road case can be brought before the Constitutional Court.

But until the Constitutional Court has ruled on the issue (to the extent that it can rule on the issue on constitutional grounds), the current position is that a landlord’s claim for arrear rent cannot be defended merely with an argument that no occupancy certificate existed in respect of the leased building.

Freddie Terblanche
(Litigation Attorney, Hayes Incorporated, Cape Town)

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