Is A Term Undertaking To Agree Legally Enforceable?

In some agreements, most specifically lease agreement (as in a case in point) terms are usually included which state that specific terms shall be negotiated and agreed to between the parties (at a later stage). The question that the Supreme Court Appeal was faced with was whether the specific performance of such a term (to agree) is possible and if so, whether tacit terms flowing from there are similarly enforceable?

Shepherd Real Estate Investments (Pty) Ltd v Roux Le Roux Motors CC (1318/2018) [2019] ZASCA 178

The facts of the case and issues are briefly as follows:

The agreement was concluded on 7 November 2007 between Shepherd Industrial Commercial Real Estate CC (Shepherd Industrial) and the respondent, Roux Le Roux Motors CC, pursuant to which, the former let to the latter, a commercial property situated at the corner of Jan van Riebeek Drive and Wamkelekile Street, Paarl (the property) for the purpose of conducting the business of a petrol station. The commencement date of the lease was 1 December 2007. It was to endure for an initial term of five years, with a renewal period of '5 plus 5 years'. The rental at commencement was R 18 000 per month, escalating at 8 per cent per annum over the initial term.

Clause 6 of the lease agreement, headed 'Renewal Period', provided:

'The Tenant shall have the option to renew this Lease of the Premises for a further period as set out in the Terms of Lease subject to the following:

6.1 The strict adherence & compliance to all terms and conditions of this agreement by the Tenant and all moneys due being paid by him;...

6.3 The Tenant requesting such renewal in writing from the Landlord no later than 6 (Six) months prior to the expiry of the lease period. The Landlord will remind the Tenant to exercise the option 8 (Eight) months prior to the expiry of the lease period.

Such first renewal period shall be on terms and conditions in compliance with this agreement and the rental payable by the Tenant to the Landlord during the option period shall be increased on each anniversary of the commencement date by 8% of the monthly rental, which was payable during the year proceeding the option period.'

The respondent validly exercised the option in terms of clause 6 during the initial term and the agreement came to be renewed for 'the first renewal period', namely a second five-year term. The second five-year term was due to end on 30 November 2017. Prior thereto, on 11 October 2017, Shepherd Industrial ceded...

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