PRL5901 READER

DRAFTING OF
COMMERCIAL CONTRACTS

Open Rubric
 PRL5901 READER
DRAFTING OF COMMERCIAL CONTRACTS

Table of Contents
GENERAL INTRODUCTION ........................................................................................................3
SECTION I .......................................................................................................................................4
A FORMAT AND STRUCTURE OF A CONTRACT ...............................................................4
B PRE-CONTRACTUAL DOCUMENTS AND SO-CALLED CONTRACTS ......................13
C REQUIREMENTS FOR A VALID AND BINDING CONTRACT .....................................15
D CONTRACT DRAFTING TECHNIQUES ...........................................................................18
E BASIC ISSUES AND CLAUSES AFFECTING ALL CONTRACTS .................................28
F INTERPRETATION OF CONTRACTS ...............................................................................36
SECTION II – ................................................................................................................................37
CONTRACT OF SALE .................................................................................................................37
SECTION III – ...............................................................................................................................99
CONTRACTS OF LETTING AND HIRING OF PROPERTY AND WORK .............................99
A Drafting a lease contract .........................................................................................................99
B DRAFTING A CONTRACT OF LETTING AND HIRING OF WORK ............................140
ADDENDUM A ...........................................................................................................................173
STATUTORY REGULATIONS REGARDING CERTAIN CONTRACTS OF SALE AND
LEASE .........................................................................................................................................173

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GENERAL INTRODUCTION

1.1 DRAFTING OF CONTRACTS AND THE CONSTITUTION

Before starting your studies for this module it is necessary to draw your attention
to the effect the Constitution has had on South African law and in this instance in
particular the law of contract which forms the theoretical background to drafting of
contracts. In an important contract law case Brisley v Drotsky 2002 (4) SA 1 (SCA)
at page 77 paragraph 1 justice Cameron very clearly indicated how the
Constitution affects our law. “All law now enforced in South Africa and applied by
the courts derives its force from the Constitution. All law is therefore subject to
constitutional control, and all law inconsistent with the Constitution is invalid. That
includes the common law of contract, which is subject to the supreme law of the
Constitution. The Bill of Rights applies to all law, and binds the judiciary no less
than the legislature, the executive and all organs of state. In addition, the
Constitution requires the courts, when developing the common law of contract, to
promote the spirit, purport and objects of the Bill of Rights.”

The spirit, purport and objects of the Bill of Rights refer to the underlying value
system of the Constitution. The founding values of the Constitution are set out in
section 1 of the Constitution and include the values of human dignity, the
achievement of equality and freedom. The Constitutional Court has also confirmed
that the African value of ubuntu is an underlying constitutional value (S v
Makwanyane and another 1995 3 SA 391 (CC) paras 237 & 302; Port Elizabeth
Municipality v Various Occupiers 2005 1 SA 217 (CC) para 37).

The inclusion of these values means that the Constitution establishes “an objective
normative value system” which guides the introduction of new laws and the
application and development of existing laws (Carmichele v Minister of Safety and
Security and another (Centre for Applied Legal Studies intervening) 2001 4 SA 938
(CC) para 54). Accordingly, the common law of contract, sale and lease is subject
to the Constitution and its application and development is informed by these
underlying values.

You should therefore keep in mind when you draft a contract that you use the
principles of contract law within this constitutional framework.

1.2 Why draft a contract

The only contract that has to be reduced to writing in order to be valid and
enforceable is a contract of sale of land. All other contracts may be concluded
orally. However, there are enormous risks involved when concluding a contract,
for example a lease, orally. In most cases it is prudent to reduce a contract to
writing.

READ Sharrock Business Transactions Law 9th edition Ch 6 Formailties 119-136; and Ch
10 Interpretation of written contracts 197-209.

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SECTION I
A FORMAT AND STRUCTURE OF A CONTRACT

1.1 INTRODUCTION

There is no legal requirement to draft contracts in the way set out in this course.
These are only guidelines which are advisable to follow. It is necessary to give a
clear, logical framework to your document.

1.2 Basic elements of any contract

The main elements of most commercial contracts are the following:

1.2.1 Names and addresses

The full names and addresses of the parties should be stated at the head of the
agreement. Numbering is useful to distinguish the parties from one another. The
parties can be numbered if there are more than two parties. It is also possible to
use phrases such as ‘on the one part’ and ‘on the other part’ to make a distinction.
If the parties share any obligations it should be made clear whether they are jointly
or severally liable or both jointly and severally liable, for performance of those
obligations. In a multi-party agreement, two or more parties may have obligations
to another party. An example is a research collaboration agreement between an
industrial company and a university, where the university’s technology transfer
company is made a party and receives royalties paid by the industrial company
for use of the university’s intellectual property.

The full names of the parties should be used as well as any part of name which
could indicate legal status such as (Pty) Ltd. To avoid uncertainty the company’s
registration number should also noted. This number remains constant even if the
company name may change. In the event of a natural person, that person's
identity number should be entered in between brackets after his/her name. The
contracting party is identified with certainty in this way. In international contracts
the country must be noted.

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MEMORANDUM OF AGREEMENT

Entered into by and between

Forrester’s (Pty) Ltd, a public company established and registered in terms of the
Companies Act no 61 of 1973 with registration no ..................................................
(hereinafter referred to as FC)

whose address is the following:

0000 Park Str

231 Meerlust Rd
Willow Glen
0040

herein represented by .................................................................. in his capacity

as Director of the FC and duly authorised thereto on the one side

AND

.................................................................................................................................
(hereinafter referred to as the CLIENT

Whose address is the following:

.................................................................................................................................
.................................................................................................................................
.................................................................................................................................

herein represented by ..........................................................................................

in his capacity as ....................................................... and duly authorised thereto

Addresses

Where the party is a company the principal place of business is used. Where an
individual is a party his/her home address is stated. The reason for stating the
parties’ addresses is so that notices may be served under the agreement. A
notices clause is also usually included in the agreement and will cross reference
to the addresses set out at the head of the agreement.

The parties hereto choose for all purposes and in regard to this contract their
respective addresses as domicilium citandi et executandi.

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1.2.2 Recitals or preambles

Recitals can be helpful to explain the background to the agreement but they are
not compulsory. If they are included they should not include any obligations on
the parties under the agreement; these should be kept in the operative provisions.

EXAMPLE:

WHEREAS:

X owns all right, title and interest in the Plant Breeder’s Right.

AND WHEREAS:

Y wishes to acquire an exclusive, worldwide licence under the Plant Breeders

Right and X is willing to grant such a licence to Y in accordance with the provisions
of this Agreement.

Recitals or preambles are normally used to explain the background to the

agreement. It is poor drafting practice to include any obligation on the parties in
the recitals, not least because the obligation may be held not to be legally binding
by the court (although sometimes obligations set out in recitals have been held to
be legally binding). There is long and established case authority on the legal status
of wording which appears in recitals. It should be emphasised that recitals are not
obligatory, and should only be included if they will help to explain the background
to the agreement. In some shorter agreements, it may be appropriate to omit
recitals altogether. Sometimes, recitals use wording such as 'X has agreed to
grant Y a licence under the Plant Breeders’ Rights Act'. This is not
recommended, unless what is actually meant is that the present agreement is
made pursuant to another agreement. If this is the case it should be specifically
stated, with the earlier agreement including its date, being identified. If, however,
all that is meant is that X and Y are willing to sign the present agreement, it is
confusing to suggest that they have already reached an agreement; and this may
lead to one party arguing that other terms, not stated in the present agreement
govern the contract between them.

Some published precedents do not clearly distinguish between recitals and

operative provisions. Instead they use a format where recitals are clause 1,
definitions clause 2, and so on. This practice is not recommended. Instead, recitals
should be clearly labelled as such and should be followed by some wording which
makes it clear that they have come to an end and that operative provisions are
about to begin. The conventional way of labelling the recitals is to begin them with
an introductory word such as 'WHEREAS' or 'RECITALS'. Where there is more
than one recital in an agreement each recital is started with a separate paragraph,
labelled Whereas; And Whereas etc

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1.2.3 Linking wording

Appropriate wording should appear between the recitals and the operative
provisions, for example:

'IT IS AGREED AS FOLLOWS'

The main part of the agreement consists of the operative provisions - the
obligations on the parties and related provisions. The detailed content of those
provisions, and how they might be drafted, are subjects which are discussed later.
The operative provisions are conventionally introduced with wording such as the
following: (Where the agreement includes recitals, one of the following phrases
might be used)

(i) NOW, THEREFORE, IT IS HEREBY AGREED as follows:

(ii) IT IS AGREED AS FOLLOWS:

As stated, recitals are not compulsory, and in simple agreements may be thought
unnecessary. If no recitals are included, the following phrase is sometimes used:

WHEREBY IT IS AGREED as follows:

The differences between these versions are stylistic. Use of the word 'whereby'
assumes that all of the introductory wording up to start of clause I consists of a
single sentence.

1.2.4 Date of agreement

The agreement should be dated with the date on which it was signed. This can
be done either at the beginning of the agreement, in which case, if the agreement
was signed on different dates, the date on which the last party signed should be
entered.

EXAMPLES:

(i) THIS AGREEMENT is made on ............................ 200……... BETWEEN:

(ii) THIS AGREEMENT is made the …... day of .........., 200….... BETWEEN:

(iii) This Agreement dated ......................................................... is between:

(iv) This Agreement dated as of............................... is made, between and

among: (this is an example from an American contract)

(v) THIS AGREEMENT is made on ............................ and takes effect from

.........................................................(‘Commencement Date') BETWEEN:

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Set out above are five examples of wording which typically appears at the
beginning of a commercial contract.

Another way of dating the agreement can be found at the end.

THUS DONE AND SIGNED at ................................. on the ……….......... day of

……………….................. 2000 in the presence of the undersigned witnesses:

The date of the agreement is the date on which it is executed by all of the parties
to the agreement. If they sign on different dates, it is the date when the last party
signs.

There are several reasons why contracts are dated. One practical reason is to be
able to refer to the agreement at a later date (eg 'the agreement between X and
Y dated Z'). Often an agreement will include provisions which take effect by
reference to the date of the agreement (eg where royalties are to be paid on
each anniversary of the date of the licence contract). Where there are several
contracts concerned with the same subject matter (as in the case of
conveyancing agreements regarding the same property) it may be essential to
know the order in which they were made.

If the anticipated date of signing is typed in prior to signature, there is a risk that
the parties may sign on a different date. It is bad drafting practice to misstate
the date of execution, and it may amount to a crime.

The date of the agreement should not be confused with the date on which the
agreement is stated to take effect. This is usually called a commencement date.
These two dates should be clearly distinguished from each other if different.
1.2.5 Commencement date

If a different commencement date is required, the agreement should be drafted

to refer to a commencement date as well as the date of the agreement; the two
dates should not be confused.

EXAMPLES

Effective date

This agreement will commence on the date of last signature hereof by the parties.

or

This agreement will commence on the first day of January 2002.

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1.2.6 Definitions

As a general principle, words should be used consistently throughout an

agreement. Definitions of words are useful for a number of reasons, including to
avoid repeating a long, list of words, and to avoid ambiguity as to what is, or is
not, meant when a particular word is used. This is particularly important where a
word is to be used in a sense other than its normal dictionary meaning, or where
there are several dictionary meanings. Definitions clauses should not include any
obligations on the parties.

(a) Location of definitions

It is conventional to place the definitions at the beginning of the operative

provisions, usually as clause 1. The courts will read agreements 'as a whole';
therefore, strictly speaking, the definitions do not need to appear first. Some
clients detest wading through pages of definitions before they reach what is
considered to be the 'meat' of the agreement; In such situations there is a
temptation to place the definitions at the end of the agreement or in a schedule.
Although this is occasionally encountered (mostly with North American
agreements), it is not yet common in South African agreements.

(b) Introductory wording

Definitions clauses commonly begin with words such as the following:

(i) In this Agreement the following words shall have the following meanings:

(ii) In this Agreement the following words and phrases shall have the
meanings set out below, unless the context requires otherwise:

(c) Layout

The layout of definitions clauses is a matter of personal preference. An important

objective is to make it easy to find and understand a definition.
(d) Use of capital letters

It is usual to capitalise the first letter of a defined word, both in the definitions
clause and whenever the word appears in the agreement. This indicates the fact
that it is a defined term. It is becoming increasingly common to put defined terms
in bold text throughout the agreement.

(e) Order of definitions

The modern drafting practice is to place the definitions in alphabetical order. This
make it easier to find the definition.

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An example of a definition is the following:

'Software' means the source code and executable object code for all computer
programs, subroutines, diagnostic routines, control software or special software to
be delivered by the supplier to the client in terms of this agreement, with exclusion
of the licensed software.
1.2.7 Conditions precedent and subsequent

Conditions precedent (or pre-conditions) and conditions subsequent have both

technical aspects (in that they affect the coming into existence of the agreement
or its provisions, or its continuation in force) and commercial aspects. The
following paragraphs describe the different types of conditions precedent and
subsequent and consider where they should appear in the agreement. Examples
of conditions precedent and conditions subsequent follow. In the first example the
effect of the condition is that the entire agreement does not come into effect, in
the second example only certain provisions of the agreement do not come into
effect. The third example is a condition subsequent which in effect is a termination
clause:

(i) This Agreement shall not come into effect until X shall have obtained
Planning Consent for the Property. If X fails to obtain Planning Consent for
the Property on or before 30 June 2000, this Agreement shall not come
into effect and neither party shall have any obligations to the other
hereunder.

(ii) The obligations on X under clause 4 of this Agreement shall not come
into effect until the day after the date on which X receives formal
notification from the Patent Office that the Patent has been granted.

(iii) if Planning Consent is refused, or if X fails to obtain Planning Consent for

the Property by 30 June 2000:

(a) this Agreement shall terminate;

(b) any rights or obligations under this Agreement which have accrued prior
to such date of termination shall remain effective; and

(c) clauses 1, 3 and 6 of this Agreement shall survive termination.

As has already been mentioned, conditions precedent could logically appear at

the beginning of the agreement or as part of a clause dealing with all aspects of
commencement and termination of the contract.

Conditions subsequent are more likely to appear in, or near, a termination clause.

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The main problems in the drafting of such clauses are the following:

(i) the clause fails to state clearly whether it is the entire agreement or only
certain clauses which do not come into effect or, in the case of conditions
subsequent cease to have effect if the condition is not met;

(ii) no time limit is put on the condition being met which can lead to uncertainty;

(iii) the condition is so vague that it is void for uncertainty;

(iv) it is unclear whether either party has any obligation to try to ensure that
the condition is met and if so how extensive that obligation is.

1.2.8 Sequence of clauses

It is recommended that the main commercial issues be dealt with in the early
clauses of the agreement. For example, in a contract to supply services, clause 1
could set out the definitions while the work to be done could be described in clause
2 and clause 3 could set out the payment provisions. After these clauses, the
clauses containing the provisions covering warranties, confidentiality, liability and
termination follow. Commencement provisions may be placed together with the
termination provision. At the end of the agreement one usually finds the
miscellaneous clauses such as the applicable law and jurisdiction notices,
force majeure and entire contract clauses.
1.2.9 Schedules

Sometimes part of a contract is set out in a Schedule. For example, in a research

contract the research to be performed may be set out in a schedule. In these
instances it is vital that the Schedule be very clear and detailed as your contract
is only as good as your Schedule. The obligations of the parties are usually
described in detail in the schedule. If this is not properly drafted and a party fail to
fulfil all his/her obligations, there is a chance that technically no breach will have
been committed. Schedules are placed after the signatures. It is important to
state in the operative provisions that the schedules form part of the agreement.

Schedules are numbered Schedule 1 Schedule 2 etcetera.

Example: The Institution undertakes to execute the tests as set out in Annexure
A hereto and duly initialed and signed by both parties for Chemical
Incorporated.

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1.2.10 Signatures

Signature blocks for both the parties and witnesses should be used.

EXAMPLE:

THUS DONE AND SIGNED at ........................... on the ........................... day of

............................... 200………... in the presence of the undersigned witnesses:

WITNESSES:

1 ..........................................................
on behalf of the XXX

2 ..........................................................

Signed at .............................................. on the .......................................... day of

.............................. 200………..... in the presence of the undersigned witnesses:

WITNESSES:

1 ...........................................................
on behalf of the client

2 ...........................................................

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B PRE-CONTRACTUAL DOCUMENTS AND SO-CALLED
CONTRACTS

Sometimes commercial parties wish to sign a document which is not described

as a contract or agreement, but instead is called a 'Heads of Agreement', 'Letter
of Intent' or other name. The terms most commonly in use are the following: Heads
of Agreement; Heads of Terms; Letter of Intent; Letter of Agreement or Letter
Agreement, Memorandum of Understanding.

Before discussing these terms, it may be useful to begin by discussing the

terms 'contract' and 'agreement. In common legal usage these terms mean the
same thing. Most written contracts are described within their text as agreements.
Occasionally different terms are used: for example intellectual property licences
sometimes are described as 'this Licence'. The expression 'Memorandum of
Agreement' is used in written agreements.

All of these terms, contract, agreement and memorandum of agreement, are

generally used to refer to a legally-binding agreement.

The expression 'Heads of Agreement' is generally used to describe the important

commercial terms which parties negotiate, sometimes (more often than not)
without the involvement of their lawyers. Ideally, once the Heads of Agreement
have been signed or initialed, the parties should negotiate a fuller, more detailed
agreement incorporating the provisions of the Heads of Agreement. The
expressions Heads of Terms are often used in a similar way. Sometimes these
documents are intended to be legally binding, sometimes they are not.
Sometimes it is anticipated that a more detailed agreement will be negotiated
after the Heads of Agreement have been signed, but it is unclear what is to
happen if the parties fail to reach agreement on the more detailed terms. The
question which then arises is whether the Heads take effect as a final agreement
or not? The only way to be certain of these matters is to state explicitly in the
Heads of Agreement what their status is and what is to happen if a more detailed
agreement cannot be reached.

The expression 'Letter of Intent', or sometimes 'comfort letter', is typically used

in negotiations where a party wishes to give reassurance on some point to the
other party, but does not wish to be legally bound by the statement he is giving.
For example, a letter of intent might state that a party intends to continue
commercial negotiations with the other party. Another common example is
where a contract is to be made by a company which is a subsidiary of another
company and the parent company writes to the other contracting party to give
reassurance that it intends to continue financing the activities of the subsidiary.
In the latter case, a letter of intent can be distinguished from a formal parent
company guarantee. Again, it is recommended that the status of any letter of
intent be stated specifically in its text, to avoid ambiguity.

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Lastly, the expression Letter of Agreement usually means simply an agreement
which is drafted in the form of a letter and which becomes effective when the
recipient of the letter countersigns the letter and returns it to the sender. These
letters are used where the parties wish to adopt a friendly so called cooperative
format. Caution is, however, advised and the status of the document should be
specifically stated in the text of the letter.
The following literature which you will find in your e-reserves must be studied in this
regard:

1 O’Brein P “Letters of intent and demand guarantees” ABLU ‘93 134-180

(47 pages)

2 Fisher J S “Comfort letters and their legal status” 1988 5 JIBL 215-221 (7
pages)

3 Wood PR “The uncomfortable letter of comfort” 1988 International

Financial Law Review 21-22 (2 pages)

4 Faul W “Letters of Comfort” 1990 TSAR 73-95 (7 pages)

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C REQUIREMENTS FOR A VALID AND BINDING CONTRACT

At this stage of the course you are expected to know the general principles of the
law of contract thoroughly. These basic principles are not going to be dealt with in
detail again. However, some of the contract law issues which the contract drafter
will need to take account of when preparing or negotiating an agreement will be
pointed out.

1 Capacity to enter into the contract

Contracts with minors, a married person, an insolvent, a company, a close

corporation and a partnership are dealt with in detail in the prescribed e-reserve
work by:

READ: R Sharrock Business Transactions Law 9 th edition chapter 2.

2 Null and void

(a) Intention to create legal relations

The intention to create legal obligations will normally be present in the case of
a convention- ally-drafted written agreement or an orally concluded contract.
Where Heads of Agreement or some other, less formal, type of document is
prepared, the position may be less certain. See the discussion of pre-contractual
documents. If in doubt, or to prevent uncertainty, state specifically in the document
that it is intended to be legally binding.

(b) Offer and acceptance

Normally a contract will not come into existence until one party has offered to enter
into a contract on specified terms and the other party has accepted that offer, by
words or conduct. A qualified acceptance, eg on slightly different terms to those
offered, will generally be a counter offer, which in turn will need to be accepted
before the contract will come into existence. These problems are usually avoided
where both parties sign a written agreement.

(c) Vagueness: complete agreement and certainty of terms

Should the important terms not have been agreed to (eg the price to be paid,
the premises to be leased), the agreement may not be legally enforceable. The
elements that have to be agreed upon between the parties are the essential
elements or the essentialia of the contract. The essentialia of a contract are those
elements which have to be present in a particular contract in order for that
contract to qualify as a particular type of contract eg sale, lease, or letting and hiring
of work. These elements will be referred to pertinently under the discussion
dealing with each specific contract. Sometimes contracts include provisions
stating that certain terms will be agreed upon at a later date by the parties. These
are ‘agreements to agree' and will not be enforceable, unless there is a
mechanism for determining what those terms will be if the parties cannot agree,

15
eg that the terms will be settled by a third party. The Courts will not make a contract
for the parties. If the contract includes an agreement to agree this may invalidate
either the clause in which such a provision appears, or in the worst case, it could
make the entire agreement void for vagueness and unenforceable.

(d) Illegality of subject matter

A few examples of the many categories of illegal agreements which are not
enforceable as a matter of public policy, include agreements to commit a criminal
act; agreements to oust the jurisdiction of the Courts and champerty agreements
(ie selling the right to litigate a personal claim).

(e) Mistake

Occasionally, contracts are held to be void because of 'mistake', for example if the
parties entered into the contract on the basis of an assumption which turns out not
to be true (common mistake) or where there is a mistake as to the identity of the
subject matter of the contract (error in corpore). There are rules as to when a
contract will be void for mistake.
3 Voidable - contract is terminated for defective consent -
misrepresentation, duress, undue influence, commercial bribery

The following are elements, which could make a contract or its terms
unenforceable. These elements will not prevent the contract from coming into
existence (unlike the items in the previous list), but may make the contract, or some
of its terms, legally unenforceable.

4 Penalty clauses

It is often advantageous to include in a contract a penalty clause. This is a term

which is contingent on breach of contract and serves to prevent breach of
contract. It operates in terrorem of a contractant who contemplates breach or is
a pre-estimate of damages in respect of breach of contract. The penalty clause
therefore only comes into operation where there was a breach of contract. Your
client will therefore be able to enforce the penalty where he rejects the
performance and cancels the contract; or where he rejects performance and
upholds the contract or lastly where he retains performance but the penalty is
formulated in such a way that he may enforce it without rejecting performance as
will be the case where the co-contractant has agreed to pay a certain amount in
respect of each day he delays performance. Keep in mind that a contractant may
not claim damages instead of a penalty unless the contract expressly provides this.

It is advisable, at the time of drafting a penalty clause, to obtain evidence from

the commercial client as to how he has made the ‘genuine pre-estimate', and keep
this evidence on file in case of dispute.

5 Frustration - Distinguish between supervening impossibility and

frustration where purpose or aim of contract is frustrated but
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 performance is still possible

If the agreement cannot be performed for reasons outside the control of the
parties, it may be frustrated, in which case the agreement will come to an end. In
South African law performance may be suspended for the duration of the
frustrating events, in terms of the rules of force majeure. Consequently, force
majeure must specifically be excluded by the drafter, should the client wish the
contract to continue in this type of situation.

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D CONTRACT DRAFTING TECHNIQUES

1 Introduction

This section deals with some techniques for the drafting of contracts. Once again,
these techniques are not formal rules which must always be followed, they are
only suggestions to help the draftsman/woman to achieve his/her objectives.

The drafting techniques discussed in this section include the following:

1 use simple, direct language;

2 use defined terms where needed;
3 use correct word order;
4 make clear who is under an obligation to perform and to whom;
5 use short sentences;
6 sequence clauses in a logical order
7 use techniques such as headings, numbering, and punctuation to make the
contract clear.

The main objective when drafting any contract is that the draftsman must ensure
that the court will interpret the contract in the way the parties intended. Standard
ways of expressing particular concepts, which will be understood by a court
have been developed. For example, a contract might state that an event 'is
deemed' to take place; this is understood by the courts and by most lawyers
but sometimes causes clients problems. Some words have taken on a
particular legal meaning; for example, an obligation to use one's 'best
endeavours' has been interpreted in several court cases. The courts have also
developed rules and general techniques for construing contracts. The drafter
should therefore be aware of how words are used and understood by other legal
drafters and by the courts. The interpretation of contracts by the courts is dealt with
in Section F

Traditional contract language includes jargon and old-fashioned language which is

not part of everyday speech, eg 'hereinafter', 'determine' (meaning terminate), and
“in the event that” meaning “if”. It may be necessary to use some technical
language in the contract (eg 'including without limitation', but for the most part
contracts can be written in plain, modern English or Afrikaans. Litigation over
contracts is relatively rare, but it is important to the commercial client that a contract
can be understood and used as a commercial document. A balance may therefore
need to be struck between using technical language, which will ensure that the
contract is interpreted in a particular way by the court and avoiding legal jargon,
which the commercial client does not understand. At all times avoid unnecessary
legalese.

Generally people are uncomfortable with the directness of good contract drafting
eg: “X shall do the following or else the following consequences will result.” One
of the main purposes of contract language is to ensure that the parties are legally

18
obliged to perform what they have undertaken to perform. Directness and clarity
are therefore essential.

2 Use of language

This section will deal mainly with the use of plain modern direct English

2.1 Stating obligations clearly: who, what, when

The following examples will be used to illustrate the point:

(i) X shall be paid the sum of R1 000 in payment for its obligations under this
Contract.

(ii) Y may only use the Confidential Information for the purposes of this
Agreement.

The wording in the first example, above, has several shortcomings. It is not stated
who is to pay X the amount of R1000, nor is it stated when this sum is to be paid.
To rectify these inaccuracies, words such as the following might be used: Y shall
pay X the sum of R1000 within 30 days of the date of this Agreement. This
phrasing states who has the obligation, to whom it is owed, what the obligation is,
and when that obligation must be performed. It is conventional to state the
obligation with the emphatic word shall. This does not mean that the obligation
arises in the future. Unless otherwise stated, the obligation arises on signing the
agreement. In plain English, you could say 'Y must pay X the sum of...'and this
would avoid any suggestion that the obligation arises in the future; but this is not
the conventional way to draft contracts. Contracts sometimes use the word 'will'
rather than 'shall' but this is regarded as confusing, because 'will' suggests a future
event even more so than 'shall'.

In the second of the above examples, the phrase ‘for the purposes of this
Agreement’ could be unclear. Unless those purposes have been clearly stated,
the extent of Y's rights to use the Confidential Information will be uncertain. This
problem could be avoided by including a definition of, the “Permitted Purpose”
and using this defined term in the clause. A further problem is that the phrase
'may only' is weak, and the clause could state more explicitly that Y is prohibited
from using the Confidential Information for any other purpose which is the other
party's intention. Although it might be argued that this is implicit, it is better
(from the other party's point of view) to make the obligation clear. An alternative
form of words to address these points would be: “Y shall not use the Confidential
Information other than as shall be necessary for it to achieve the Permitted
Purpose.”

19
Contractual obligations should state clearly who has the obligation, to whom it is
owed, exactly what the obligation is, and when that obligation arises - who, what
and when. In some cases it should also be made clear where the obligation is to
be performed (eg if there is an obligation to supply goods either at the supplier's
factory, or delivered to the customer's address, or to some other location). In some
cases it will be important to state how the obligation is to be performed (eg is
payment is to be made by cheque, in cash, by letter of credit, or other method).

2.2 Active and passive voice

The following example will be used to illustrate the difference:

(i) X shall be paid the sum of R1000 by Y within 30 days of the date of this
Agreement.

(ii) Y shall pay X the sum of R1000 within 30 days of the date of this
Agreement.

Both examples say the same thing. The only difference between them is that the
first uses the passive form, and the second the active form, of the verb 'to pay'.
The second version is more direct. Although both versions are clear and easy to
understand, use of the passive can make the meaning unclear, particularly in
long or complex sentences. There is also a danger, when using the passive form,
of omitting to state who has the obligation. In the first example, above, this
mistake has not been made, as the phrase 'by Y' has been included. In
general, the drafter should use the active rather than the passive form.
2.3 Indicative and subjunctive

The following examples will be used to illustrate the difference:

(i) Y should pay X the sum of R1000 within 30 days of the date of this
Agreement.

(ii) Y shall pay X the sum of R1000 within 30 days of the date of this
Agreement. and:

(iii) lf A were to become insolvent, B would be entitled to terminate this

Agreement.

(iv) If A becomes insolvent, B will be entitled to [or, B may] terminate this

Agreement.

20
A statement that Y shall pay a sum, uses the indicative sense of the verb, to pay.
A statement that Y should pay a sum, uses the subjunctive sense. The latter is
ungrammatical, and should be avoided. If the words 'Y should pay' are used, a
Court might interpret them simply as a polite way of stating the contractual
obligation, or as a poor use of English, which in either case would not change the
contractual meaning. However, they might be interpreted in a quite different way,
as meaning that Y ought to pay the sum, but he does not have a contractual
obligation to do so. Similarly, the wording used in the fourth of the above
examples is preferable to that used in the third example. Although it could be
argued that the wording of the third example is perfectly grammatical (and even
preferable to the fourth in its use of English), nevertheless the wording of the
fourth example is to be preferred as contractual wording, as it is more direct.
2.4 Jargon and old fashioned language

The following examples will be used to illustrate these points:

(i) In the event that there shall be a determination of this Agreement by the
vendor, the purchaser shall be entitled to a reimbursement of all financial
consideration payed by him pursuant to clause 4 hereof.

(ii) If the seller terminates this Agreement, he shall reimburse to the buyer all
payments made by the buyer under clause 4 of this Agreement.

The second example, above, means (almost) the same as the first but uses
simpler and more modem language. “In the event that” is replaced by “if”,
“determination” is replaced by the less ambiguous “termination”, “financial
consideration” becomes “payments”, “hereof” is replaced by the longer but less
old-fashioned phrase “of this Agreement” and might even be left out altogether.
“Pursuant” is replaced by “under”, and “vendor” is replaced by “seller”. Finally, the
more complex construction “there shall be a determination of this Agreement by
the vendor” is replaced by the simpler and more direct “the seller terminates this
Agreement”. The result is a shorter sentence (23 words rather than 34) which is
easier to understand. A few examples of old-fashioned words or jargon which can,
in most cases, be avoided, are listed below, together with suggested alternatives.
It is important to look critically at what you have drafted, to check that it is written
in clear English and means exactly what you intend.

Forthwith Immediately
Furnish Give, provide
Hereinafter Below (or omit altogether)
In as much as Since
In excess of More than
In the event that If

21
In view of Because of
Determine Terminate or decide
On the part of By
Pursuant to Under Qua
As such Vendor Seller
Whence From where

Pairs of words are sometimes used by lawyers; this is another type of unnecessary
jargon, unless the words mean something different from one another. An example
with which most non-lawyers are familiar is the phrase “last will and testament”.
Other examples include “sell and convey” and “settle and compromise'. Another
type of legal jargon is to be found in Latin words and phrases. Fortunately the use
of Latin phrases has mostly died out, particularly in the wording of contracts,
although some persist eg mutatis mutandis. In some situations there is a good
reason for using the phrase, for example where saying the same thing in English
would be clumsy or take many more words to say. Nevertheless, it is
recommended that most of these phrases should be avoided. There are many
other types of jargon which should also be avoided in contracts unless the
meaning is clear. Some of the terms used in the computer industry, for
example, are meaningless to the uninformed, and may be understood in
different ways by computer specialists. If the meaning of technical terms is
disputed in court, it may be necessary for the litigating parties to call expert
witnesses as to the meaning of the terms used. In general, any word which is
not part of ordinary speech should be avoided unless its meaning is clear from
the context, or it is defined in the agreement. A discussion of the interpretation
of contracts by the courts is dealt with in section D. A Latin phrase which is very
difficult to avoid is “inter alia”. This phrase is also used by non-lawyers, so perhaps
is not truly legal jargon. The English translation “among other things” doesn't seem
right if you were taught to avoid using the word thing.
2.5 Plain language for consumer contracts

Section 22 of the Consumer Protection Act makes specific provision for the
consumer’s right to information in plain and understandable language.

This section deals with plain, intelligible style. The techniques described in this
section are particularly relevant to the requirement that contracts with consumers
be drafted in a plain, intelligible style. Contractual language tends to be formal in
tone, even where the worst excesses of jargon and complex sentence construction
have been removed. The tone can be lightened, and the words made more
intelligible, using some or all of the following techniques.

Section 22(1) provides that any notice, document or visual representation

required in terms of the Act or any other law, must be in the prescribed form in
terms of the Act or other legislation or in plain language where no form has been
prescribed. Section 22(2) provides for a test for plain language: Whether an
ordinary consumer of the class of persons, for whom the document is intended,
with average literacy skills and minimal experience as a consumer of those

22
goods or services, could be expected to understand the content, significance
and import of document. A number of factors should be taken into account,
namely (a) the context, comprehensiveness and consistency of the document;
(b) the organisation, form and style of the document; (c) the vocabulary, usage
and sentence structure of the document; and (d) the use of any illustrations,
examples, headings or other aids to reading and understanding.

2.5.1 Avoid technical language

It is a difficult to avoid all technical language in an agreement. Words such as

“warranty”, “indemnity” or references to “negligence” or “breach of contract”
cannot be avoided. But where possible aim for clarity and avoid technical terms.
Phrases such as “service of notice” can be replaced with “notify in writing”. Often
in consumer contracts the consumer does not take legal advice on the terms of
the contract, nor is the consumer able to understand complex contractual
language. Therefore, try to keep both the style and content of consumer contracts
simple.

READ:
Gouws 2010 SA Mercantile LJ 79-94
Newman 2010 Obiter 735-745
2.6 Definitions and consistent use of words

The same words should be used to express the same ideas at different places in
the agreement. If different words are used, the court is likely to assume that a
different meaning is intended. Thus if the contract refers to 'the company and its
subsidiaries' in one clause, and to 'the company, its subsidiaries and affiliates'
in a later clause, the court may assume (perhaps incorrectly) that the drafter
meant to exclude affiliates in the earlier clause. To avoid such risks, and to avoid
use of long phrases, it is advisable to use a word such as the 'Group' throughout,
and to define the Group carefully in definitions clause at the beginning of the
contract. Do not use variations of words. In non-legal writing it may be
acceptable, and even desirable to avoid repeating a word in a document, even
where the same meaning is meant on each occasion. For example, a
newspaper article or essay might refer in one sentence to a contract, in the next
to an agreement and in the third sentence to a bargain struck by the parties.
This type of writing must never be used when drafting contracts.

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2.6.1 Definitions can take on different forms. The most common are the
following.

Means.

EXAMPLES:

(i) ABC (Pty) Ltd a company incorporated in South Africa whose registered
address is Twenty Third Equestria Business Park, Willow Glen (the
'Company')

(ii) 'Know-how' means all unpatented technical information and know- how
developed on the premises of the University of South Africa in respect of
the Patents, Plant breeders’ rights or the Materials

The definition of “means” is the most common type of definition. The meaning of
the defined term is set out in a phrase or sentence, and the boundaries of the
definition are clear. The above examples are slight variations on this type of
definition. In the first, the full name of a party to the contract is abbreviated by use
of the defined term Company. In the second example, the definition explains what
is meant by “Know - how,” and enables the drafter to set out the meaning only
once in the agreement, rather than have to explain the meaning each time the
term is used. These types of definition may be contrasted with definitions which
state that the meaning of a defined term includes or excludes items, as
described below.

(iii) Includes. EXAMPLES:

(aa) “Person” includes a partnership or corporation.

(bb) “Know-how” includes without limitation any results, data, methods,

techniques, drawings, DNA sequences and formulae and any commercial
and marketing information relating to Products.

This type of definition is useful where there might be some doubt as to whether
such items are included. In the first of the above examples, “Person” might not
be understood by non-lawyers as including legal persons such as a company. The
definition clarifies that partnerships and corporations are to be understood as
persons for the purposes of the agreement. In the second example, it is made
clear that “Know-how” should be understood as including several types of
technical information and also commercial and marketing information. Such
definitions do not, by themselves, set limits on how the defined term is to be
understood, and are therefore less complete than the type of definition discussed
in the previous paragraph.

24
(iv) Excludes. EXAMPLE:

'Know-how' excludes any information developed by the Licensee under this

Agreement.

In this example, it may be important to exclude information developed by the

Licensee, eg if the Licensee has confidentiality obligations to the Licensor in
relation to know-how (but should not have such obligations in respect of
information which the Licensee himself developed).

It is possible for a definition to include all three types of definition, as in the following
example: “'Know-how' means all unpatented technical information and know-how
developed in the Laboratory relating to the Patents or the Materials, including
without limitation any results, data, methods, techniques, drawings, DNA
sequences and formulae, but shall exclude any information developed by the
Licensee under this Agreement.”

(v) Unnecessary words

For example, writing “ln the event that there is a reduction in the number of
explosions” rather than “If fewer explosions occur”.

For example referring to “the said company” (or, even worse, “the aforesaid
company” or “such company” rather than “the company”, when it is perfectly clear
from the context which company is being referred to. Occasionally, it is useful to
write “the said...” but in many cases it is unnecessary.

Another example is “termination or expiry”, which is sometimes found in several

places in a contract. This could be avoided either by referring to “termination by
expiry” in the clause dealing with expiry, so that it is clear that expiry is a type of
termination, or better by defining termination as including termination by expiry.

2.6.2 Sentence structure and length

There is a long-established principle in official writing: only put one idea in each
sentence. Contractual obligations can be quite complex, with many ifs and buts,
and it may be necessary to cover several aspects of an obligation in one sentence.
Consider the following:

“The Licensee undertakes at all times during the subsistence of this Agreement
and thereafter to keep confidential (and to ensure that its researchers and
employees shall keep confidential) the terms of this Agreement and any and all
confidential information which it may acquire in relation to the business or affairs
of the Licensor, save for any information which is publicly available or becomes
publicly available through no act of the Licensee; provided that the Licensee shall
be at liberty to disclose such terms and confidential information under a duty of
confidence to its professional advisers and to others if and when required to do so
by force of law.

25
The word order is good. The main obligation appears first and is then qualified
and embellished by further phrases. The language is fairly clear and covers, in a
very concise way, most of the issues which are commonly addressed in a
confidentiality clause. The main problem with the clause is that several ideas are
crammed into a single, very long sentence which runs to 109 words. These ideas
include the following:

The obligations set out in the clause continue during the life of the agreement and
after it comes to an end.

(i) The Licensee is required both to comply with the obligation and to take
steps to ensure that its researchers and employees do so.

(ii) The Licensee is required to keep confidential both the terms of the
agreement and any confidential information relating to the Licensor’s
business.

(iii) These confidentiality obligations do not apply to publicly available

information unless the Licensee caused the information to become publicly
available.

(iv) The Licensee may disclose information to his professional advisers if they
are bound by a duty of confidence to keep the information confidential.

(v) The Licensee may disclose information if required to do so by order of court

Consequently the clause deals with about 6 ideas in a long sentence. The clause
could be redrafted as follows:

“1. Confidentiality

1.1 The Licensee shall keep confidential the terms of this Agreement and any
and all confidential information which it may acquire in relation to the
business or affairs of the Licensor (Confidential Information).

1.2 The obligations set out in clause 1.1 shall not apply to any information
which is publicly available or becomes publicly available through no act of
the Licencee.

1.3 The Licensee shall be at liberty to disclose Confidential information:

(a) under a duty of confidence to its professional advisors;
(b) to others if and when required to do so by a court of law.

1.4 The obligations set out in this clause 1 shall apply at all times during the
subsistence of this contract and thereafter.

1.5 The Licensee shall ensure that its researchers and employees comply
with the Licencee’s obligations under this clause 1.”

26
This version is easier to understand than the previous wording.

2.6.3 Use of headings

Use of headings facilitate finding clauses and for general understanding of the
general subject area of the clause. If you use headings in an agreement it is
usual to include a clause such as the following:

“Headings used in this agreement are for convenience only and shall not affect
the interpretation of this agreement.”

2.6.4 Use of Schedules

Schedules or annexures are very useful in various situations. If the contract

involves performance of work, a detailed description of that work can be put in a
schedule. This also applies to any standards or acceptance criteria, targets
which the work must meet, a detailed timetable for completion of work and a
detailed payment schedule. Should the contract deal with research, the research
project is described in detail in the schedule.

Should a contract include a schedule the following phrase is usually included

in the contract:

“The Schedule to this contract shall form part of this contract as is set out here”.

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E BASIC ISSUES AND CLAUSES AFFECTING ALL CONTRACTS

1 Introduction

This section deals with the issues which require attention in commercial contracts,
irrespective of the specific subject matter of the contract: such as:

1 which legal entities are to be the parties to the contract

2 when does the contract come into effect
3 when does it come to an end,
4 and (in international contracts) which country's law is to govern the
contract.

1.1 Who should the parties be?

Anyone who has rights or obligations under the contract should be a party.
Sometimes parties are added to the contract who have no rights or obligations in
terms of the particular contract. This is generally a mistake: either the contract
should state what their rights or obligations are, or they should not be parties to
the contract. The importance of stating the parties’ names accurately has already
been mentioned. Where a company is part of a group of companies, it is not
always clear which member of that group should perform the contractual
obligations. Sometimes the parent company will be made a contracting party,
either (a) instead of the subsidiary (with performance of the contractual obligations
being delegated or sub-contracted by the parent to the subsidiary), or (b) in
addition to the subsidiary, and the parent will undertake to guarantee performance
of the contract by the subsidiary.

It is vitally important to note that the party must be a legal entity (regspersoon).
Thus if a department of a university wishes to contract with a supplier the
contracting parties will be the University and the supplier and not the department.
The department is not a legal entity although the head of department could be
authorised to sign the contract on behalf of the university. As has been pointed
this will have to be verified.
2 Commencement, duration, extension of term

It happens that sometimes contracts are signed after performance of the

contractual obligations has begun. It may therefore be necessary to have a
different commencement date to the date of signature of the contract. This
should not be done by misstating the date of execution of the agreement.
Contracts are sometimes stated to be for a fixed term (eg three years), with a right
for each party to terminate on notice to the other party (eg three months). The
drafter should ensure that it is clearly stated whether such notice may be given:

28
(a) at any time during the fixed term, or

(b) at a time after two years and nine months (so that the earliest termination
is after three years), or

(c) only after the fixed term has expired (so that the minimum term is, in
effect, three years and three months).

If the contract also allows for termination on breach or insolvency, the clause
providing for the fixed term should be stated to be subject to the clause(s)
providing for earlier termination. Sometimes contracts are stated to be terminable
only at fixed times, eg at a year end, and provided a minimum period of notice has
been given. Again, careful drafting is required. If the contract does not include
any provisions for termination, then at common law it may be terminable on
reasonable notice or (less commonly) it may not be terminable at all. In view
of these uncertainties, it is essential to include in the contract a provision stating
its duration or allowing a party to terminate the contract at any time.
3 Main obligations contained within the contract

These will be at the heart of the contract and will receive most attention from the
parties. The contract should make clear what the obligations are and when they
are to be performed (and sometimes it may be necessary to state how, and where
they are to be performed).
4 Payment

If the price is a fixed amount, the payment clause will be straight forward to draft.
If it is calculated by reference to a rate (eg a rate per task, or for time spent
executing the obligation, or as a percentage of sales revenue as would be the case
with royalties) this will require careful drafting. If the price is not clear the contract
could be void for vagueness. Take note of the following secondary payment
elements which may require inclusion:

- does the price include VAT?

- when are payments to be made?
- how are payments to be made?
- is interest payable on late payments?
- is time of payment of the essence ie is termination of the contract allowed
for late payment?
- in international contracts state the currency in which payments are to
be made, specify a currency conversion method if necessary, also state
who bears the exchange risk
- indicate whether deductions or set-offs are allowed
- whether payments are refundable or to be treated as an advance against
future payments
- who carries the cost of eg packaging, carriage, insurance
- whether any statements, receipts or other documents are required to be
provided in support of payment claims.

29
Read: Van der Merwe et al Contract 359-371
5 Guarantees/Warrantees

Commercial contracts often include warranties. Consider the following issues

carefully prior to including such a clause:

- is the client willing to give the warranty at all, or does it deal with something
for which the client should not be responsible or the other party should
check themselves?

- if the client is willing to give the warranty, limit it to matters within his
knowledge.

There are two types of knowledge warranties and the following examples
show the difference between the two:
(i) X warrants that to the best of his knowledge, information and belief he
is not a party to any current legal proceedings

(ii) X warrants that as far as he is aware, but without having conducted any
searches or investigations, he is not a party to any current legal
proceedings.

The first warranty may be considered an implicit warranty that X has taken
reasonable steps to establish the truth of the warranted statement. The second
example makes it clear that this is not a part of the warranty being given. It is
generally considered unwise merely to use the phrase, as far as he is aware
without an express disclaimer of investigations (or whatever kind of disclaimer is
appropriate to the warranty in question), as this might be interpreted as a best of
knowledge type of warranty. It is common to exclude from the warranties matters
formally disclosed to the other party.
6 Include a general disclaimer of an implied term

EXAMPLE:

The parties confirm:

(a) that no other terms apart from those contained herein were stipulated;

(b) that no other suggestions, guarantees and motives apart from those
contained herein have been made by either the parties themselves or on
their behalf.

30
7 Liability and indemnity clauses

These can be viewed as attempts to apportion commercial risks between the

contracting parties. The parties will often wish to consider whether commercially,
those risks are acceptable, whether they can be insured against at a reasonable
price, and whether the price to be paid under the contract takes proper account
of the risks being borne by each party.
8 Terms as contained in contract

It is advisable to include in detailed contracts a provision that the contract contains

no terms other than those stated in the contract document. Such a clause (which
also attempts to exclude prior representations) can be worded as follows:

EXAMPLE:

Each of the parties acknowledges that, in entering into this Agreement, it does
not do so in reliance on any representation, warranty or other provision except
as expressly provided in this agreement, and any conditions, warranties or other
terms implied by statute or common law are excluded from this Agreement.

9 Confidentiality

Parties may wish to provide that information disclosed between them, eg

technical or marketing information, be kept confidential and used only for the
purposes of the agreement. Amongst the issues commonly covered in
confidentiality undertakings are the following:

- restrictions on disclosure and use of information;

- security precautions to be taken by the recipient of the information;

- extent to which disclosure to employees and consultants is allowed, and

restrictions or conditions on such disclosure;

- exceptions to the confidentiality obligations;

- rights to disclose if ordered to do so by a court etc;

- duration of the obligations and whether they survive termination of the

agreement;

- rights to have information and copies returned on request;

- provisions dealing with information (eg scientific research) developed

under the agreement; who does it belong to, who can use it etc;

10 Applicable law and jurisdiction

31
When drafting a contract with an international element it is necessary to state
which country's laws are to apply, as well as which courts are to have jurisdiction
eg where one or more parties are based outside South Africa, or offer or
acceptance took place outside South Africa, or work is to be done under the
contract or goods are to be delivered outside South Africa. A typical law and
jurisdiction clause might read as follows:

“The validity, construction and performance of this Agreement shall be governed

by South African law. Any dispute arising under or in connection with this
Agreement shall be subject to the jurisdiction of the South African courts to which
the parties to this Agreement hereby submit.
11 General clauses to be included in all contracts

11.1 Notices

Notices clauses are regarded by lawyers as amongst the most important of the
general clauses. Even in contracts which contain very few general clauses there
will normally be a notices clause and a law and jurisdiction clause. The notices
clause will generally state that notices must be given in writing and delivered by
hand or sent by post; sometimes registered post is specified. Often the clause
will refer to sending notices by fax, e-mail etc, although sometimes it is stated
that these must be confirmed by post. The addresses to which notices must be
sent are generally specified. In South African law contracts these addresses are
generally stated at the head of the agreement, although they could be stated
in the notices clause. The notices clause will often state a time period after
which notices will be deemed to be received. A typical notices clause might read
as follows.

EXAMPLE:

1 Notices

1.1 Any notice to be given under this Agreement shall be in writing and shall
be sent by registered mail, or by fax (confirmed by registered mail), to the
address of the relevant Party set out at the head of this Agreement, or to
the relevant fax number set out below, or such other address or fax
number as that Party may from time to time notify to the other Party in
accordance with this clause 1. The fax numbers of the Parties are as
follows: Party A-012 xxxxxxxxx; Party B-012 xxxxxxxx.

1.2 Notices sent as above shall be deemed to have been received seven
working days after the day of posting or on the next working day after
transmission (in the case of tele facsimile messages, but only if a
transmission report is generated by the sender's tele facsimile machine
recording a message from the recipient's tele facsimile machine,
confirming that the tele facsimile was sent to the number indicated above
and confirming that all pages were successfully transmitted).

32
11.2 Force majeure (supervening impossibility of performance)

Force majeure is a legal concept which exists in the laws of South Africa and in
some Continental European countries but not under English law. It allows a party
to be excused from performance of his contractual obligations if he is prevented
from performing them by circumstances beyond his control, such as Acts of God,
civil wars etc. Although this rule is a common law rule it is common to include a
clause such as the one following:

EXAMPLE:

Neither Party shall have any liability or be deemed to be in breach of this

Agreement for any delays or failures in performance of this Agreement which
result from circumstances beyond the reasonable control of that Party. The Party
affected by such circumstances shall promptly notify the other Party in writing
when such circumstances cause a delay or failure in performance and when they
cease to do so.
11.3 Entire agreement

It is advisable to include a clause wherein you stipulate that the document is the
entire agreement and refer specifically to which schedules if any form part of the
contract.

EXAMPLE:

The parties confirm:

(a) that this document and the Annexure(s) I/A contain the whole
agreement between the parties.
11.4 Assignment

In general, a party may assign his rights under a contract unless the contract is
one with a 'personal' element. A party may not transfer his obligations under the
contract without the consent of the other. It is advisable to include a clause in
all contracts which prohibits assignment unless the parties agree otherwise.

EXAMPLE:

The rights and duties arising from this agreement cannot be assigned, nor
transferred without prior written consent from the other party.

33
11.5 Arbitration

Arbitration refers to an extra-judicial process in terms of which the parties to a

dispute agree to refer the dispute to a third party (an arbitrator) with the intention
that the arbitrator will determine the dispute by making an award that binds the
parties to the dispute. Arbitration offers the benefit of expert, expeditious, rapid,
publicity-free and cheaper adjudication. However, its finality often discourages
parties from deciding to include it as a term of their contract. Nevertheless it is
an extremely useful option where the contract deals with issues of co-operation,
research, marketing etc.

A court may, however, at any time on application of any party to an arbitration

agreement, on good cause shown, set aside the arbitration award. Good cause
would be where a member of an arbitration tribunal is guilty of misconduct; has
committed a gross irregularity eg where one party is not given notice of
proceedings or one party is not given an opportunity to lead evidence; where an
arbitration tribunal exceeds its powers or an award has been improperly obtained.

Certain matters may not be subject to arbitration. These are matrimonial causes
or any matter incidental to such cause; matters relating to status and criminal
cases cannot be referred to arbitration

EXAMPLE: Disputes and Arbitration

Any dispute arising from any matters relating to this agreement or the validity or
meaning or execution thereof must be solved by means of arbitration, in
accordance with procedures stipulated hereunder:
(a) Any party shall be entitled to demand in writing that the dispute be referred
for arbitration within 10 days after a dispute has not been resolved.

(b) The arbitrator shall be, if the matter in dispute is:

(i) primarily an accounting matter, an independent registered chartered

accountant;

(ii) primarily a legal or any other matter, a practising advocate; agreed upon
between the parties involved in the dispute and failing agreement in that
regard within ten days after the arbitration has been demanded,
appointed by the president of the Cape bar.

(c) Within 30 (thirty) days after the notice in (a) each party shall submit a
comprehensive written statement to the arbitrator containing all evidence,
sworn statements, facts, submissions of expert witnesses etc. on which
their case is based, a copy of which is to be served on the other party.

(d) Within 14 days after receipt of a copy of the above mentioned documents
the other party may reply thereto and submit a supplementary document

34
 to the arbitrator, a copy of which is to be served on the other party.

(e) The arbitrator shall consider the dispute and based on the documents
before him, without appearance of the party or any legal representative
before him, decide the issue. Should the arbitrator be unable to decide
the issue on the documents, he may request the parties to present
further evidence or to call witnesses to testify in the presence of the
parties. These witnesses must be questioned by the arbitrator and may be
questioned by the parties.

(f) The arbitrator may announce any decision or make any award which
according to his discretion is legally valid, fair and appropriate.

(g) The arbitrator must take cognisance of the intention of the parties and
reach a decision based on the South African law. He is not strictly bound
by the rules of law but must be guided by the principles of justice.

(h) The finding of the arbitrator shall be final and binding on the parties and
may only be made a court order should one of the parties fail or refuse to
give effect to the arbitrator's finding or award.

35
F INTERPRETATION OF CONTRACTS

Read:

1 Van der Merwe, Van Huysteen, Contract General Principles Ch 9 300 -

311.

2 Sharrock Business Transactions Law Ch 10 197-209

3 Hutchison and Pretorius The law of contract in South Africa 2017 Ch 11

267-285

36
SECTION II –

CONTRACT OF SALE

Introduction

You are dealing with a contract of sale when parties who have the required
intention agree that the one party will deliver the undisturbed possession to the
other in return for the payment of a price.

For purposes of this contract you must have a thorough knowledge of the contents
of the section dealing with the contract of sale as it appears in:

Read: Glover Kerr’s Law of Sale and Lease (2014) 4th ed p 3-329.

A Drafting a contract of sale

1 Introduction

Virtually anything with a monetary value can be sold, and as soon as the parties
have agreed upon the three essentials, a contract of sale is concluded. However,
where a contract of sale conveys an interest in valuable property, movable or
immovable, its contents are traditionally formal and expressed in technical terms.
Contracts involving sales of land, sales of sectional title units or the sale of a
business are governed by legal requirements.
2 Applicable legislation

2.1 Statutory regulations regarding certain contracts of sale and lease

This legislation applies to credit/leasing/money-lending transaction

When dealing with an agreement that is a credit transaction, a leasing transaction,
or a money- lending transaction, falling within the ambit of the National Credit Act
34 of 2005 you have to make sure that the terms incorporated in the agreement
are not illegal or invalid by virtue of the provisions of either of these statutes.

This section of your study material deals with statutory regulations regarding
certain contracts of sale and lease: The Alienation of Land Act 81 of 1961 and the
National Credit Act 34 of 2005. We will only deal with the Alienation of Land Act
and not the National Credit Act 34 of 2005.

This section of your study material is difficult and covers a very wide field. In order
to facilitate your understanding of the Alienation of Land Act the material has been
subdivided into smaller sections with questions at the end of each section.
Concentrate on these questions to obtain a better understanding of how the Act
operate in practice.

37
2.2 Alienation of land:

Read: Glover Kerr’s Sale and Lease 101-125.

An alienation of land must be contained in a deed of alienation signed by the

parties to the contract or by their agents acting on their written authority (sec 2(1))
of the Alienation of Land Act 68 of 1981. 'Alienation’ means sell, donate, or
exchange, but it has been held that the Act also applies to an option to buy land
and a contract conferring a right of first-refusal in respect of land. 'Land’ includes,
inter alia, a unit or proposed unit in terms of the Sectional Titles Act 95 of 1986.
The provisions of section 2 do not apply to sales of land by public auction.

Failure to comply with the prescribed formalities renders the contract invalid,
although if both parties have performed in full in terms of an invalid contract it
is regarded as being in all respects valid ab initio (sec 28(2)).

In the case of a sale of land used or intended to be used mainly for residential
purposes (excluding agricultural and certain other land), in which the purchase
price is payable in more than two instalments over a period exceeding one year,
the deed of alienation must:

(a) contain various prescribed details and information;

(b) incorporate certain mandatory terms; and

(c) make reference to various rights accruing to the purchaser and other
consequences arising in terms of the Act.

Printed forms which comply with the Act may be purchased. Sec 6 sets out the
precise requirements of the Act. Failure to provide for these matters does not, per
se, result in invalidity, but the purchaser may approach the court for an order
declaring the contract to be null and void where it does not substantially comply
with the provisions of the Act. If he elects to adopt this course, he must institute
appropriate proceedings within two years from the date upon which the contract
was concluded (sec 24(1)).
2.3 Share Blocks Control Act 1980

2.3.1 Acquisition of interest in a share block scheme

A contract for the acquisition of a “share” in a “share block scheme” and a “use
agreement” entered into in connection with such contract, as well as any
amendment or cession of such contract or agreement, must be reduced to writing
and signed by the parties, or by their representatives acting on their written
authority in terms of sec 16 of the Share Blocks Control Act, 1980. The contract
must also state various details and be accompanied by certain documents (sec
17). A “share block scheme” is any scheme in terms of which a share confers a
right to the use of immovable property in accordance with the terms of a “use

38
agreement” entered into between the parties on disposal of the share. A sale
agreement which does not comply substantially with the requirements of the Act is
void, except where the purchaser has discharged his obligations in terms of the
contract and the seller has transferred the relevant share to the purchaser. In
such an event, the contract is deemed from its conclusion not to be affected by
the defect (sec 18(2)). A copy of the use agreement must be lodged with the
registrar of Companies before any sale agreement is entered into (s7(5)).

2.3.2 Sale/lease of time-sharing interest

A Sale, or a lease for three years or more, of a time-sharing interest must be

contained in a written document and signed by the parties or by their agents, acting
on their written authority (sec 2(1)) of the Property Time-Sharing Control Act, 1983.
Furthermore, the contract must contain certain information as prescribed by the
Act. A “time-sharing interest” refers to any right to, or interest in, the exclusive use
or occupation of immovable property or any part thereof, during determined or
determinable periods in any year. If the formalities imposed by the Act are
not observed, the contract is void, unless the purchaser or lessee has rendered
the full consideration and the relevant time-sharing interest has been transferred
to or has otherwise been vested in him, in which case the contract is deemed to
be valid in all respects (sec 9(2)).

Signature by one or both of the parties

For a party’s signature to qualify as such for purposes of the formalities legislation,
it must prima facie appear to have been intended to cover the whole document.
Where applicable it must also be evident in which capacity the person signs the
contract, eg as guardian, trustee (of a trust), trustee (of an insolvent estate,
liquidator, director, agent etc.) or member (of a close corporation). As a rule, the
signature should be placed at the end of the document, and to reinforce the
impression that it relates to the whole document, the signer’s initials should be
appended to the other pages of the agreement and to the annexures. Where the
agreement designates a place where the signatory is required to append his
signature as a token of execution, then make sure that he appends it in the place
provided, and not elsewhere in the document. Ensure also that he does not sign
in the space provided for the signature of a witness.

The formalities legislation does not require the date and place of signature to
be inserted in the agreement, but as has been pointed out earlier, this information
should be included because these aspects will have to be alleged and proved
when the agreement is enforced. It is also not essential to have witnesses to the
signature, but obviously the evidence of witnesses will be important if the
authenticity of the signature on the agreement is disputed. In many commercial
agreements that are signed today, no provision is made for witnesses to sign. See
to it that the parties’ signatures are to be found after the material terms of the
contract have been incorporated in the document. Signature before this is invalid.
It is customary, in the case of a deed of suretyship, to add a clause stating that the
document had been duly completed before it was signed. If the parties wish to
insert provisions in their contract after they have signed it, they must sign the

39
document again.
3 Objectives

The main objective of the Seller and Purchaser at contract negotiation time should
be to achieve agreement regarding the exact object on the best commercial terms
and conditions for the purchase of the specific object. A well drafted purchase
agreement should clearly set out the following four goals in order to achieve this
objective.

The essential parts are:

(1) The Seller

1 Name
2 Identity number
3 Address and telephone number
4 If married in community of property, name of spouse and identity number
5 If company or close corporation, registration number
6 Represented by

(2) The Purchaser

1 Name
2 Identity number
3 Address and telephone number
4 If married in community of property, name of spouse and identity number
5 If company or close corporation, registration number
6 Represented by

(3) The object sold, eg a property

1 Stand number
2 Street address
3 Bonded to
4 Where deed of transfer is to be located
5 Servitudes to be provided for
(4) The Price

1 Price
2 Deposit, if any
3 When deposit is payable
4 Monthly instalments of
5 First instalment payable by
6 Following instalments payable by
7 Transfer to be taken by
8 Guarantees to be issued by
9 Guarantees payable at
40
 10 Date of occupation
11 Occupational interest or percentage of interest
12 Amount of loan to be obtained
13 Loan to be obtained within how many days
14 Provision to be made for agent’s commission

(5) General

1 Domicilium citandi et executandi

– Seller
– Purchaser
2 Attorneys who will act on behalf of the seller
3 Intermediary purchasers
4 Date when property can be registered in the name of the purchaser
5 Transfer duty
6 Endowment payable

4 Terms and Conditions

The general terms and conditions of the contract set out the majority of the rights
and obligations of each party. In a contract of sale the general terms and conditions
should include:

Preamble: A full description of the parties, the processes leading up to

the agreement stage and the essence of the agreement.

Definitions: A precise definition of the terms used within the agreement.

Interpretations: Any clarifications relating to gender, references, schedules

and appendices, other documents, conflicts between
documents, etc.

Scope: General description of what is to be purchased (the

deliverables), any additional services to be provided and any
options.
Read: Glover Kerr’s Sale and Lease 36-61.

Schedules: A reference to the schedules to the agreement

Payments: which should specify all deliverables including accessories

(where applicable), installation, training and documentation
(where applicable), with the price for each.

Price: This will include the following:

The mode of payment of the purchase price, installments (if applicable), interest
rate and a description of how the interest rate is to be calculated how payment of
the price is to be secured eg bank guarantee etc in the event where you are
dealing with a contract for the purchase of land; whether VAT or Estate duty is

41
payable and who must pay it; suspension of the buyer’s liability to pay the price
until he/she has obtained financial assistance (where applicable), this is usually
done by way of a condition that a loan be obtained with a bond over the property
as security; liability for agents commission (where applicable); cost of drafting of
contract including VAT.

Read: Glover Kerr’s Sale and Lease 62-101.

Delivery: Specification of the dates, locations, responsibilities and

any conditions relating to delivery of products to the
purchaser. Set out the responsibility for any preparation
work required prior to delivery. In the event the contract is
one of sale of land state when giving possession of the
property to the purchaser, when this must take place and
the interest payable if any for occupation by the purchaser
prior to payment of the purchase price or transfer of the
property and where applicable if electricity certificate is to be
provided.

Read: Glover Kerr’s Sale and Lease 143-184.

Risk: The passing of the risk and the benefit in the property
including insurance arrangements prior to transfer.

Read: Glover Kerr’s Sale and Lease 305-322.

Installation/Transfer: Specification of the responsibilities, milestones and dates

for installation by the Seller (where applicable).

All the details regarding the transfer where the contract is one of sale of land. Such
as the time when or within which period transfer must be given; the identity of
the conveyancer; the liability of the transfer costs.

Status of the Property/Bond:

Whether there is a bond over the property in the case of a
contract of sale of land or whether one will be registered.
Whether there is a lease over the property and the type of
lease, long or short.

Acceptance: This clause will specify when acceptance of the purchased

object will take place or when testing of the purchased
object (if applicable) will commence, what will trigger the
testing and who will undertake the tests. The clause will also
lay out the consequences and remedies in the event:

- acceptance of the purchased object is delayed NB Glover Kerr’s Sale

and Lease 266 acceptance testing isn't commenced within an agreed
period;

42
- any tests should fail and require correction and re-testing;
- testing cannot be successfully completed within an agreed period.

It is usual to include a schedule to the agreement that lays out in detail:

- the tests and the acceptance criteria;

- the time table;
- notification and re-testing procedures;
- repair, maintenance and support of products during acceptance
testing (this will depend on the object being purchased so include where
applicable).

Confidentiality: Requires the parties to keep confidential, information they

acquire with respect to each other (where applicable).

Publicity: Sets out the rules with respect to either party wishing to
making any use of the name of the other or to publicise that
the parties have entered into a contract.

Documentation: A reference to the schedule to the agreement which

should specify what documentation is to be supplied with the
object.

Access Security: The requirements of the seller to conform to the purchaser’s

security arrangements and the obligations of the purchaser
to assist in arranging these.

Training: The training services to be supplied where applicable to the

object of the sale.

Warranties: Specifies what either party is required to warrant with respect

to the agreement.

This can include:

1. Latent defects:
Read: Glover Kerr’s Sale and Lease 185-252;
2. Eviction:
Read: Glover Kerr’s Sale and Lease175-184;
3. Fitness for purpose:
Read: Glover Kerr’s Sale and Lease 185-252;
4. undisclosed servitudes
5. warranty maintenance period.

43
Ownership: Specifies when any change of title to products occurs. It
also specifies intellectual property rights. "Intellectual
property" is intangible property involving some degree of
creative effort eg a plant breeders’ right, or software
design. This clause will protect both parties’ rights to retain
control over their intellectual property including the rights to
their use, publication and copying.

Intellectual Property The agreement should also include a clause setting out an
Indemnity: indemnity that the Seller will give to the Purchaser to protect
the Purchaser against claims of infringement with respect to
any products purchased (where applicable).

Limitation of Sets out the extent to which the Seller’s liability may be
Liability limited

NB: Whether a drafter includes this clause will depend on whom the drafter’s client
is. If the client is the seller of eg a software programme include it. But if your client
is the purchaser don’t include it.

Termination: The parties must agree and set out the basis for any
termination of the agreement.

This will usually only be for situations where one or other is in breach or default
of its obligations as specified in the agreement.

This clause will set out what notice is required to be given to the other party and
will generally allow a period for the default or breach to be remedied before the
other party is entitled to exercise remedies under the agreement.

Force Majeure: Allows the agreement to be suspended or terminated

without liability in the event of circumstances arising that are
outside of the control of either party.

Waiver: Allows the parties to retain any rights under the agreement
that they may not elect to enforce in the first instance.

Severability: Allows for a particular term or condition, which subsequently

proves to be illegal or unenforceable, to be excluded without
compromising the rest of the agreement.

Notices: How and where any formal correspondence between the

parties with respect to the agreement must be delivered.

Assignment: Requires the parties to have the consent of the other prior to
transferring their rights and obligations under the agreement
to any other party.

44
Survival: Any clauses that continue after the term of the agreement.

Entire Details the boundaries of the agreement, usually excluding

Agreement any previous agreements or terms written or oral.

Disputes & This section defines the processes for both parties to
Remedies resolve any disputes constructively by means of Arbitration.
5 Schedules

Further detail may be included in Schedules attached to the agreement

Examples

The first sample contract is where a property is paid for in cash by means
of a bond or in instalments over a period of less than a year where the seller
gives the purchaser credit allowing the purchaser to pay a deposit and thereafter
monthly (or whatever) instalments. The cash purchaser pertains to the situation
where the purchaser applies for a bond to pay the purchase price cash to the seller.
The contract regarding the bond is between the purchaser and the Building
Society or the Bank whichever the case may be. Together with this contract is an
application to record a contract in terms of section 20 of the Alienation of Land Act
68 of 1981.

45
1 Sample contract - Deed of sale where the purchase price is paid in cash
or in instalments over a period of less than one year

DEED OF SALE

entered into between:

………………………………………………………………………………………………

(“the Seller”)

and

(“the Purchaser”)

……………………………………………………………………………………………..

The Seller hereby sells to the Purchaser who hereby purchases:

……………………………………………………………………………………………..
(description of property)

………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
together with all improvements thereon, (“the property”) SUBJECT to the following
terms and conditions:

1 Purchase price
The purchase price is the sum of R.......... (..........RAND) payable in cash
against registration of transfer of the property into the name of the Purchaser
and for which amount a suitable bank guarantee shall be given to the Seller
within (state) days from date hereof, which guarantee shall be payable
free of exchange at (state) against registration of the property into the
name of the Purchaser.

2 Possession date
Possession of the property will be given to the Purchaser and the
Purchaser shall be obliged to take possession thereof, on date hereof (or
on the following date (state) or on the date of the transfer into the name
of the Purchaser) from which date the Purchaser shall be liable for all
municipal rates and taxes and/or fees payable on the property, and from
which date the property shall be the sole risk, profit or loss of the
Purchaser. Should the Seller have made any payment of such a nature
for a period after the date of possession, he shall be entitled to a refund
thereof pro rata to the period of prepayment.

46
3 Voetstoots
The property is sold voetstoots and the Seller shall not be liable for any
defects, patent, latent or otherwise in the property nor for any damage
occasioned to or suffered by the Purchaser by reason of such defect.
The Purchaser admits having inspected the property to his satisfaction
and that no guarantees or warranties of any nature were made by the
Seller or his agent regarding the condition or quality of the property or any
of the improvements thereon or accessories thereof.

4 Domicilium
All notices intended for the Purchaser shall be sent to him by registered
mail to (state address) which address he selects as his domicilium citandi
et executandi and any such notices shall be deemed to have been duly
delivered to the Purchaser 5 (FIVE) days from date of posting thereof by
the Seller or his agent.

5 Jurisdiction
For the purpose of resolving any dispute which may exist or occur
between the parties hereto, the parties consent to the jurisdiction of the
magistrate’s court for the district of (state) being a court otherwise
competent and with jurisdiction over the person of the parties in that each
of them either resides, carries on business, or is employed within its area
of jurisdiction, notwithstanding that such proceedings are otherwise
beyond its jurisdiction. This clause shall be deemed to constitute the
required written consent conferring jurisdiction upon the said court
pursuant to section 45 of the Magistrates’ Courts Act 32 of 1944 or
any amendment thereof provided that the Seller shall have the right at his
sole option and discretion to institute proceedings in any other competent
court in respect of any claim which, but for the aforegoing, would exceed
the jurisdiction of the magistrate’s court.

6 Breach
Should the Purchaser fail to make any payments provided for herein, or
otherwise commit a breach of any of the conditions hereof, and remain in
default for 7 (SEVEN) days after despatch of a written notice by registered
post, requiring him to make such payment or to remedy any other breach,
the Seller shall be entitled to, and without prejudice to any other rights
available at law:

6.1 claim immediate payment of the entire balance outstanding although not
otherwise due by the Purchaser under this Deed of Sale; or
6.2 cancel this Deed of Sale and retain all amounts paid by the Purchaser as
roukoop or a genuine pre-estimate of damage suffered by the Seller, and
furthermore the Purchaser shall not be entitled to compensation from the
Seller for any improvements of whatsoever nature he may have caused
on the property, whether with or without the Seller’s consent; and

47
6.3 claim payment of the arrear instalments due under this Deed of Sale, which
will be regarded as a portion of the pre-estimated damage.
6.4 Alternative to the above, the Seller shall be entitled to cancel this Deed
of Sale and to recover any damage that he may have suffered as a
result of the breach of the Purchaser, from the Purchaser.

7 Transfer costs
7.1 The Purchaser shall be liable for all transfer costs, transfer duty, stamp
duty, as well as the cost of this Deed of Sale and transfer of the
property into the name of the Purchaser by the conveyancers of the
Seller, and the conveyancing shall only commence after such costs have
been paid by the Purchaser.

7.2 Should the Receiver of Revenue regard the sale of the property as a
taxable supply, the purchase price shall not include value added tax, and
the Purchaser shall pay the value added tax calculated in terms of the
Value-Added Tax Act 89 of 1991 on demand.

8 Agent’s commission

8.1 Agent’s commission shall be paid by the Seller against registration of

transfer of the property into the name of the Purchaser and the
transferring attorneys are hereby authorised to effect such payment out of
the funds that become available to the Seller out of the purchase
consideration.

8.2 If the Deed of Sale is cancelled as a result of breach of contract committed

by the Purchaser, the estate agent shall be entitled to recover such
commission from the Purchaser.

9 Entire contract

The parties agree that this Deed of Sale constitutes the entire contract between
them and that there are no other conditions, stipulations, warranties or
representations whatsoever made, other than such as may be included herein
and signed by the parties hereto.

10 Compensation for early occupation

If transfer is not registered into the name of the Purchaser before date of
possession, or, if the parties agree on a date of occupation other than the date
of possession stipulated above, then the Purchaser shall be obliged and bound to
pay the Seller compensation for occupation of the property in the amount of
R.......... (..........RAND) per month or any part thereof for which the Purchaser has
been in occupation of the property before the date of transfer.

48
11 Insurance

The Seller shall be obliged to insure the property for the full replacement value
thereof and to maintain such insurance up to and including the date of transfer
thereof into the name of the Purchaser. Should any incident occur which may give
rise to a claim under the policy of insurance, the Seller shall on request file a claim
with the insurer, and shall cede the proceeds of the claim to the Purchaser, who
shall at all times be entitled to the recovery thereof. Should this Deed of Sale be
cancelled for any reason whatsoever, the cession of any claim, or the right to
recover any payment under the policy of insurance shall lapse pari passu.
12 Suspensive condition

The parties agree that this Deed of Sale shall be subject to the suspensive
condition that should the Purchaser be unable to obtain a loan from a bank payable
against the registration of a first bond over the property for the amount of R..........
(..........RAND) within a period of (state) days from date hereof, this Deed of Sale
shall lapse and that no duty to take transfer of the property shall rest upon the
Purchaser. All other obligations will however remain until discharged by the
Purchaser.

To this end the Purchaser hereby authorises the Seller and the estate agent to
make application in his name at any bank or building society to obtain such a loan.

13 Items part of property

The parties agree that the following movable items, which the Seller warrants are
fully paid for and are owned solely and exclusively by the Seller, are part of the
property hereby sold: (state).

14 Electricity: Certificate of compliance

The Seller shall provide the Purchaser at his own cost, on or before the date of
occupation mentioned above, or the date of registration, with a certificate of
compliance in accordance with the provisions of Government Regulation 2920 of
1992 issued in terms of the Machinery and Occupational Safety Act 6 of 1983 by
an accredited person registered with the Electrical Contracting Board of South
Africa, in a form acceptable to the supplier of electricity, certifying that the electrical
installation on the property is in accordance with SABS 0142. Should the aforesaid
person report that there is a fault or defect in the electrical installation, the Seller
shall be obliged, at his own cost, within 21 (TWENTY-ONE) days of receipt of
such report and recommendations, to contract with an electrical contractor or any
other person to issue the certificate of compliance. Should the certificate predate
this agreement, the Seller warrants that the certificate is valid in respect of all
existing electrical installations on the property.

49
The Seller undertakes to effect no alteration of whatever nature to the electrical
installation in the property hereby sold after the date of issue of the certificate.

(In Kwazulu-Natal the following clause should be added:

15 Pest free certificate

The Seller shall provide the Purchaser with a report issued by a government
approved entomologist to the effect that there is no evidence of timber destroying
insects (excluding ambrosia and emobius mollis, which are considered harmless)
in the buildings, provided that should there be any evidence of such infestation,
the Seller shall be obliged, at his own expense, within 10 (TEN) days after
receipt of such report and recommendations, to contract with the entomologist or
any other qualified person for the treatment to the buildings in terms of such
recommendations. Upon receipt by the Purchaser of a report by an entomologist
that the infestation has been eradicated, the terms of this clause shall be deemed
to have been fulfilled by the Seller. Should the Seller not enter into any such
contract or contracts, then and in such event the Purchaser shall be entitled, at
the expense of the Seller, to have such eradication effected as above
contemplated.)

SIGNED at (place)………………… on this (day, month, year)…….………………..

Witnesses:

1 ……………………………………………

2 ……………………………………………

(Signatures of witnesses)

(Signature of seller) SIGNED at (place)………on this (day, month, year)………..

Witnesses:

1 …………………………………………….

2 …………………………………………….
(Signatures of witnesses)

………………………………………………………
(Signature of purchaser)

50
2 Application to record a contract in terms of section 20 of the Alienation of
Land Act 68 of 1981

Prepared by me, CONVEYANCER

We, the undersigned,

(“the Seller”)

and

(“the Purchaser”)
do hereby make oath and say that the said land/unit was sold in terms of a contract
as defined in the Alienation of Land Act 68 of 1981, as amended, (“the Act”) to the
Purchaser on (date)
AND we hereby make application to the Registrar of Deeds at (place) to record
the contract against the Title Deed of the land/unit in terms of section 20 of the Act

AND we hereby confirm that to the best of our knowledge there is no prior contract
in force that is required to be recorded against the Title Deed in question.

Particulars of the land/unit:

(1) Registered owner

(2) Description of the land/unit
(3) Extent
(4) Title Deed number
(5) Purchaser

SIGNED at (place) ……………………………..on this (day, month, year)……………

…………………………………………….. ………………………………
(Signature of purchaser) (Signature of seller)

51
I certify that the deponents have acknowledged that they know and understand
the contents of the declaration/affidavit which was signed and affirmed/sworn to
before me at (place) on this (day, month, year) and that the provisions of the
regulations contained in Government Notice R1258 of
21 July 1972, as amended, have been complied with.
Recorded at (place) on ………………………………… (Commissioner of Oaths)

(day, month, year) ……………………………………….

by the Registrar of Deeds ……………………………….

(Registrar of Deeds)

3 Sample contract - Deed of sale pursuant to the Alienation of Land Act 68 of

1981

MEMORANDUM OF AGREEMENT

entered into between:

(“the Seller”),

whose address for purposes of this Deed of Sale shall, until altered in terms of
section 23 of the Act, be the following: (state)
and

(“the Purchaser”),

whose address for purposes of this Deed of Sale shall, until altered in terms of
section 23 of the Act, be the following: (state)WITNESSETH:

The Seller hereby sells to the Purchaser who hereby purchases (description of
land)

measuring (state)

held under Title Deed number (state)

52
UPON THE FOLLOWING TERMS AND CONDITIONS:

1 The Act

1.1 Reference in this Deed of Sale to “the Act” shall mean the Alienation of
Land Act 68 of 1981, as amended.

1.2 The parties acknowledge that they are aware that this sale is subject to
the provisions of the Act, and for purposes thereof they have read the
attached Annexure “A” and initialled the same. Annexure A” shall therefore
be deemed to be incorporated in this Deed of Sale.

2 Purchase price
The purchase price is the sum of R.......... (..........RAND) which amount
shall be paid by the Purchaser to the Seller in the following manner:

2.1 A deposit of R.......... (..........RAND) shall be paid on signature of this Deed

of Sale (or within (state) days of signature hereof), which amount need
not be held in trust but may be freely utilised by the Seller.

2.2 The purchase price (or balance of purchase price) shall be paid in
instalments of R.......... (..........RAND) per month (or quarter or half-year
or year), the first instalment of which shall be paid on the (date) and
subsequent instalments monthly (or quarterly or half-yearly or yearly)
thereafter as determined above, on the same day of each and every
succeeding month (or quarter or half-year or year) as the case may be.

2.3 The balance of the purchase price outstanding from time to time shall bear
interest in the first instance at ..........% (..........PERCENT) per annum, but
it is recorded that the interest rate payable by the Purchaser to the Seller
shall at all times be equal to the rate of interest prescribed from time to
time in respect of contracts of the class to which this contract belongs,
as determined by the Minister of Trade and Industries, in terms of the
provisions of section 12 of the Act. Interest shall be calculated monthly (or
bimonthly or quarterly) in advance on the outstanding balance owing from
time to time as from date of signature hereof. The instalments payable in
terms of clause 2.2 shall be utilised firstly in payment of the interest and
thereafter in reduction of capital.

2.4 Notwithstanding the provisions of clauses 2.1, 2.2 and 2.3, the
Purchaser shall pay the full balance of the purchase price due and owing
to the Seller and take transfer of the property hereby sold on or before
(date).

2.5 All payments to be made in terms of this Deed of Sale shall be made by
the Purchaser free of exchange at (place) or at such other place in the
Republic of South Africa as the Seller may from time to time select,
provided one month’s written notice of such change of address of payment
is given to the Purchaser.

53
3 Occupation
Occupation of the property hereby sold shall be given to the Purchaser
on the (date) or upon fulfilment of the following: (state conditions).

4 Possession, benefits and risks Possession and all benefits and risks,
profit and loss in respect of the property shall be given and will pass to the
Purchaser on date of occupation (or date of signature hereof or date of
transfer), from which date the Purchaser shall be entitled to all rentals,
if any, accruing from the property and shall be liable for all imposts levied
thereon, including rates and taxes, services and water, but excluding any
amounts due and owing by the Seller under an existing mortgage bond.
5 Transfer costs

5.1 The Purchaser shall be responsible for the payment of all costs of transfer,
including transfer duty, the costs of preparing the Deed of Sale, and the
costs of having this Deed of Sale recorded in terms of section 20 of the
Act. The costs of preparing this Deed of Sale shall be paid in cash on
signature hereof; the costs of recording shall be paid to the Seller’s
attorneys within 14 (FOURTEEN) days as from date on which the Seller’s
attorneys advise the Purchaser that the sale is capable of being recorded
in terms of section 20; and the transfer costs shall be paid on demand of
the Seller’s attorneys, which demand shall however not be made until the
balance of the purchase price is paid or secured as contemplated in clause
2.4.

5.2 Should the Receiver of Revenue regard the sale as a taxable supply, the
purchase price shall not include value added tax, and the Purchaser shall
pay value added tax calculated in terms of the Value-added Tax Act 89
of 1991 on demand.

6 Voetstoots
The Purchaser acknowledges having examined the property hereby sold
and having satisfied himself as to the condition thereof. This sale is
accordingly voetstoots and the Seller shall not be liable for any defect,
whether latent or patent. The property is furthermore sold in the extent as
it now lies. If, on resurvey, the area of the land should be found to differ
from that stated in the current Title Deed, the Seller shall not be liable for
any shortfall, neither shall he claim additional compensation for any
excess. The Purchaser also acknowledges having examined the current
Title Deed and having satisfied himself as to the conditions therein
contained.

54
7 Agent’s commission
Agent’s commission in the amount of R.......... (..........RAND) is payable to
(state) and shall be paid by the Seller from the initial deposit. (Alternatively:
No agent’s commission is payable on this transaction.)

8 Domicilium
The parties choose domicilia citandi et executandi at the addresses set out
on page 1 of this Deed of Sale, subject to the provisions of section 23 of
the Act, which entitles either party to deliver or send by registered post to
the other party a change of address, which said changed address shall
serve as a domicilium citandi et executandi of the party who has given such
notice.
9 Breach
9.1 In the event of the Purchaser failing to comply with the provisions of this
Deed of Sale promptly and on due date, and remaining in default for a
period of 30 (THIRTY) days after despatch to him of a notice in terms of
section 19(2) of the Act as hereinafter set out, the Seller shall be entitled
to either:
9.1.1 cancel the Deed of Sale; or
9.1.2 demand specific performance thereof.

9.2 In the event of the Seller demanding specific performance it is recorded

that the Seller’s rights are limited by the provisions of section 12(2) of
the Act, and in the event of the Seller deciding to cancel the Deed of
Sale he shall be entitled to:
9.2.1 demand immediate reoccupation and repossession of the property;

9.2.2 retain the deposit as a genuine estimate of liquidated damages, subject

to the rights of the Purchaser to contest such damages in terms of the
Conventional Penalties Act 15 of 1962; (Alternatively: The Seller shall be
entitled to sue for and recover such damages as he may have suffered as
a result of the Purchaser’s breach of contract, in which event the initial
deposit paid by the Purchaser may be retained by the Seller pending
determination of his actual damages;)
9.2.3 recover all arrear payments due up to and including date of cancellation
and retain all interim payments as occupational rental for the period from
date of signature of the Deed of Sale to date of cancellation.

9.3 If any amount due under this contract is in arrear the Seller or his
agent may authorise any potential purchaser or lessee to view the land.

10 Notice in terms of section 19(2) of the Act For purposes of the notice
mentioned in clause 9 above, the provisions of section 19(2) of the Act are
recorded:

55
A notice referred to in subsection (1) shall be handed to the purchaser or shall be
sent to him by registered post to his address referred to in section 23, and shall
contain:

(a) a description of the purchaser’s alleged breach of contract;

(b) a demand that the purchaser rectify the alleged breach within a stated
period, which, subject to the provisions of subsection (3), shall not be less
than 30 days calculated from the date on which the notice was handed to
the purchaser or sent to him by registered post, as the case may be; and
(c) an indication of the steps the seller intends to take if the alleged breach
of contract is not rectified.

11 Provisions of section 19(3) of the Act The parties also acknowledge that
they are aware of the provisions of section 19(3) of the Act which reads
as follows: If the seller in the same calendar year has so handed or sent
to the purchaser two such notices at intervals of more than 30 days, he
may in any subsequent notice so handed or sent to the purchaser in such
calendar year, make demand to the purchaser to carry out his obligation
within a period of not less than seven days calculated from the date on
which the notice was so handed or sent to the purchaser, as the case may
be.

12 Repairs
12.1 The Purchaser shall do all necessary repairs and maintenance work to the
satisfaction of the Seller and if the Purchaser fails to do it, the Seller may
have it done after reasonable notice given to the Purchaser, and the costs
may be reclaimed from the Purchaser.

12.2 The Purchaser may make no alterations or improvements to the

property or remove any fixtures and fittings, unless he obtains the written
permission of the Seller and strictly complies with the local building
regulations and other legal requirements.

12.3 While any amount is due under this contract, the Seller or his agent may
enter the land at any reasonable time for the purpose of inspection or
repairs.
13 Jurisdiction
The parties hereby agree to the jurisdiction of the magistrate’s court
for any litigation in connection with or pursuant to this contract, but the
Seller may institute proceedings in any other competent court at his option.

56
14 Attorneys
The Seller hereby appoints as his attorneys (state) who shall act on his
behalf for the purposes of issuing any notice or advice called for in the Act
or in this Deed, and who shall attend to the transfer of the property into
the name of the Purchaser as soon as the Purchaser has complied with
the terms hereof, or is in law entitled to call for transfer to be passed.

15 Electricity:
Certificate of compliance The Seller shall provide the Purchaser at his own
cost, on or before the date of occupation mentioned above, with a
certificate of compliance in accordance with the provisions of regulations
issued in terms of the Machinery and Occupational Safety Act 6 of 1983.
The Seller undertakes to effect no alteration of whatever nature to the
electrical installation in the property hereby sold after the date of the issue
of the certificate.

(In Kwazulu-Natal the following clause should be added:

16 Pest free certificate

The Seller shall provide the Purchaser with a report issued by a
government approved entomologist to the effect that there is no evidence
of timber destroying insects (excluding ambrosia and emobius mollis,
which are considered harmless) in the buildings, provided that should there
be any evidence of such infestation, the Seller shall be obliged, at his own
expense, within 10 (TEN) days after receipt of such report and
recommendations, to contract with the entomologist or any other qualified
person for the treatment to the buildings in terms of such
recommendations. Upon receipt by the Purchaser of a report by an
entomologist that the infestation has been eradicated, the terms of this
clause shall be deemed to have been fulfilled by the Seller. Should the
Seller not enter into any such contract or contracts, then and in such event
the Purchaser shall be entitled, at the expense of the Seller, to have such
eradication effected as above contemplated.)

SIGNED at (place)…………………. on this (day, month, year)…………. Witnesses:

1 ……………………………………………….

2 ……………………………………………….
(Signatures of witnesses)

………………………………………………………..
(Signature of seller)

57
SIGNED at (place) ……………………………on this (day, month, year) …………..

Witnesses:

1 ……………………………………………….

2 ……………………………………………….
(Signatures of witnesses)

………………………………………………………...
(Signature of purchaser)

58
ANNEXURE “A”

For purposes of the Alienation of Land Act 68 of 1981 the parties to the contract
attached hereto agree as follows:

1 Definitions

1.1 For purposes of this annexure and the contract, the words “owner”,
“seller”, “purchaser”, “remote purchaser” and “intermediary” have the same
meaning as defined in the Act.

1.2 “The Act” means the Alienation of Land Act 68 of 1981, as amended.
1.3 “The attached contract” means the contract to which this Annexure “A”
forms an annexure.
2 The rights, obligations and acknowledgements of the seller

2.1 The Seller acknowledges that he is the owner of the land.

(Alternatively:

The Seller acknowledges that he is not the owner of the land, but that the land is
owned by (state)
whose address is (state).)

2.2 The land is unencumbered by a mortgage bond. (Alternatively:

The land is encumbered by a mortgage bond. The name of the mortgagee is (state)
whose address is
(state).)

2.3 The Seller acknowledges that he is an intermediary purchaser and that he

purchased the property from (state) whose address is (state).
2.4 The land is held under separate title deed. (Alternatively:

The land is not presently held under separate title deed, but the Seller assures the
Purchaser that the land shall be registrable in the name of the Purchaser by not
later than (date).)

2.5 The Seller acknowledges that he is aware that he is required in terms

of the provisions of section 20(1)(a) of the Act to record the contract
within the time limits imposed under the said section.

2.6 The Seller hereby undertakes that the land shall not be encumbered or
further encumbered by a mortgage bond on or before the date on which
the contract is recorded in terms of section 20 of the Act.

59
2.7 The Seller acknowledges that he is aware of the obligations imposed
upon him in terms of sections 7(1), 8(1) and 16(1) of the Act.
3 The rights, obligations and acknowledgements of the purchaser

3.1 The Purchaser acknowledges that he requested this contract to be drawn

up in the English language.

3.2 The Purchaser acknowledges that he has received a copy of this

contract.

3.3 The Purchaser acknowledges having received a certificate as

contemplated in section 7(1) of the Act from the mortgagee(s) of the
land.

3.4 The Purchaser acknowledges having received a certificate from the Seller
as contemplated in terms of section 8(2) of the Act, detailing the owner and
all intermediaries, and the amounts due and owing to them individually.

3.5 The Purchaser acknowledges that:

3.5.1 transfer duty in an amount of R.......... (..........RAND) is payable by him in
terms of the Transfer Duty Act 40 of 1949 in respect of this acquisition,
and that such transfer duty is payable within 6 (SIX) months as from date
of this contract, failing which penalty interest will accrue at the prescribed
rate;

3.5.2 he is aware that transfer duty is payable by the following intermediaries

in the amounts reflected adjacent to their names: (state names and
amounts).
3.6 The Purchaser acknowledges that he is aware that if:

3.6.1 the owner fails to fulfil his obligations to a mortgagee(s); or

3.6.2 any intermediary fails to fulfil his obligations to the person who alienated
the land to him; or

3.6.3 any payment to be made by him to the person who alienated the land to
him would reduce the amount owed by him to that person to an amount
less than the amount owed by the owner to the mortgagee(s) referred to
in clause 3.6.1, or by any intermediary to the person referred to in clause
3.6.2, the said Purchaser is entitled to fulfil the obligations of that owner or
intermediary, or to make such payment to the mortgagee(s) or to the
person concerned, to the extent of such failure or difference as the case
may be, and such fulfilment or payment shall be accompanied by the
prescribed particulars as determined in regulation 2 of the Act. The
Purchaser is further aware in this regard of his full rights contained in
section 11 of the Act.
3.7 The Purchaser acknowledges that he is aware that notwithstanding the
60
 provisions contained in the attached contract, he is in terms of section
17 of the Act at all times entitled to accelerate payment or make larger
payments than provided for in the attached contract, and that provided the
land is registrable as defined in the Act, to tender payment of all amounts
owing in terms of the contract to the Seller and claim transfer of the land
against such payment from the Seller.

3.8 The Purchaser acknowledges that in terms of section 20 the Seller is

obliged to have the contract recorded within the time limit set down in the
said section, and that in the event of his failure so to do the Purchaser, in
addition to his other rights, is entitled to apply for the contract to be
recorded.

3.9 The Purchaser acknowledges that he is aware of the rights and remedies
granted to him under sections 13(2), 16(3), 23 and 27 of the Act which
relate respectively to:

3.9.1 the right of the Purchaser to refuse payment of interest in terms of the
contract in the event of the Seller failing to provide him with a copy of
the Deed of Sale, despite a request therefor as provided by the Act;

3.9.2 the right of the Purchaser to refuse payment of interest in terms of the
contract by virtue of the failure of the Seller to produce statements of
account, and his failure to do so despite a request therefor as provided
by the Act;

3.9.3 the obligation on both parties to advise change of domicilium citandi et

executandi;

3.9.4 the rights of the Purchaser who has partially paid the purchase price of the
land.

3.10 The Purchaser acknowledges that the following obligations are inter alia
imposed upon him in terms of the Act, namely:

3.10.1 to notify any mortgagee holding a mortgage bond over the land of the
conclusion of the contract, his address and any change of address, in
terms of section 9(1) of the Act;
3.10.2 in the event of the Seller arranging a mortgage bond over the land in an
amount sufficient to pay all amounts owed to him by the Purchaser,
including the costs of transfer and the costs of registration of the
mortgage bond, and upon terms that are not more onerous than the terms
which at the time apply in respect of the loan secured by a first mortgage
bond over land granted by a bank, to complete an application and provide
all the necessary information required by the intended mortgagee for
purposes of the loan and, on request, to furnish the Seller with a completed
application within 14 (FOURTEEN) days of written request having been
received in terms of the provisions of section 15(2) of the Act;

61
3.10.3 if the Purchaser is a remote purchaser, his obligations in terms of section
21(1), to notify the owner of the land of the conclusion of the contract and
of his address, and of the name and address of any intermediary who
alienated the land prior to the date of this contract.

3.11 The Purchaser acknowledges that he is aware of his rights under

section 27 of the Act to demand transfer of the land after payment of not
less than 50% (FIFTY PERCENT) of the purchase price, on the condition
of the registration of a first mortgage bond by him over the land in favour
of the Seller to secure the balance of the purchase price on the same terms
and conditions as contained in this agreement.

3.12 The Purchaser acknowledges that he is aware of his rights to cancel this
contract, contained in sections 7(3), 8(3) and 20(1)(c) of the Act.

4 General

4.1 The Purchaser shall insure the property and improvements with an
insurance company for its full replacement value and shall cede such
insurance policy to the Seller as collateral security for the balance of the
purchase price outstanding from time to time and shall maintain such
insurance for the entire period that this contract is in force.

(Alternatively:

The Purchaser is not responsible for insuring the property and improvements, but,
should the Seller insure the property and improvements, he shall be entitled to
require the Purchaser to refund to him all premiums paid to the insurer on demand.)

4.2 The parties record that no endowment, betterment or other amount is

payable prior to transfer being registered into the name of the Purchaser.

(Alternatively:
The parties record that an endowment, betterment or other amount of money
amounting to R.......... (..........RAND) must be paid before transfer can be
registered into the name of the Purchaser, and that such amount is payable by
(state).)

The following are sample clauses which depending on the circumstances should
be included into a contract of sale of land:
Clause to be used in the event that the purchase price is payable in instalments,
but over a period of less than one year

1 Purchase price
The purchase price is the sum of R.......... (..........RAND) and payable as
follows:

62
1.1 a deposit in the amount of R.......... (..........RAND) payable against signing
hereof;

1.2 (state) monthly instalments of R.......... (..........RAND) each, of which the

first is payable on the (date), and thereafter on the same day of every
following month;

1.3 for the balance of the purchase price the Purchaser shall issue a suitable
bank guarantee payable in cash against registration of the property into the
name of the Purchaser.

Should the Purchaser fail to make any payment provided for on due date, the
balance then owing under this Deed of Sale shall become due and payable without
further demand.

4 Clause to be inserted in the above sample contracts of sale of land

if the property is held under sectional title

1 The Act
References to “the 1986 Act” in this Deed of Sale shall be to the Sectional
Titles Act 95 of 1986, as amended.

2 Description of property
The Seller hereby sells to the Purchaser who hereby purchases: Section
number (state) measuring (state) square metres in the building known, or
to be known as (state), situate upon Erf number (state) in the Town of
(state) in accordance with the Sectional Plan, which is Annexure (“state”)
hereto, together with its undivided share in the common property
apportioned to that section, as will more fully appear from the annexed
Sectional Plan.

3 Sale subject to Act

The Purchaser acknowledges that the sale is subject to the provisions of
the 1986 Act, and that he takes transfer subject to the provisions of the
1986 Act, and in particular, the provisions of sections 28(1) (common
servitudes), 32(1) (participation quotas), 35(1) (the existence of a body
corporate), and 35(2)(b) (provision made for a code of conduct which will
be binding on the Purchaser).

63
5 Sample contract - Sale of business agreement

MEMORANDUM OF AGREEMENT

entered into between:

(“the Seller”)

and

(“the Purchaser ”)

1 Interpretation

1.1 In this agreement and in the annexes to this agreement (other than
documents/accounts prepared before the date of signature of this
agreement) –

1.1.1 clause headings are for convenience and are not to be used in its
interpretation;

1.1.2 unless the context indicates a contrary intention an expression which

denotes –

1.1.2.1 any gender includes the other genders;

1.1.2.2 a natural person includes a juristic person and vice versa;

1.1.2.3 the singular includes the plural and vice versa.

1.2 In this agreement the following expressions bear the meanings assigned
to them below and cognate expressions bear corresponding meanings –

1.2.1 “accounts receivable” means the claims of the Seller against all persons
who are indebted to the Seller on the effective date and includes all claims
which the Seller has against sureties and all bank balances and deposits;
(See clauses 1.1 and 1.2 of Contract 2);

1.2.2 “agreement accounts” means the audited financial statements to be

prepared in respect of the business as at the effective date in accordance
with the provisions of clause 7;
1.2.3 “audited accounts” means the signed audited annual financial
statements of the Seller relating to the business in respect of the financial
year ended (day, month, year), copies of which are annexed hereto marked
Annex “(state)”;
1.2.4 “auditors” means (name of auditors) and includes their successors in

64
 practice;

1.2.5 “business” means the (state) business carried on by the Seller as a going
concern as at the effective date, and includes the business assets and the
liabilities;

1.2.6 “business assets” means all the assets of the Seller used in or in
connection with the business, comprising –

1.2.6.1 accounts receivable;

1.2.6.2 business names;

1.2.6.3 contracts;

1.2.6.4 fixed assets;

1.2.6.5 goodwill;

1.2.6.6 property;

1.2.6.7 shares;

1.2.6.8 stocks;

1.2.6.9 trademarks;
but specifically excluding – (describe any asset/s to be excluded).

1.2.7 “business name” means the name (name of business) and any
business or trade name in connection with or normally associated with
the business on the effective date;

1.2.8 “completion date” means the later of –

1.2.8.1 the first business day after the date on which the suspensive conditions
are fulfilled or waived, as the case may be; and
1.2.8.2 the first business day after the date on which the agreement accounts are
delivered to the Purchaser; and

1.2.8.3 the (day, month, year);

1.2.9 “contracts” means all agreements of whatsoever nature relating to the

business, including (without limitation) all financial leases, credit
agreements, franchises, licence agreements, agencies, leases of
premises, all unexecuted or partially executed orders and tenders
(whether awaiting adjudication or in respect of which contracts have been
awarded), such contracts (other than unexecuted or partially executed
orders and tenders) being fully listed in Annex “(state)”; (See clause 1.5 of

65
 Contract 2);

1.2.10 “effective date” means (day, month, year) and more particularly the
commencement of business on that date;

1.2.11 “fixed assets” means all fixed assets of whatsoever nature or kind owned
and used by the Seller in or in connection with the business on the
effective date, which fixed assets are listed in Annex “(state)”; (See clause
9 alternatives 1 and 2) of Contract 2);

1.2.12 “goodwill” means the goodwill attaching to the business;

1.2.13 “liabilities” means all liabilities of whatsoever nature or kind of the Seller
arising from the conduct of the business as at the effective date and which
arose prior to the effective date; (See clause 1.9 of Contract 2);

1.2.14 “premises” means the premises situate at (place) in which the business
is being conducted by the Seller on the effective date;

1.2.15 “property” means the property beneficially owned by and registered in the
name of (state), situate at (place), being held by (state) under Deed of
Transfer No (state);

1.2.16 “Purchaser” means (name of purchaser); (See clauses 1.12 and 5 of

Contract 2)

1.2.17 “Seller” means (name of seller);

(See clause 1.13 of Contract 2);
1.2.18 “shares” means the shares listed in Annex “(state)”;

1.2.19 “signature date” means the date of signature of this agreement by the party
last signing;

1.2.20 “stocks” means the stock in trade of the Seller on the effective date,
comprising –

1.2.20.1 consumables;
1.2.20.2 finished products;

1.2.20.3 packaging materials;

1.2.20.4 raw materials;

66
1.2.20.5 work-in-progress;
and includes stock in transit to and from the Seller, stocks held on consignment by
third parties and stocks held for reworking by third parties;

1.2.21 “suspensive conditions” means the suspensive conditions set out in clause
2;

1.2.22 “trademarks” means the trademarks listed in Annex “(state)”.

1.3 In this agreement and the Annexes the word “agreement ” refers to this
agreement and the words “clause” or “clauses” and “Annex” or
“Annexes” refer to clauses of and annexes to this agreement.

1.4 This agreement includes the Annexes.

2 Suspensive conditions
2.1 This agreement is subject to the fulfilment of the following suspensive
conditions, namely that –
2.1.1 the Purchaser and (name of seller) enter into a (state) agreement
substantially on the terms and conditions set out in the draft (state)
agreement annexed hereto marked Annex “(state)”;

2.1.2 the landlord of the premises granting to the Purchaser on or before (day,
month, year) a lease on terms and conditions acceptable to the Purchaser;
(See clause 12 of Contract 2);

2.2 The parties will use their best endeavours to procure the fulfilment of the
suspensive conditions as soon as reasonably possible after the signature
date.

2.3 The suspensive conditions are inserted for the benefit of the Purchaser
who is entitled to waive fulfilment of any of the conditions by written notice
to the Seller.

2.4 Unless all the suspensive conditions are fulfilled or waived by not later than
(day, month, year), (or such later date as may be agreed in writing by the
parties, which agreement will not be unreasonably withheld) the provisions
of this agreement will be of no further force or effect, and neither party
will have any claim against the other in terms of this agreement. (See
clause 2 of Contract 2).

3 Sale
3.1 Subject to the fulfilment or waiver of the suspensive conditions, the Seller
sells to the Purchaser which purchases the business as a going concern
with effect from the effective date.

67
3.2 Should the suspensive conditions be fulfilled or waived then ownership
in and the risk and benefit attaching to the business will be deemed to
have passed to the Purchaser on the effective date, notwithstanding the
fact that this Agreement may have been signed after the effective date or
that the suspensive conditions are fulfilled or waived. (See clause 6 of
Contract 2).

4 Purchase consideration and payment

4.1 The consideration payable for the business is an amount equal to the
aggregate of the following, less the liabilities –

4.1.1 in respect of the accounts receivable, the book value thereof as reflected
in the agreement accounts;

4.1.2 in respect of the business names, (state value, if any);

4.1.3 in respect of the contracts, including unexecuted or partially executed

orders, (state value, if any);

4.1.4 in respect of the fixed assets, the depreciated cost value thereof as
reflected in the agreement accounts;

4.1.5 in respect of the goodwill, (state value, if any);

4.1.6 in respect of the property, (state value, if any);

4.1.7 in respect of the shares, (state value, if any);

4.1.8 in respect of the stocks, the value thereof as agreed between the parties
in terms of clause 5.2;

4.1.9 in respect of the trade marks, (state value, if any);

4.2 The consideration payable by the Purchaser to the Seller in terms of
clause 4.1 is payable on the completion date.

5 Stocktaking

5.1 On the effective date the parties will cause a stocktaking to be

commenced, and to be continued of the stocks of the business in
accordance with the following provisions –

5.1.1 each of the parties will be entitled to be present or represented at the

stocktaking;

5.1.2 after the stocktaking has been completed a schedule reflecting the stocks
will be prepared and initialed by the parties;

68
5.1.3 any stocks which –

5.1.3.1 are materially damaged; or

5.1.3.2 are unsaleable or unuseable as being incomplete, redundant, slow

moving, obsolete or out of normal commercially accepted standards; or

5.1.3.3 have an expiry date earlier than (day, month, year); will be excluded for
the purposes of valuing the stocks unless the parties agree in writing on
the value thereof;
5.1.4 Should there be any dispute as to whether any item of stock falls within
any category set out in clause;

5.1.3 the dispute will be determined by an independent expert appointed by the

auditors –

5.1.4.1 whose decision will be made within 21 (twenty-one) days of his

appointment; and

5.1.4.2 who will act as an expert and not as an arbitrator; and

5.1.4.3 whose decision will, in the absence of manifest error, be final and binding
on the parties;

and

5.1.4.4 who will determine the party liable for his costs and such party will pay his
costs.

5.2 Upon completion of the schedule referred to in clause 5.1.2, the parties
will agree the value of the stocks on the basis of the lower of cost or net
realisable value, and failing agreement the stocks referred to will be
valued at the lower of cost or net realisable value by an independent
auditor agreed by the parties (or failing agreement, to be appointed by
the President for the time being of the South African Institute of Chartered
Accountants), subject mutatis mutandis to the provisions of clause 5.1.4.
(See clause 8 of Contract 2).

6 Release of assets It is recorded that the assets listed in Annex “(state)”

are subject to the encumbrances referred to in that Annex. The Seller
undertakes to procure the release of all such assets from their respective
encumbrances as from the effective date.

7 Agreement accounts
7.1 The Seller will procure the preparation of the agreement accounts which
will be reported on and audited by the Auditors without delay, at the cost
of the Seller, and copies delivered to the parties within (state) days before
the completion date.

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7.2 The agreement accounts will be prepared –

7.2.1 on the same basis and using the same accounting and management
policies, principles, practices, procedures and other conventions as those
used in preparing the audited accounts in respect of the preceding
financial year;

7.2.2 subject to the provisions of clause 7.2.1 on the basis of generally accepted
accounting practice and in accordance with the provisions of the
Companies Act, 1973 (as amended);

7.2.3 subject to the provisions of clause 7.2.1 so as fairly to present –

7.2.3.1 the financial position and the state of affairs of the business as at the
effective date; and

7.2.3.2 the trading results and profits of the business for the period ending on the
effective date;

7.2.4 and reported on by the auditors without any qualification.

7.3 The Seller will procure that simultaneously with the completion of the
agreement accounts the auditors will certify in writing the book value of
the stocks to be reflected in the schedule to be prepared in accordance
with the provisions of clause 5.1.2; and copies of these certificates will be
provided to the Purchaser by not later than 3 (three) days before the
completion date.

7.4 The Seller will procure that the Purchaser, its representatives and auditors
will be given free and unrestricted access to the books, records, registers
and other documents of the Seller pertaining to the business for the
purposes of verifying that the agreement accounts have been prepared in
accordance with the provisions of this clause. The access and verification
contemplated in this provision will in no way detract from the Seller’s
obligations and will not be or be deemed to be an acknowledgement by
the Purchaser that the agreement accounts have been prepared in
accordance with the provisions of this clause. (See clause 10 of Contract
2).

8 Completion At (state time) on the completion date at the offices of the

(state) or such other time or place as the parties may agree –

8.1 the Seller will deliver to the Purchaser –

8.1.1 all documents and books of account, registers, contracts, minute books,
salary records and other documents and records relating to the business
still in the Seller’s control or possession, provided that the Seller will
thereafter have access to them during normal business hours for the
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 purposes of the preparation and completion of its normal annual financial
statements and income tax returns relating to the business and for other
reasonable purposes;

8.1.2 such documents, powers of attorney and authorities as may be

reasonably required by the Purchaser to enable the Purchaser to acquire
ownership of the business assets or the registration in its name of any of
the business assets, including the assignment of trade marks; (See clause
12 of Contract 2);

8.1.3 the auditors’ certificates prepared in accordance with clause 7.

8.2 The Purchaser will pay to the Seller the consideration set out in clause 4.
9 Warranties

9.1 The Seller unconditionally gives to and in favour of the Purchaser the
warranties set out in this agreement and in Annex “1”. Each such warranty
is –

9.1.1 a separate warranty and is in no way limited or restricted by inference

from the terms of any other warranty;

9.1.2 continues and remains in force notwithstanding the completion of any or

all the transactions contemplated in this agreement;

9.1.3 is deemed to be material and to be a material representation inducing the

Purchaser to enter into this agreement;

9.2 Save for those warranties and representations expressly given or made
in this agreement or in Annex “1”, no warranties or representations are
given or made, whether express or implied.
10 Publication in terms of Insolvency Act
10.1 The transfer of the business shall be advertised in terms of Section 34 of
the Insolvency Act 24 of 1936, as amended. The Seller authorises the
Purchaser to place the advertisement in terms of the Insolvency Act.
Should any creditor or other person object to the disposal of the business
or institute proceedings against the Seller in pursuance of the
advertisement placed in terms of the Insolvency Act or claim payment
of moneys due, then the Purchaser will have the right, at its option, to
pay all or any amounts claimed by any creditor and to reduce the purchase
price payable by it to the Seller by the amount so paid and produce proof
of the amount so paid. Alternatively, the Purchaser will, at its option, have
the right to demand that the Seller pays the amount so claimed and
produces proof of such payment.

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10.2 The Seller and the Purchaser undertake to each other that immediately
either of them becomes aware of any proceedings instituted by any person
or persons who purport to have any claim against the Seller as at the
effective date (“unsatisfied creditors”) which, if unsatisfied, may result in
the disposal of the business in terms of this agreement being void as
against the unsatisfied creditors concerned in terms of Section 34(3) of the
Insolvency Act, it will immediately notify the other party in writing;

10.3 If on the completion date there remain any unsatisfied creditors -

10.3.1 whose claims have not been discharged by or on behalf of the Seller; or

10.3.2 who have not been given an undertaking by or on behalf of the Seller to
discharge their claim or claims in a form acceptable to the unsatisfied
creditors; or

10.3.3 who have not waived in writing their rights derived from the provisions of
Section 34(3) of the Insolvency Act, the Purchaser will have the right, in
addition to any other rights which it may have in law, at its option either to
pay all or any amounts claimed by any creditor and to set off the same
against the purchase price payable by the Purchaser to the Seller in terms
of this agreement or to cancel this agreement. Upon the claims of any
unsatisfied creditors being discharged or waived or the undertaking
referred to in clause 10.3 being given, this agreement will become
unconditional.

11 Restraint

11.1 The Seller, in order to protect the goodwill of the business and the interests
of the Purchaser in the goodwill of the business, agrees and undertakes
in favour of the Purchaser and the business that it will not within the areas
referred to in clause 11.2 and for a period of 3 (three) years after the
effective date, either as principal, agent, partner, representative,
shareholder, director, employee, consultant, adviser, financier, or in any
other like or similar capacity, directly or indirectly be associated or
concerned with, interested or engaged in any firm, business, company or
other association of persons which carries on a business or activity similar
to the business carried on by the Seller on the effective date, or any new
but similar business established by the Purchaser after the effective date.

11.2 The areas covered by these restraints are –

11.2.1 the Province of Gauteng;

11.2.2 the Province of Free State;

11.2.3 the Province of Western Cape;

11.2.4 the Province of KwaZulu-Natal;

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11.2.5 the Province of Northern Cape;

11.2.6 the Northern Province;

11.2.7 the Province of North West;

11.2.8 the Province of Eastern Cape;

11.2.9 the Province of Mpumalanga;

11.3 The Seller agrees that –

11.3.1 the restraints imposed upon it in terms of this clause are reasonable as to
subject matter, area and duration and are reasonably necessary in order
to preserve and to protect the goodwill of the business;

11.3.2 notwithstanding the manner in which the restraints in clause 11.1 and the
areas in clause 11.2 are grouped together or linked geographically, each
of them constitutes a separate and independent restraint, severable from
each of the other restraints.

11.4 The aforegoing provisions of this clause will not be construed so as to

preclude the Seller from –

11.4.1 owning not more than 5% of the shares or other securities of any
company the shares of which are listed on any recognised Stock
Exchange if the nature of the business or activity of such company is a
business or activity restricted pursuant to clause 11.1;

11.4.2 continuing to hold any interest which it presently holds and which is
listed in Annex “(state)”.
12 Breach

Should either party commit a material breach of this agreement and fail
to remedy such breach within 14 (fourteen) days of written notice
requiring the breach to be remedied, then the party giving the notice will
be entitled, at its option, either to cancel this agreement and claim
damages or to claim specific performance of all the defaulting party’s
obligations, together with damages, if any, whether or not such obligations
have fallen due for performance.

13 Whole agreement

13.1 This agreement constitutes the whole of the agreement between the
parties relating to the subject matter thereof, and no amendment,
alteration, addition, variation or consensual cancellation will be of any force
or effect unless reduced to writing and signed by the parties.

13.2 The parties agree that no other terms or conditions, whether oral or

73
 written, and whether express or implied, apply.

14 Waiver

No waiver of any of the terms and conditions of this agreement will be binding for
any purpose unless expressed in writing and signed by the party giving the same,
and any such waiver will be effective only in the specific instance and for the
purpose given. No failure or delay on the part of either party in exercising any
right, power or privilege will operate as a waiver, nor will any single or partial
exercise of any right, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.

15 Notices and domicilia

15.1 The parties select as their respective domicilia citandi et executandi for
the purpose of legal proceedings and for the purposes of giving or sending
any notice provided for or necessary in terms of this agreement, the
following addresses –

(State physical and postal addresses and telefax no (if any) of the Seller) (State
physical and postal addresses and telefax no (if any) of the Purchaser) or such
other address or telefax number as may be substituted by notice given as required.
Each of the parties will be entitled from time to time to vary its domicilium by written
notice to the other to any other address within the Republic of South Africa which
is not a post office box or poste restante.

15.2 Any notice addressed to a party at its physical or postal address will be
sent by prepaid registered post, or delivered by hand, or sent by telefax.

15.3 A notice will be presumed, unless the contrary is proved, to have been
given –
15.3.1 if posted by prepaid registered post, 5 (five) days after the date of posting
thereof;

15.3.2 if hand delivered during business hours on a business day, on the day of
delivery;

15.3.3 if sent by telefax, on the first business day following the date of sending of
such telefax.
16 Costs

16.1 Each party will bear its own costs of and in connection with the negotiation
and preparation of this agreement. Any other costs and charges
necessary to give effect to this agreement will be paid by the Purchaser.

16.2 Should the suspensive conditions not be fulfilled or waived, the cost
incurred in the preparation of the agreement accounts will be for the

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 account of the Purchaser unless the effective date coincides with the
financial year end of the Seller.

17 Value-added Tax

17.1.1 The business is sold as a going concern;

17.1.2 the business will be an income earning activity at the time of transfer;

17.1.3 The assets necessary for the carrying on of the business will be transferred
to the Purchaser.

17.2 The purchase consideration includes value-added tax at the zero rate.

17.3 In the event that the sale is subject to value-added tax at the standard rate,
the Seller is entitled to recover the value-added tax so payable from the
Purchaser.

SIGNED at (place)……………… on this (day, month, year)……………….

Witnesses:

1 …………………………………………….
2 …………………………………………….
(Signatures of witnesses)

………………………………………………………
(Signature of Seller)

Witnesses:

1 …………………………………………….

2 …………………………………………….
(Signatures of witnesses)

………………………………………………………
(Signature of Purchaser) ANNEX 1

Warranties given by the Seller in respect of the business

1 Warranties given by the seller relating to the business as at the effective

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 date and the completion date

1.1 The Seller is the owner of the business and is entitled in law to sell
the business to the Purchaser.

1.2 The Seller’s books and records pertaining to the business have been
properly maintained according to law and are capable of being written up
so as to record all of the transactions of the business.

1.3 The Seller is in possession of all necessary permits, authorities and

permissions legally required in order to conduct the business and the Seller
is not aware of any facts or circumstances which may lead to the
cancellation or withdrawal of any such authority or permission.

1.4 The Seller is the registered and beneficial owner of all trademarks used by
it in connection with the business and has not granted and is not under
any obligation to grant any rights in respect thereof.

1.5 Save as disclosed to the Purchaser in writing, none of the contracts was
entered into other than in the ordinary and normal course of the business,
all of the contracts are of full force and effect according to their terms and
the Seller is not in breach of any of those terms.

1.6 True and complete copies of all material contracts of the business have
been delivered to the Purchaser.

1.7 The Seller is not bound by any contract in restraint of trade which affects
the business.
1.8 The entering into of the agreement does not constitute a breach of
any of the Seller’s contractual obligations entitling any person to terminate
any of the contracts.

1.9 To the best of the Seller’s knowledge and belief, the processes employed
and the products dealt in by the Seller in connection with the business do
not infringe any patent, copyright or other proprietary right.

1.10 No person has any claim of any nature whatsoever against the Seller
arising out of the use by it of any business name.

1.11 No employee of the Seller to whom employment is offered by the

Purchaser has any right to any exceptional leave privileges, accumulated
leave, payment in lieu of leave, pension or other like privileges, benefits
and rights or compensation for loss of office and no employee has any
current service contract whether oral or in writing requiring more than one
calendar months’ notice for the termination thereof.

1.12 There is no unfunded deficit in respect of the pension fund of which the
Seller’s employees are members, whether or not such unfunded deficit

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 has been accrued or is reflected as a liability of the Seller.

1.13 The Seller has not within the past (state) months –
1.13.1 been subject to any order or been a party to an application under the
Labour Relations Act 66 of 1995;

1.13.2 been a party to any application for the establishment of a conciliation

board in terms of the said Act, or any application to any industrial council
having jurisdiction in respect of or any part of the business regarding the
terms and conditions of employment of the employees of the Seller, or
any alleged unfair labour practice affecting any of such employees, nor is
the Seller aware of any fact or circumstance which is likely to give rise to
any such proceedings or applications after the date of this agreement.

2 Warranties given by the seller relating to the business assets as at the

effective date and as at the completion date

2.1 The Seller is the owner of the business assets and is entitled in law to sell
the business assets to the Purchaser.

2.2 The business assets are insured against the risks to which they are
ordinarily subject for amounts which accord with sound business practice
for a period terminating not earlier than 30 (thirty) days after the completion
date.
2.3 Save as disclosed to the Purchaser in writing, none of the business
assets is subject to any lease, lien, hypothec, mortgage, notarial bond,
pledge or other encumbrance whatsoever.

2.4 Save as disclosed to the Purchaser in writing, no person has any right
(including any option or right of first refusal) to purchase or acquire any of
the business assets.

2.5 The fixed assets forming part of the business assets are in good working
order and condition, fair wear and tear alone excepted, have been
properly maintained and are capable of carrying out the functions for
which they are intended.

2.6 All accounts receivable will be fully recoverable to the extent taken over
as at the completion date. Should any such account receivable not be fully
recovered within a period of (state) days after the completion date, that
account receivable will be ceded back to the Seller and the full amount of
the claim against such account receivable will forthwith be paid by the
Seller to the Purchaser in cash, less any amount actually recovered by the
Purchaser in respect thereof.

2.7 Save for those warranties given by the Seller in the normal and ordinary
course of the conduct of the business, no warranties, whether express,

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 implied or tacit, have been given by the Seller to third parties.

3 Warranties given by the seller relating to the audited accounts and

agreement accounts. The audited accounts and agreement accounts –

3.1 were prepared pursuant to the provisions of clause 7 of the agreement;

3.2 reflect for all liabilities, actual or contingent, at their respective amounts;

3.3 adequately provide for bad and doubtful debts as well as for any and all
liabilities, including leave pay, holiday pay, pensions, bonuses or other
similar payments or liabilities to employees.

4 Warranties given by the seller relating to the period between period the
effective date and the completion date.

4.1 The Seller will continue to carry on the business in the ordinary and regular
course.

4.2 There will be no material adverse change in the financial position of the
business.

4.3 The Seller will not enter into any transaction or incur any liability or dispose
of any asset of or relating to the business save in the ordinary and regular
course of conduct of the business.
4.4 The Seller will not, without the consent of the Purchaser, vary the terms
and conditions of employment or working conditions of any of the
employees of the Seller who are to be offered employment by the
Purchaser.

5 Warranties given by the seller in respect of the property

5.1 The Seller is the registered owner of the property.

5.2 The Seller has not sold, transferred nor alienated the property, nor has it
granted any third party the right to acquire, either by way of option or right
of pre-emption, the property or any interest therein.

5.3 No agreements have been entered into whereby any restrictive conditions
or servitudes are to be attached to the property.

5.4 No leases have been entered into in respect of the property.

5.5 No portion of the property has been expropriated.

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5.6 None of the buildings or improvements erected on the property
encroach onto any other property and no building erected on any property
encroaches onto the property.

5.7 All buildings erected on the property were erected in accordance with
plans duly approved by the local authority concerned, and the buildings
comply with all requirements of the electricity and fire departments of the
local authority having jurisdiction.

5.8 The building situate on the property remains adequately insured against all
risks.

5.9 The Seller has made all payments in respect of rates, taxes, insurance
and the mortgage bond registered over the property.

5.10 The Purchaser is aware of the provisions of Deed of Transfer No (state)

and the Seller does not give any warranty, whether express or implied, as
to the state or condition of the property.
6 Warranties given by the seller relating to disclosures made to the
purchaser The Seller has, to the best of its knowledge and belief, made
a full and complete disclosure to the Purchaser of all material
information relating to the business.

6 Individual clauses to cater for variations to the basic sale of business

agreement

1 Interpretation
1.1 “accounts receivable” means the net accounts receivable of the Seller in
respect of the business as at the effective date as reflected in the
agreement accounts;

1.2 “accounts receivable” means the aggregate of the Seller’s claims on the
effective date in respect of all trade and other debtors and includes all
bank balances and deposits and claims against sureties;

1.3 “associated companies” means the holding company and all subsidiaries
of the Purchaser, including any company controlled by such holding
company or any such subsidiary;

1.4 “business accounts” means the pro forma unaudited financial statements
of the Seller relating to the business as at and for the period ended (date
month, year), copies of which are annexed hereto marked Annex “(state)”;

1.5 “contracts” means the contracts listed in Annex “(state)”;

1.6 “credit agreements” means the contracts listed in Annex “(state)”;

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1.7 “earnings” means the profits of the Seller derived from the business for the
financial year ended (day, month, year) –

1.7.1 after full provision has been made for interest;

1.7.2 after full provision has been made for taxation; and
1.7.3 before taking into account all abnormal, extraordinary and non-recurring
income and expenditure or income of a capital nature;

1.8 “financial leases” means the lease agreements more fully set out in Annex
“(state)”;

1.9 “liabilities” means all liabilities as at the effective date and relating to the
business which are brought to account in the calculation of the net asset
value of the business;

1.10 “net asset value” means the business assets (excluding goodwill and other
non-tangible assets) valued in accordance with the provisions of this
agreement, less the liabilities;
1.11 “prime rate” means the rate (percent, per annum) from time to time
charged by (name of bank) Bank on unsecured overdraft to its prime
customers in good standing in the private sector, as certified by any
manager of that bank whose appointment it will not be necessary to prove;
1.12 “Purchaser” means (name of purchaser) or, should a substituted
purchaser be nominated pursuant to the provisions of clause (state), that
substituted purchaser;

1.13 “shares” means the shares in the subsidiaries;

1.14 “subsidiaries” means collectively the subsidiaries of the Seller listed in

Annex “(state)”;
1.15 “subsidiary” means a subsidiary within the meaning of Section 1(3) of the
Companies Act 61 of 1973, as amended;

2 Suspensive conditions

2.1 This agreement is conditional upon the following suspensive conditions

being fulfilled or waived, as the case may be –

2.1.1 the lessor of the premises –

2.1.1.1 either giving its written consent to the assignment by the Seller to the
Purchaser of all of the Seller’s rights and duties in and to the existing lease
of the premises, in which event the Seller will forthwith in writing assign
such lease to the Purchaser, which will in writing accept such assignment
with effect from the effective date; or failing such consent

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2.1.1.2 giving its written consent to the Seller sub-letting the premises to the
Purchaser with effect from the effective date, in which event the Seller will
immediately, in writing, sub-let the premises to the Purchaser, which will
hire them with effect from the effective date on the same terms and
conditions, mutatis mutandis, as are contained in the existing lease of
the premises to the Seller, save that the rental will be R................
(........................................rands);

2.1.2 the lessors and the sellers of the movables described in Annex “(state)”
giving their written consent to an assignment by the Seller to the Purchaser
of all of the Seller’s rights and duties in and to the credit agreements listed
in Annex “(state)”. Subject to such consent being given, the Seller assigns
its rights and duties to the Purchaser, which accepts such assignment with
effect from the effective date, and the Seller undertakes to act, with regard
to such movables, mutatis mutandis as set out in Annex “(state)”;

2.1.3 the Competition Board, pursuant to a reference to it, not issuing an adverse
ruling in respect of this transaction;

2.1.4 the Purchaser obtaining all the trade, factory and other authorities
required by law for it to carry on the business and to operate a factory
or factories or other facilities required for or incidental to the purpose
of carrying on the business;
2.1.5 the South African Exchange Control Authorities and, where appropriate,
the Department of Trade and Industries approving the transaction, where
necessary.

2.2 Unless all the suspensive conditions have been fulfilled or waived by not
later than (day, month, year), (or such later date as may be agreed by the
parties in writing, which agreement will not be unreasonably withheld) the
provisions of this agreement (save for clauses (state), will be of no
further force or effect and the status quo ante will be restored as near as
may be and neither party will have any claim against the other in terms of
this agreement or arising from the failure of the suspensive conditions,
save for any claims arising from a breach of the provisions of this clause.

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3 Voetstoots

The Purchaser agrees that the business and the assets are sold voetstoots, and
that the Seller is not bound by any warranties, representations, undertakings or
the like, express or implied, with regard to the business or the assets or the
turnover or profits of the business or any other matter affecting the business, save
those set out in this agreement and Annex “(state)”. The Purchaser acknowledges
that it is fully acquainted with all of the affairs of the business.

4 Sale

Possession and effective control of the business will pass to the Purchaser on the
later of the effective date and the date of fulfilment or waiver of the suspensive
conditions.

5 Substituted purchaser

Notwithstanding anything to the contrary contained in this agreement, it is

recorded that the Purchaser may prior to the completion date by notice in
writing to the Seller nominate any associated company to be the purchaser under
this agreement, provided that –

5.1 any such substituted purchaser binds itself in writing to all the terms and
conditions imposed on the Purchaser, and

5.2 the Purchaser guarantees, as surety and co-principal debtor, the due and
proper compliance by such substituted purchaser with all the terms and
conditions imposed on the Purchaser.

6 Ownership

Notwithstanding the delivery and transfer by the Seller to the Purchaser of

possession and control of the business, the Seller’s title in and to the fixed assets
will not pass to the Purchaser, this agreement being subject to the fundamental
condition that ownership of the business and the fixed assets remains vested in
the Seller until the purchase consideration, together with interest thereon, has
been paid in full in accordance with the provisions of this agreement.

7 Purchase consideration

Alternative 1

The consideration payable by the Purchaser to the Seller will be the sum of
R................ (........................................rands) as adjusted in accordance with the
provisions of clauses (state).

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Alternative 2

It is recorded that the consideration payable for the business has been calculated
on the basis of the net asset value of the business as at the effective date. The
Seller will cause the auditors to prepare the agreement accounts in accordance
with the provisions of clause (state). The consideration payable for the business
will be increased or decreased, as the case may be, by an amount equal to any
difference in the net asset value of the business as reflected in the agreement
accounts and that reflected in the audited accounts.

Alternative 3

It is recorded that the consideration payable for the business has been calculated
on the basis of the earnings of the business as at the effective date. The Seller
will cause the auditors to prepare the agreement accounts in accordance with the
provisions of clause (state). The consideration payable for the business will be
increased or decreased, as the case may be, by an amount equal to any
difference in the earnings of the business as reflected in the agreement accounts
and the earnings as reflected in the audited accounts.

Alternative 4

Notwithstanding anything to the contrary contained in this agreement, the

aggregate consideration payable in respect of the business will be limited to a
maximum of R................ (........................................rands).

8 Stocktaking

It is recorded that the Seller caused a stocktaking to be carried out on the effective
date of all the stocks of the business which stocktaking the Seller warrants was
conducted in accordance with the following provisions –

8.1 after the stocktaking was completed a schedule reflecting the stocktaking
and the value of the stocks was prepared and initialled by the Seller for the
purpose of this agreement;

8.2 any stocks which –

8.2.1 were materially damaged; or

8.2.2 were unsaleable or unusable as being incomplete, redundant, slow
moving, obsolete or out of normal commercially accepted standards; or

8.2.3 had an expiry date earlier than (day, month, year); or

8.2.4 were in excess of (state) months normal trading requirements of the

business;
were valued at Nil.

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8.3 the stocks reflected in the schedule referred to in clause 8.1 will be
adjusted for any stock movements between the date of stocktaking and
the completion date;

9 Provisions relating to assets and liabilities

Alternative 1

The fixed assets will be verified by the parties within 14 (fourteen) days after the
signature date. Should the existence of any fixed assets reflected in the audited
accounts not be verified, the book value thereof as at the effective date as
determined by the auditors will be deducted from the purchase consideration
payable in terms of clause (state).

Alternative 2

Concurrently with the stocktaking referred to above, the parties verified the
description and quantity of the fixed assets and a schedule reflecting the fixed
assets was prepared and initialled by the parties. It is recorded that the parties
have agreed the value thereof as at the effective date for the purposes of this
agreement.

Alternative 3

The Seller will, forthwith after being requested to do so by the Purchaser, negotiate
with the parties to the contracts and all creditors, for the purpose of obtaining
such other parties’ and creditors’ consents to the cession, assignment and
delegation of all the Seller’s rights and liabilities under those contracts and to
such creditors with effect from the effective date.

Alternative 4

The Purchaser will not be responsible for any of the Seller’s liabilities, which
the Seller will discharge.

10 Agreement accounts

The Seller will procure that simultaneously with the completion of the agreement
accounts the auditors will certify in writing –

10.1 the net asset value of the business as at the effective date as determined
on the basis of the agreement accounts but after applying the further
accounting principles, bases and methods set out in this agreement and
in Annex “(state)”;

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10.2 the earnings in respect of the period ended (day, month, year) as
determined on the basis of the agreement accounts but after applying the
further accounting principles, bases and methods set out in this
agreement and in Annex “(state)”;

10.3 the book value of the business assets;

10.4 the liabilities to be taken over by the Purchaser in terms of this agreement;

11 Completion date

On the completion date the Seller will deliver to the Purchaser such documents,
duly completed, as may be necessary –

11.1 to enable the trade marks to be assigned to the Purchaser;

11.2 to enable the motor vehicles purchased to be transferred to the Purchaser

and to enable the Purchaser to obtain the necessary certificates of road-
worthiness in respect thereof (provided that any costs to be incurred to
obtain any such certificates will be paid by the Purchaser);

11.3 to cede the debts to the Purchaser;

11.4 to cede to the Purchaser all of the Seller’s rights to any outstanding orders
for goods in transit.
12 Lease of property

Simultaneously with the signing of this agreement the Seller undertakes to enter
into an agreement of lease with the Purchaser in terms of which the Seller will let
to the Purchaser the property on the terms and conditions set out in the draft
agreement of lease annexed hereto marked Annex “(state)”.It is recorded that,
notwithstanding anything to the contrary contained in this agreement, the
execution of the lease is a material term of this agreement and a breach of
the obligation imposed on the Seller in terms of this clause will constitute a
material breach for the purposes of clause (state).

13 Indemnities
Alternative 1

The Seller indemnifies the Purchaser and holds it harmless against any claim by
any third party in respect of any liability relating to or arising out of the business
and/or the business assets, the cause of action of which arose prior to the
effective date. Should any such claim be made against the business or the
business assets, the Seller will be obliged immediately to settle or defend such
claim together with all costs connected therewith.
Alternative 2

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(a) The Seller indemnifies the Purchaser against and holds it harmless from
any claim, damage, loss, penalty, charge or expense of any nature
whatsoever which it may sustain as a result of or attributable to any
liability, whether actual or contingent, the cause of action of which arose
prior to the effective date, to the extent that such liability is not fully
provided for or reflected as a liability in the agreement accounts.

(b) The Purchaser is deemed to have suffered a loss equal to the amount
of any liabilities or claims against which it is indemnified in terms of
clause (state), adjusted for any benefit which the Purchaser may receive,
obtain or procure as a result of such liability or claim in respect of any
income tax or allowance.

(c) No claim will be made against the Seller in terms of any indemnity to the
extent that such claim is or claims are in the aggregate less
than R................ (........................................rands). Should the aggregate
of claims made against the Seller in terms of an indemnity exceed the
sum of R................ (........................................rands) the full aggregate
amount of such claims is recoverable.

(d) No claim will be made against the Seller under or in terms of any
indemnity unless such claim or all such claims in the aggregate will have
the effect of reducing the net asset value of the business to less than
R................ (........................................rands). Should the aggregate of
claims made against the Seller in terms of any indemnity have the effect
of reducing the net asset value of the business to below R................
(........................................rands), the full aggregate amount of such
claims will be recoverable.

(e) Should the Purchaser suffer any liability, damage, loss, penalty, cost,
charge, expense or payment which relates to an indemnity, the Seller will
immediately upon such amount being determined and to the extent that
such amount is not recovered from any third party, pay to the Purchaser
an amount equal to such loss, penalty, cost, charge, expense or payment.

Change of name of seller

The Seller undertakes within a reasonable time after signature of this agreement
to change its name from (state existing name) to any other name which is
acceptable to the Registrar of Companies not including the words “(specify)” or
“(specify)” or any combination thereof or of either of those names in combination
with any other name.

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15 Employees and pension fund

15.1 It is recorded that, as at the effective date, certain of the employees of the
Seller to be offered employment by the Purchaser were members of the
Seller’s pension fund. The employees will cease to be active members of
the Seller’s pension fund on the (day, month, year) on which day they will
become members of the Purchaser’s pension fund.

15.2 As at the effective date and in respect of each employee who becomes a
member of the Purchaser’s pension fund, an actuarial reserve will be
determined by the actuary of the Seller’s pension fund. The actuarial
reserve so determined together with interest thereon calculated at an
effective rate of ..........% (........... per cent) per annum from the effective
date to date of transfer thereof in terms of this clause, will be transferred
to the Purchaser’s pension fund.

15.3 The Seller undertakes to continue to allow the employees who accept
employment with the Purchaser to enjoy the normal existing benefits
relating to medical aid, pension and group life insurance as if they
remained employees of the Seller for a reasonable period until the staff
change- over contemplated has been completed, against payment in full
by the Purchaser to the Seller of the cost of such maintained benefits.

15.4 The Seller will procure that the services of (state) will be made available to
the Purchaser at no cost until (day, month, year) or such earlier date as
the Purchaser may elect to provide reasonable assistance for the smooth
transfer of the business to the Purchaser.

16 Publication in terms of Insolvency Act

Alternative 1

The Seller undertakes upon signature of this agreement to procure the advertising
of the transfer of the business in terms of the Insolvency Act 24 of 1936, as
amended. The Seller authorises the Purchaser to place the aforesaid
advertisement in terms of the Insolvency Act. Should any creditor or other person
object to the transfer of the business or institute proceedings against the Seller in
pursuance of the advertisement placed in terms of the Insolvency Act or claim
payment of moneys due, then and in such event the Purchaser has the right, at
its option, to pay all or any amounts claimed by any creditor and to reduce the
purchase price payable by it to the Seller by the amount so paid and produce
proof of such payment. Alternatively, the Purchaser has, at its option, the right to
demand that the Seller pay the amount so claimed and produce proof of having
made payment.

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Alternative 2

(a) The parties agree that notice of the transfer of the business pursuant to
this agreement will not be published as contemplated in Section 34 of
the Insolvency Act 24 of 1936 as amended.

(b) The Seller indemnifies the Purchaser against any loss or damage which
the Purchaser may suffer as a result of notice of the transfer of the
business not being advertised.
(c) The Seller assumes the risk of attachment of any of the business assets
as a result of the transfer not being published and undertakes to
compensate the Purchaser on demand in the event of any such
attachment in an amount equal to the book value of such business Asset

17 Conduct of business

17.1 From the signature date until the completion date the Purchaser will carry
on the business on behalf of the Seller, as agent for the Seller and the
Seller authorises the Purchaser to do so, provided that the business will be
carried on for the account of –

17.1.1 the Purchaser if this agreement becomes unconditional in terms of this

clause, or

17.1.2 the Seller if this agreement does not become unconditional in terms of this
clause.

17.2 Between the effective date and the completion date, representatives of
both the Seller and the Purchaser will have reasonable access to the
business and during that period neither the Seller nor the Purchaser will
be entitled to introduce any change of any nature in the trading style of
the business or to vary the nature of the business without the prior written
consent of the other party, which consent will not be unreasonably
withheld.

18 Support

The parties undertake at all times to do all such things, perform all such actions
and take all such steps and to procure the doing of all such steps as may be
open to them and necessary for or incidental to the fulfilment of the suspensive
conditions and the implementation of the terms, conditions and/or import of this
agreement.

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19 Assisting takeover

The Seller undertakes during the period of one month after the effective date, free
of consideration, to render all reasonable assistance to the Purchaser to enable
the Purchaser to take over and to become acquainted with the operation of the
business.

20 Breach

Alternative 1

(a) Should any party breach or otherwise be in default of any of its obligations
under or in terms of this agreement and remain in default or fail to remedy
such breach within (state) days of receipt of written notice calling upon it
to do so, the other party will be entitled, but not obliged, in addition to any
other rights which it may have or remedies which may be available to it –

(i) to cancel this agreement forthwith, with or without claiming damages;

(ii) to obtain an order against such defaulting party for specific performance
with or without claiming damages;
(iii) to claim such damages as it may have suffered in lieu of specific
performance, together with all amounts owing under or in terms of this
agreement, whether or not such amounts have become due for payment.

(b) Notwithstanding anything to the contrary contained in this agreement, the

Purchaser will not be entitled to cancel this agreement as a consequence
of a breach by the Seller of a warranty unless the breach is -

(i) a material breach, and

(ii) incapable of being remedied by payment in money or being rectified,

or if it is capable of being rectified or being remedied by a payment in
money, the Seller fails to pay the Purchaser the amount concerned within
14 (fourteen) days after such amount has been determined, or should the
breach or the amount be contested, the Seller fails to pay the Purchaser
the amount concerned within 14 (fourteen) days after the same has been
finally adjudicated upon, including all appeals which may be available to
the disputants.

Alternative 2 Should either party –

(a) fail to make payment of any sum required in terms of this agreement; or

(b) fail to observe any provision or perform any other term or condition of this
agreement; or

(c) suffer any default judgment against it to remain unsatisfied for 14 (fourteen)
days, or
(d) be refused rescission of any judgment and fail to lodge an appeal

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 against such judgment within 21 (twenty-one) days and thereafter
prosecute such appeal diligently, or

(e) be placed under judicial management or be wound up, whether

compulsorily or voluntarily, or

(f) compromise with its creditors, or attempt to do so, or

(g) commit any act of insolvency as defined in the Insolvency Act 24 of 1936,
as amended, and in the event of either (a) or (b) fail to remedy such breach
or failure within a period of (state) days of notice to it to remedy such breach
or failure,

then the other party will have the right, without prejudice to such rights as the
aggrieved party may have at law, including the right to claim damages –

(a) to enforce the relevant provisions of this agreement, and to declare the
whole balance of all amounts owing in terms hereof, inclusive of interest
to date, to be due, owing and payable immediately, or
(b) to cancel this agreement.

Alternative 3

(a) It is recorded that the parties have agreed that this agreement will not be
capable of being cancelled for any reason other than as specifically
provided. Accordingly, should any party to this agreement commit a
breach of any of the terms and conditions contained in this agreement,
then should such breach consist of any warranty or representation failing
to be true and correct in any respect, the party in whose favour the
warranty or representation was made or given will be entitled, at its option
–

(i) to call upon the other party or parties (as the case may be) to take
whatever steps may be necessary to procure that such warranty is
complied with, or alternatively

(ii) to claim such damages as it may have suffered as a result thereof;

(b) Should any party to this agreement commit any other breach of any term
or condition and fail to remedy such breach within (state) days of receipt
of written notice calling upon it to remedy such breach, the party giving
such notice will be entitled at its option -

(i) either to claim specific performance, together with any damages which it
may have suffered, or alternatively

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(ii) to claim such damages as it may have suffered in lieu of specific
performance, together with all amounts owing under or in terms of this
agreement, whether or not such amounts have become due for payment.

21 Dispute resolution

Alternative 1

(a) In the event of any dispute or difference arising between the parties relating
to or arising out of this agreement, including the implementation,
execution, interpretation, rectification, termination or cancellation of this
agreement, the parties will immediately meet to attempt to settle such
dispute or difference, and failing such settlement within a period of 14
(fourteen) days, the dispute or difference will be submitted to arbitration in
accordance with the provisions of the Arbitration Act 42 of 1965.

(b) The provisions of this clause will continue to be binding on the parties
notwithstanding any termination or cancellation of the agreement.

Alternative 2

(a) In the event of any dispute or difference arising between the parties
hereto relating to or arising out of this agreement, including the
implementation, execution, interpretation, rectification, validity,
enforceability, termination or cancellation of this agreement, the parties
will forthwith meet to attempt to settle such dispute or difference, and
failing such settlement within a period of 14 (fourteen) days, the said
dispute or difference will, if demanded by any party on written notice to the
other parties, be submitted for resolution to a referee in accordance with
the provisions set out below.

(b) The hearing referred to in (a) will be held –

(i) at (place);
(ii) informally but in accordance with the provisions of the Arbitration Act
42 of 1965, as amended;
(iii) with a view to its being completed within 30 (thirty) business days after
it is demanded, having particular regard to any urgency regarding the
matter in issue.

(c) The referee will be, if the question in issue is –

(i) primarily an accounting matter, a practising independent chartered
accountant of not less than 15 (fifteen) years standing;
(ii) primarily a legal matter, a practising Senior Advocate or attorney of not
less than 15 (fifteen) years standing as such;
(iii) any other matter, an independent person;and failing agreement between
the parties as to such accountant, Senior Advocate, attorney or
independent person within 48 (forty-eight) hours after a hearing of the
dispute has been demanded in terms of clause (a), such person is to be

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 appointed by the President for the time being of the South African Institute
of Chartered Accountants (in the case of (c)(i) above) or the President for
the time being of the (state) Bar Association (in the case of (c)(ii) and
(c)(iii) above).

(d) If agreement cannot be reached between the parties within 48 (forty-

eight) hours after a hearing has been demanded as to whether the
question in issue falls under (c)(i), (c)(ii) or (c)(iii), then a practising Senior
Advocate of not less than 15 (fifteen)years standing (to be determined in
accordance with (c) above), will determine the nature of such issue.

(e) The referee

(i) will have regard to the desire of the parties to dispose of such dispute
expeditiously, economically and confidentially;
(ii) need not observe or take into account the strict rules of law in arriving
at his decision, which will be made as an expert and not as an arbitrator;
(iii) will determine the party liable for his costs and the costs of an expert he
consults and such party will pay his costs;
(iv) will be entitled to consult with attorneys, counsel or any other expert with
regard to any matter or issue as he may deem fit.

(f) The parties irrevocably agree that the decision in any proceedings
hereunder –

(i) will be final and binding on all of them;

(ii) will forthwith be carried into effect;
(iii) may be made an order of any court of competent jurisdiction.

(f) The provisions of this clause will continue to be binding on the parties
notwithstanding any termination or cancellation of the agreement.

22 Jurisdiction

The parties consent and submit to the jurisdiction of the (state) Division of the
Supreme Court of the Republic of South Africa in any dispute arising from or in
connection with this agreement. Notwithstanding such submission, the
Purchaser will be entitled to institute legal proceedings against the Seller in
any Magistrate’s court having jurisdiction, notwithstanding that the amount of the
claim may exceed the jurisdiction of that court, to which jurisdiction the Seller
consents.

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23 Commission

It is recorded and each of the parties warrants that the transaction recorded in
this agreement was not directly or indirectly introduced by or concluded through
the agency of any third party and that no commission is payable in respect of this
transaction or any part thereof.

24 Execution

24.1 This agreement is executed by (state), for and on behalf of the Seller.

24.2 This agreement is executed by (state), for and on behalf of the Purchaser.
25 Costs

Each of the parties shall pay the costs incurred by it in connection with the
registration, preparation and signature of this agreement.

The following sample agreement is:

4 Sample contract - Short form of agreement for the sale of movables

incorporating essential terms only

entered into between:

MEMORANDUM OF AGREEMENT

name of seller)

of (address) (hereinafter called “the Seller”) and

name of purchaser)

of (address)

(hereinafter called “the Purchaser”)

WHEREBY IT IS AGREED AS FOLLOWS:

1 Sale and purchase

The Seller hereby sells to the Purchaser who hereby purchases the
goods described in the schedule hereto (hereinafter referred to as “the
Goods”).

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2 Price
The purchase price for the Goods shall be the sum of R................
(................RAND), payable as follows: (specify terms of payment).

3 Delivery The Seller shall deliver the Goods to the Purchaser at (place of
delivery) on or before (date of delivery).

SIGNED at (place) on this (day, month, year) Witnesses:

1 …………………………………………….

2 …………………………………………….
(Signatures of witnesses)

………………………………………………………
(Signature of seller)

Witnesses:

1 …………………………………………….
2 …………………………………………….
(Signatures of witnesses)

………………………………………………………
(Signature of purchaser)

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SCHEDULE

Description of goods Quantity or weight

The following is a sample contract in regard to:

5 Sample contract - Agreement for the sale of a used motor vehicle

MEMORANDUM OF AGREEMENT
entered into between: (name of seller)

of (address) (hereinafter called “the Seller”)

and

(name of purchaser)

of (address) (hereinafter called “the Purchaser”)

WHEREBY IT IS AGREED AS FOLLOWS:

1 Sale and purchase
The Seller hereby sells to the Purchaser who hereby purchases upon
the terms and conditions hereinafter set forth the motor vehicle described
in the following schedule and hereinafter referred to as “the Vehicle.”

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SCHEDULE

Year of manufacture
Make
Type
Registration number
Chassis number
Particulars of all accessories included in the sale, such as spare wheels, tools,
radio, air conditioning unit, keys, service book

2 Price and manner of payment

The price payable by the Purchaser to the Seller for the Vehicle is the sum
of R................ (................RAND) payable as to a deposit of R................
(................RAND) upon the signing of this agreement and as to the
balance of the purchase price by (state number) monthly instalments of
R................ (................RAND) each, payable on or before the first day of
each and every month, commencing on the (day, month, year).
3 Place of payment
All payments shall be made to the Seller at his above address or at
such other address in the Republic of South Africa as he may indicate in
writing to the Purchaser.
4 Place where vehicle to be kept
The Purchaser shall inform the Seller in writing of the address at which
the Vehicle is to be kept and shall not, while any portion of the purchase
price remains unpaid, remove the Vehicle outside the jurisdiction of the
magistrate’s court for the district of (specify) without the written consent
of the Seller, which consent shall not be unreasonably withheld.
5 Insurance
The Purchaser shall at his own expense cause the Vehicle to be
comprehensively insured with an insurance company approved by the
Seller for at least an amount equal to the purchase price and shall notify
the said insurance company of the Seller’s interest in the Vehicle.
6 Risk
The risk in the Vehicle shall forthwith pass to the Purchaser who shall
remain liable to pay the full balance of the purchase price despite any
damage to or depreciation, loss or destruction of the Vehicle from
whatsoever cause arising.

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7 Restriction of purchaser’s rights
The Purchaser shall not sell, cede, assign, transfer or pledge the Vehicle
or allow it to become subject to any lien of whatsoever nature or deliver
possession thereof to any other person while any portion of the purchase
price remains unpaid.
8 No warranties, representations
The Purchaser hereby agrees that no warranties or representations have
been given or made as to the state, condition or fitness of the Vehicle which
he takes with all faults and agrees to accept all risks of whatsoever nature.
9 Inspection
The Purchaser hereby acknowledges that the Vehicle is second hand,
that he has inspected it and has satisfied himself that it is in good order
and condition.
10 No waiver
No relaxation or indulgence granted by the Seller and no omission by the
Seller timeously or diligently to enforce any right under this agreement
shall be deemed to amount to a waiver of that or any other right.
11 Roadworthy certificate
The Seller shall take the necessary steps to render the Vehicle fit for a
roadworthy certificate and shall deliver such certificate to the Purchaser
prior to delivery of the Vehicle.
12 Registration
The Seller shall sign such forms and deliver to the Purchaser such
documents as may be necessary to enable the Purchaser to register the
Vehicle in his name.
13 Seller’s rights on purchaser’s default
Should the Purchaser fail to pay any instalment punctually on due date or
commit a breach of any of the provisions of this agreement, the Seller shall
be entitled to claim payment of the full outstanding balance of the purchase
price by action in the magistrate’s court for the district of (specify) which
the parties hereto agree shall have jurisdiction notwithstanding the amount
involved.
14 Costs
The costs of drawing this agreement shall be borne by the parties
hereto in equal shares.

SIGNED at (place) on this (day, month, year) Witnesses:

1 ……………………………………………………
2 ……………………………………………………

(Signatures of witnesses)

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…………………………………………………………….
(Signature of seller) Witnesses:

1 ……………………………………………………

2 ……………………………………………………

(Signatures of witnesses) (Signature of purchaser)

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SECTION III –

CONTRACTS OF LETTING AND HIRING OF PROPERTY AND WORK

1 Introduction

In this section you will be studying the contract of lease of property as well as the
letting and hiring of work. The former contract you are probably familiar with, while
the latter is a type of contract used in everyday practice often without realising
exactly what contract you are actually dealing with. The letting and hiring of work
contract covers a variety as wide as transport contracts, building contacts,
research contracts, contracts involving the provision of computer programs,
sourcing out contracts, co-operation contracts and many more in this line.

For purposes of this contract you must have a thorough knowledge of the contents
of the section dealing with the contract of lease as it appears in: Glover Kerr’s
Law of Sale and Lease p329-
607 4th ed 2014.

A Drafting a lease contract

1 Introduction

Because a contract of lease conveys an interest in land its contents are

traditionally formal and expressed in technical terms. However, relatively little
content in a lease contract is legally required to be there.
2 Objectives

The main objective of the Lessor and Lessee at contract negotiation time should
be to achieve agreement regarding the exact premises on the best commercial
terms and conditions for the renting of the agreed upon premises. A well drafted
lease agreement should achieve five goals to meet this objective:

The essential parts are:

(1) the names of the parties

(2) a description of the leased property
(3) language clearly indicating that the landlord/lessor intends to temporarily
divest herself of possession and the proposed tenant/lessee intends to
temporarily come into possession
(4) the duration of the lease, and
(5) the rental amount

3 Residential leases
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A distinction must be made between a residential lease and the lease of business
premises.

In terms of section 26 of the constitution, government is under a duty to take

reasonable legislative steps and other measures, within its available resources,
to achieve the progressive realisation of the right to have access to adequate
housing. No one may be evicted from their home, or has their home demolished,
without an order of court made after considering all the relevant circumstances,
and no legislation may permit arbitrary evictions. In consequence the
government has passed the Rental Housing Act no 50 of 1999 which statute deals
with the recognition of housing as a basic Human Right and The Prevention of
Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998.

In terms of section 104 (1) (b) (i) of the constitution a provincial legislature has
concurrent competence with parliament, to pass legislation for the province with
regard to all matters which fall within the functional areas defined in schedule 4
part A. These include housing and consumer protection.

Thus in respect of residential leases national legislation has been enacted and
residential leases shall have to comply with this enactment.

3.1 Common law

The common law of landlord and tenant supplies for the parties the rights and
obligations which they did not expressly put into their contract.

Consequently where no express or implied agreement is reached on the

following points the lessor is obliged:

(1) to make available the use and enjoyment of the property

(2) to refrain from disturbing the lessee in his enjoyment of the property
(3) to place and maintain the property in the condition agreed upon, or failing
agreement, in a condition reasonably fit for the purpose for which the
property is let
(4) to warrant against defects
(5) to warrant against eviction by a third person with a better title, and
(6) to pay taxes

In view of recent case law it is, however, advised to make explicit provision for
these ex lege terms in any lease contract which you draft. For example, in the
case of Sweets from Heaven (Pty) Ltd v Ster Kinekor Films (Pty) Ltd 1999 (1) SA
796 the court adhered to a restricted interpretation of commodus usus. It was
thus held that the lessor was entitled to let business premises to competitors of
the lessee virtually next door to the latter as no explicit terms to prohibit this
were entered in the contract. The judge found that he did not have the “...discretion
to grant an interdict to protect a right (the lessee’s commodus usus including
profitability of the leased premises) that does not exist”
However, apart from the essential elements listed above, the drafter may add

100
other terms and alter the common law principles of landlord and tenant so long as
the new terms are not illegal and do not contravene statutory provisions or public
policy.

In regard to common law ex lege terms study the following literature:

(1) Hawthorne L. The Lessee’s Right to Commodus Usus THRHR 1989 (52)
124-130.
(2) Hawthorne L Sishen revisited: The Decline and Fall of the “Gemenereg”
THRHR 2000 668-672.
(3) Read: Glover Kerr’s Law of Sale and Lease Chapter 18.
(4) Statutory requirements to be introduced into residential leases
Read: Glover Kerr’s Law of Sale and Lease Chapter 20.

As stated above the national government has enacted legislation to spell out the
rights and duties of landlords and tenants and to protect tenants against
unconscionable rental agreements. The national statute codifies many aspects of
the residential landlord-tenant relationship and in future all residential leases
within the country shall have to be drafted with due recognition to the provisions
of section 4 and 5, which shall apply nationwide.

Sec 5 (1) of the Rental Housing Act provides that leases need not be in writing,
but if the tenant asks, the landlord must put the lease in writing.

Furthermore, it is essential to know when you are to draft a residential lease

that the Act provides that all residential leases, whether in writing or not, are
deemed to include a number of standard provisions, which cannot be waived by
the tenant or the landlord. These deeming provisions deal with receipts, deposits,
inspection, vacation without notice, and tacit renewal.

Furthermore in respect of written leases, the Act provides that a written lease must
include not only the essentials of the contract of letting and hiring of a thing,
namely the names of the parties, a description of the dwelling and the amount of
rental, but introduces further additional requirements for such leases. These
requirements are the addresses of the parties, any other charges payable, a
reasonable escalation, if any, the frequency of payments, the amount of the
deposit, if any, the lease period or the notice period, observance of the obligations
of sec 5 (3) and the regulations relating to unfair practice. A copy of the House
Rules, if any and the list of defects registered during the preoccupation inspection
must be attached as annexures to the lease document.

Compliance with the provisions regarding written leases is the responsibility of the
landlord, and non-compliance is a criminal offence. The Act does not provide the
consequences of noncompliance with sec 5 (6), (7) and (8), which means that the
general rule that contracts which contravene some rule of law are unenforceable,
applies. Thus noncompliance renders the agreement invalid.

The Rental Housing Act repeals the Rent Control Act 80 of 1976.
4 Terms and Conditions

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The general terms and conditions of the contract set out the majority of the rights
and obligations of each party. In a contract of lease the general terms and
conditions should include:

Preamble: A full description of the parties, the processes leading up to

the agreement stage and the essence of the agreement.
That the lessor wishes to let while the lessee wishes to rent
etc

Definitions: A precise definition of the terms used within the agreement.

Interpretations: Any clarifications relating to gender, references, schedules

and appendices, other documents, conflicts between
documents, etc.

Parties: Description of the identity of the parties. Make sure that the
identity no of natural persons and the registration no of juristic
persons is entered.

Agreement: - the fact that the lessor and lessee are in agreement to let and
hire, as to the premises which must be described in detail;
- at a certain determined or determinable rent;
- any options.

Rent: A reference to the monthly rent which should specify the

deposit, the monthly rental and the amount by which the
rent will escalate and when exactly this escalation will
become effective. The escalation clause must be determined
or determinable to avoid the clause or the whole contract
being void for vagueness. The best is to get the parties to
agree to an exact percentage. If this is not possible get them
to agree on a maximum, a ceiling, such as “not more than
15%” . In this way there is scope for later negotiations
without voiding the contract for vagueness.

Read: Glover Kerr’s Sale and Lease 416-452. With regard to the lessor’s tacit
hypothec and insolvency 452-467.

Delivery: Specification of the dates and any conditions relating to

delivery of premises. Set out the responsibility for any
preparation work required prior to delivery.

Read: Glover Kerr’s Sale and Lease 380-385.

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Acceptance: This clause will specify when the premises are accepted
either as completely without defects or with a list of defects
clearly indicated to protect the lessee from being held
responsible for such existing defects when the lease
terminates.

It may be wise to include a schedule to the agreement that sets out in detail all the
defects affecting the premises at the time the contract commences.

Warranties: Specifies what either party is required to warrant with respect

to the agreement.

This can include fitness for purpose.

Read: Glover Kerr’s Sale and Lease 406-412.

Limitation of Sets out the extent to which the lessor/lessee’s liability

Liability: may be limited.

NB: Whether a drafter includes this clause will depend on whom the drafter is
advising either the lessor or the lessee. If the client is the lessor exclude all his
common law obligations. If the client is the lessee insist on including all the
common law obligations of the lessor and whatever else is relevant to your client.

Termination: The parties must agree and set out the basis for any
termination of the agreement.

This will usually only be for situations where one or other is in breach or default
of its obligations as specified in the agreement. This clause will set out what
notice is required to be given to the other party and will generally allow a period
for the default or breach to be remedied before the other party is entitled to
exercise remedies under the agreement.

Read: Glover Kerr’s Sale and Lease 569-588.

Force Majeure: Allows the agreement to be suspended or terminated without

liability in the event of circumstances arising that are outside
of the control of either lessor or lessee unless it is excluded.
Glover Sale and Lease 417-424.

Waiver: Allows the parties to retain any rights under the agreement
that they may not elect to enforce in the first instance. Such
as accepting late payment of rent.

Read: Glover Kerr’s Sale and Lease 433-441.

Severability: Allows for a particular term or condition, which subsequently

proves to be illegal or unenforceable, to be excluded without
compromising the rest of the agreement.

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Notices: How and where any formal correspondence between the
parties with respect to the agreement must be delivered.

Assignment: Requires the lessee to have the consent of the lessor prior
to transferring their rights and obligations under the lease
agreement to any other party.

Read: Glover Kerr’s Sale and Lease 541-544

Amendments: Specifies how any subsequent changes to the contract will

be handled. Usually in writing.

Entire Details the boundaries of the agreement, usually

Agreement: excluding any previous agreements or terms written or oral.

Disputes & This section defines the processes for both parties to
Remedies: resolve any disputes constructively by means of Arbitration.

The following section covers an example of a lease contract of an unfurnished

house and a lease contract of an office that could be used as a basis for
negotiations. The example contracts can be changed to apply to various situations.

EXAMPLE:
1. Contract of lease of an unfurnished house
MEMORANDUM OF AGREEMENT OF LEASE Entered into by and between:

Mr R Forrester, ID no 462811460075 (hereinafter referred to as the lessor)

whose address is the following:

17 Maple Leaf Rd
Willow Park
0047
on the one side

AND

Ms Alina Mokheti, ID no 66090667004 (hereinafter referred to as the lessee)

Whose address is the following:

....................................NB this must be physical address and NOT a PO Box

....................................
....................................

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WHEREAS:

The lessor is the owner of a house situated at Leeukop str, Varsfontein and is
desirous to let the property;

AND WHEREAS:

The lessee is desirous of obtaining a lease on suvh property.

NOW THEREFORE THE PARTIES HERETO AGREE AS FOLLOWS:

1 Definitions and Interpretation

1.1 In this lease, except in a context indicating that some other meaning is
intended,
1.1.1 “the Buildings” means the house and outbuildings situated on the Property;
1.1.2 “day” means any day of the week, excluding Sundays and public holidays;
1.1.3 "the Lease Period” means the period for which this lease subsists,
including any period for which it is renewed;
1.1.4 “the Lessor’s Equipment” means all fixtures and fittings contained in the
Buildings and forming part thereof as well as the appliances,
equipment, appurtenances, tools, and other articles and things described
in the schedule to this lease, and (where consistent with the context)
includes all replacements thereof, if any;
1.1.5 “month” means a calendar month, and more specifically
1.1.5.1 in reference to a number of months from a specific date, a calendar month
commencing on that date or the same date of any subsequent month; and
1.1.5.2 in any other context, a month of the calendar, that is, one of the 12
months of the calendar, and “monthly” has the corresponding meaning;
1.1.6 “the Property” means (set out in detail exactly what premises eg the
house situated at 17 Leeukop street, Varsforntein) together with the
Buildings and all other improvements to or upon the Property;
1.1.7 “the Rates” means the assessment rates payable on the Property and
includes any other charges payable by the Lessor to the local authority
(such as, but not limited to, refuse removal charges or sanitary fees), but
not charges for water, electricity or gas;

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1.1.8 “the Rent” means the rental payable by the Lessee to the Lessor for
the hire of the Property;
1.1.9 “year” means a period of 12 consecutive months commencing on the
date on which this lease comes into operation or any anniversary of that
date;
1.1.10 references to notices, statements and other communications by or from
the Lessor include notices by or from the Lessor’s agent;
1.1.11 expressions in the singular also denote the plural, and vice versa;
1.1.12 words and phrases denoting natural persons refer also to juristic persons,
and vice versa;

and

1.1.13 pronouns of any gender include the corresponding pronouns of the other
gender.
1.2 Any provision of this lease imposing a restraint, prohibition, or restriction
on the Lessee shall be so construed that the Lessee is not only bound
to comply therewith but is also obliged to procure that the same restraint,
prohibition, or restriction is observed by everybody occupying or entering
the Property or any part thereof through, under, by arrangement with, or at
the invitation of, the Lessee, including (without limiting the generality of this
provision) the family, guests and servants of the Lessee.
1.3 Clause headings appear in this lease for purposes of reference only and
shall not influence the proper interpretation of the subject matter.
1.4 This lease shall be interpreted and applied in accordance with South
African law.
2 Letting and hiring

2.1 The Lessor lets and the Lessee hires the Property on the terms of this
lease.

3 Equipment The Lessee shall for the Lease Period and for no additional
consideration have the use of the Lessor’s Equipment subject to the terms
of this lease relating thereto (if applicable).

4 Duration

This lease shall come into operation on (set out the exact date) and shall
subsist for (set out exactly) years and (set out exactly) months from that date.
[An alternative clause which can be used:

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This lease shall come into operation on (set out the exact date) and shall subsist
from month to month, being terminable on one month’s notice in writing from either
party to the other , which notice shall not be given so as to terminate this lease with
effect prior to (set out the exact date)].

5 Rent
5.1 The Rent shall be
5.1.1 R.......... (..........RAND) for each month of the first year of the Lease Period;
5.1.2 R.......... (..........RAND) for each month of the second year; (and so on).
(Alternative clause 5.1:

5.1 The Rent shall be

5.1.1 R.......... (..........RAND) for each month of the first year of the Lease Period;

and
5.1.2 an amount for each month of every subsequent year of the Lease Period
which is ..........% (..........PERCENT) greater than the amount of the Rent
for the last month of the preceding year.)
5.2 Whenever the Rates are increased during the Lease Period, the Lessor
may, by written notice to the Lessee, increase the Rent by the amount of
the increase in Rates, calculated on a monthly basis. Every such increase
in the Rent shall take effect on the first day of the month following that in
which the Lessor’s notice of the increase is received by the Lessee or,
whichever is the later, the date on which the increase in the Rates takes
effect.
5.3 The Lessee shall pay the Rent monthly in advance on or before the (state
exactly) day of every month.

6 Additional charges In addition to paying the Rent, the Lessee shall

reimburse the Lessor, monthly in arrear within (state exactly) days after
receiving an account from the Lessor reflecting the amount(s) so payable,
with the cost of electricity, water and gas consumed on the Property,
determined at the prevailing municipal tariff of charges.

7 Payments
7.1 All payments due by the Lessee to the Lessor under this lease shall be
made to (specify lessor or agent) at (place) or to such other person, if any,
at such other place, if any, as the Lessor has designated for the time being
by written notice to the Lessee.

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7.2 The Lessee shall not withhold, defer, or make any deduction from any
payment due to the Lessor, whether or not the Lessor is indebted to the
Lessee or in breach of any obligation to the Lessee.
7.3 The Rent and all other amounts payable by the Lessee under this lease
shall be inclusive of value-added tax in so far as it is applicable.

[An alternative clause which can be used:

The Rent and all other amounts payable by the Lessee under this lease shall
be net of value- added tax in so far as it is applicable and such tax shall be
recoverable by the Lessor from the Lessee in addition to the Rent and such other
amounts.)
7.4 The Lessee shall be liable for interest on all overdue amounts payable
under this lease at a rate per annum ..........% (..........PERCENT) above
the (specify) rate per annum of (name of bank) from time to time,
reckoned from the due dates of such amounts until they are respectively
paid.

8 Deposit
8.1 On entering into this lease the Lessee shall pay the Lessor a deposit of
R.......... (..........RAND), which amount the Lessor may apply, in whole or
part, in meeting any payment due by the Lessee to the Lessor at any time
during the Lease Period or after the termination of this lease.

8.2 Whenever during the Lease Period the deposit is so applied in whole or
part, the Lessee shall on demand reinstate the deposit to its original
amount.

8.3 As soon as all the obligations of the Lessee to the Lessor have been
discharged following the termination of this lease, the Lessor shall refund
to the Lessee, free of interest, so much of the deposit as has not been
applied in terms of the above provisions.

9 Insurance
9.1 The Lessee shall not keep or do in or about the Property anything such as
is liable to enhance any of the risks against which the Buildings or the
Lessor’s Equipment may be insured to the extent that the insurance of the
Buildings or the Lessor’s Equipment is rendered void or voidable or the
premiums of such insurance are, or become liable to be, increased.

9.2 Without prejudice to any other right of action or remedy which the Lessor
may have arising out of a breach of the foregoing provision, the Lessor
may recover from the Lessee on demand the full amount of any increase
in insurance premiums attributable to such breach.

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9.3 For the purposes of the above provisions, the Lessee shall be entitled
to assume that the Buildings and the Lessor’s Equipment will at all
material times be insured against such risks, on such terms, for such
amounts, and at such premiums as are for the time being usual in respect
of similar buildings and the like contents of similar dwellings.

10 Assignment and subletting

10.1 The Lessee shall not, except with the prior written consent of the Lessor
10.1.1 cede or assign all or any of the rights and obligations of the Lessee under
this lease;
10.1.2 sublet the Property in whole or part;
10.1.3 give up possession of the Property to any third party;
10.1.4 sublet or give up possession of all or any of the Lessor’s Equipment; or
10.1.5 remove or allow to be removed from the Property all or any of the
Lessor’s Equipment except for repair.
10.2 The Lessor shall not, however, unreasonably withhold its consent to a
subletting of the whole of the Property together with all the Lessor’s
Equipment.

11 Sundry duties of the lessee The Lessee shall

11.1 keep the Property and all parts thereof clean, tidy, and habitable;
11.2 not use the Property or allow it to be used, in whole or part, for any purpose
other than that of a private dwelling;
11.3 take good and proper care of the Lessor’s Equipment and every item
thereof, and refrain from causing or allowing it to be used for any purpose
for which it was not intended;
11.4 take all reasonable measures to protect the Property, all parts thereof,
and the Lessor’s Equipment from abuse, damage, destruction, and theft;
11.5 not bring onto the Property any article which, by reason of its weight or
other characteristics, is liable to cause damage to any of the Buildings or
the Property;
11.6 not contravene any of the conditions of title of the Property or any of
the laws, rules or regulations affecting owners, tenants or occupiers of the
Property;
11.7 not cause or commit any nuisance on the Property or cause any
annoyance or discomfort to neighbours or the public;
11.8 not leave refuse or allow it to accumulate in or about the Property except
in adequate refuse bins suitably placed;

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11.9 refrain from interfering with the electrical, plumbing, or gas installations or
systems serving the Property, except as may be necessary to enable
the Lessee to carry out its obligations of maintenance and repair in terms
of this lease;
11.10 not allow more than (state specifically) persons to reside on the Property
at the same time;
11.11 keep not more than (state specifically) live animals on the Property as pets
and maintain proper control of them at all times;
11.12 not do or display anything which causes the Property to appear unsightly;
11.13 take all reasonable measures to prevent blockages and obstructions from
occurring in the drains, sewerage pipes and water pipes serving the
Property; and
11.14 provide at the Lessee’s own expense all electric, fluorescent, and
incandescent light bulbs required on the Property.

12 Maintenance and repairs

12.1 The Lessee shall at his own expense and without recourse to the Lessor
12.1.1 throughout the Lease Period maintain in good order and condition the
interiors of the Buildings, including all windows and doors, and the
Lessor’s Equipment;
12.1.2 promptly repair or make good all damage occurring in or to the interior
of any of the Buildings or any of the Lessor’s Equipment from time to time
during the Lease Period, whatever the cause of such damage, and
including damage to any part or item of the Lessor’s Equipment or to any
window or door, and replace all the same (as well as any keys) which
have been broken, lost or destroyed (again regardless of cause);
12.1.3 if any item of the Lessor’s Equipment is destroyed or damaged beyond
repair (whatever the cause of the destruction or damage, but subject to
clause 19.4), promptly replace it with a brand new, identical item in good
and (where appropriate) operative condition or, if an identical item is not
obtainable, one which is as closely similar to the original as possible;
12.1.4 take good and proper care of the garden on the Property, including all
lawns, plants, shrubs, trees, and hedges, replacing all such as may die or
be damaged (due regard being had to seasonal factors), carrying out
such watering, cutting, trimming, mowing, pruning, fertilising, and other
gardening activities as may reasonably be required, and supplying all the
fertiliser and other substances necessary for these purposes;

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12.1.5 take good and proper care of the swimming pool on the Property, causing
it to be filled, cleaned, and treated with chemicals and otherwise, as
regularly and effectively as may reasonably be required, and supplying all
chemicals and other substances necessary for the purpose;
12.1.6 on the termination of this lease, howsoever and whenever it terminates,
return to the Lessor in good order, condition and repair, fair wear and tear
excepted
12.1.6.1 the Property and all parts thereof, together with the landlord’s fittings
and all keys; and
12.1.6.2 the Lessor’s Equipment and all items thereof (similarly with keys
where applicable).
12.2 If the Lessee notifies the Lessor in writing within (state exactly) days after
having taken possession of the Property of the need for any repairs to or
in the Property or any of the Lessor’s Equipment or of the fact that any
part of the Property or the Buildings, including any lock, key, door or
window, any of the Lessor’s Equipment, the swimming pool, or any other
improvement on or to the Property is damaged, missing, or out of order,
the Lessor shall promptly cause the necessary repair or replacement to
be effected at the Lessor’s own expense. If or in so far as the Lessee
does not give such notice, the Lessee shall be deemed to have
acknowledged that the Property, the Buildings, all parts thereof, the
Lessor’s Equipment, and all items thereof, were intact, in place, and in
good order, condition and repair when the Lessee took possession of the
Property under this lease.
12.3 The Lessor shall be responsible for the maintenance of, and for all repairs
and replacements becoming necessary from time to time in or to, the roofs
and outside walls of the Building, and the Lessor’s obligations in this
respect shall include the maintenance and repair of the structure of the
Buildings, and all systems, works and installations contained therein, and
in particular the burglar alarm or security system.
12.4 The Lessor shall not, however, be in breach of clause 12.3 in so far as any
of its obligations thereunder are not or cannot be fulfilled by reason of any
vis major or the acts or omissions of others over whom the Lessor has no
direct authority or control, and where the Lessor is indeed in breach of
clause 12.3, the Lessee’s only remedy against the Lessor shall be a right
of action for specific performance.
12.5 Should the Lessee fail to carry out any of its obligations under this lease
with regard to any maintenance, repair, or replacement, the Lessor shall
be entitled, without prejudice to any of its other rights or remedies, to effect
the required item of maintenance, repair, or replacement and to recover
the cost thereof from the Lessee on demand.

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13 Alterations, additions and improvements
13.1 The Lessee shall not make any alterations or additions to any of the
Buildings, the Property, any part thereof, or any item of the Lessor’s
Equipment without the Lessor’s prior written consent, but the Lessor shall
not withhold its consent unreasonably to any such alteration or addition
which is of a minor nature and not structural.
13.2 If the Lessee does alter, add to, or improve the Property in any way,
whether in breach of clause 13.1 or not, the Lessee shall, if so required
in writing by the Lessor, restore the Property on the termination of this
lease to its condition as it was prior to such alteration, addition or
improvement having been made. The Lessor’s requirement in this regard
may be communicated to the Lessee at any time, but not later than the
(state exactly) day after the Lessee has delivered up the Property
pursuant to the termination of this lease; and this clause 13.2 shall
not be construed as excluding any other or further remedy which the
Lessor may have in consequence of a breach by the Lessee of clause
13.1.
13.3 Save for any improvement which is removed from the Property as required
by the Lessor in terms of clause 13.2, all improvements made on or to the
Property shall belong to the Lessor and may not be removed from the
Property at any time. The Lessee shall not, whatever the circumstances,
have any claim against the Lessor for compensation for any
improvement or repair to the Property or the Lessor’s Equipment, nor shall
the Lessee have a right of retention in respect of any improvements.

14 Exclusion of lessor from certain liability and indemnity

14.1 The Lessee shall have no claim for damages against the Lessor and may
not withhold or delay any payment due to the Lessor by reason directly or
indirectly of
14.1.1 a breach by the Lessor of any of its obligations under this lease;
14.1.2 any act or omission of the Lessor or any agent or servant of or contractor
to the Lessor, whether or not negligent, or otherwise actionable at law,
and including (without limiting the generality of the aforegoing) any act or
omission of any cleaner, maintenance person, handyman, artisan,
labourer, workman, watchman or guard;
4.1.3 the condition or state of repair at any time of the Property, the Buildings,
or any part of the Property or the Buildings;
14.1.4 any failure or suspension of, or any interruption in, the supply of water,
electricity, gas, air-conditioning, heating, or any other amenity or service to
the Property or any of the Buildings, whatever the cause;

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14.1.5 any breakdown of, or interruption in the operation of, any machinery, plant,
equipment, installation, or system situated in or on, or serving, the Property
or any part thereof or any of the Buildings, and including (but without
limiting the generality of the aforegoing) the swimming pool plant or any
geyser, boiler, burglar alarm, or security installation or system (again
regardless of cause);
14.1.6 any interruption of or interference with the enjoyment or beneficial
occupation of the Property caused by any building operations or other
works on or about the Property, whether carried out by the Lessor or by
anybody else; or 14.1.7 any other event or circumstance whatever
occurring, or failing to occur, upon, in, or about the Property or any of the
Buildings, whether or not the Lessor could otherwise have been held
liable for such occurrence or failure, and the Lessee indemnifies the
Lessor against all liability to members of the Lessee’s household, the
Lessee’s servants, guests and other invitees, and all other persons who
may occupy or be entitled to occupy the Property or any parts thereof
through or under the Lessee, in consequence of any such matter as is
referred to in clauses 14.1.1 to 14.1.7 above.

14.2 The Lessor shall not, however, be excused from specific performance of
any of its obligations under this lease, whether express or implied, and
particularly (but not only) its obligations to afford the Lessee occupation
and enjoyment of the Property as contemplated by this lease and to carry
out such maintenance and repairs as are incumbent upon the Lessor in
terms hereof; and if the Lessor fails to carry out any such obligation of
maintenance or repair with reasonable speed or efficiency, and persists
in such default after reasonable notice in writing requiring that it be
remedied, the Lessee may cause the necessary maintenance or repair
(including any incidental or necessary replacement) to be carried out and
may then recover the reasonable cost thereof from the Lessor on demand.

15 essor’s rights of entry and carrying out of works

15.1 The Lessor’s representatives, agents, servants and contractors may at all
reasonable times, without thereby giving rise to any claim or right of action
on the part of the Lessee or any other occupier of the Property or any part
thereof, enter the Property or any of the Buildings in order to inspect them,
to carry out any necessary repairs, replacements, or other works, or to
perform any other lawful function in the bona fide interests of the Lessor
or the Lessee; but the Lessor shall ensure that this right is exercised with
due regard for and a minimum of interference with the beneficial
enjoyment of the Property by those in occupation thereof.
15.2 The Lessor shall not, however, cause or allow any major building works to
be carried out upon the Property for a duration longer than (specify period)
from the date of their commencement unless

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15.2.1 such works are necessary and do not merely involve additions to any of
the Buildings, the construction of any additional buildings, or redecorations
of a solely aesthetic nature; or
15.2.2 the Lessee has consented otherwise in writing.

16 Servant’s accommodation
It is recorded that included in the Buildings are certain accommodation
and other facilities on the Property for the bona fide domestic servant(s)
of the Lessee; that the same are let as part of the Property under this lease;
and that the contents thereof described in the schedule to this lease
constitute part of the Lessor’s Equipment.

17 Security
17.1 The Lessee shall at all material times comply with such reasonable
requests as are from time to time made in writing by or on behalf of the
Lessor for observance by the Lessee and other occupiers of the Property
and their invitees, including (without generality being limited) rules and
regulations in connection with the security of the Property and the
protection of persons and property thereon, including in particular (again
without generality being restricted).
17.2 Whilst the Lessor shall at all times be liable for the maintenance and repair
of the burglar alarm or security system on the Property, the Lessee
shall take all reasonable measures to prevent the system from being
abused, damaged, or rendered inoperative, and shall promptly report to
the Lessor or its agent
17.2.1 any breakdown in the system; and
17.2.2 any burglary, housebreaking, trespass, or other crime, whether actual or
attempted, occurring on or in connection with the Property.
17.3 Clause 17.1 shall not be construed as implying that the Lessor assumes
any liability which it would not otherwise have had in connection with the
subject matter of any rule or regulation referred to therein.[NB: This clause
could be drafted to make the lessee responsible for a security system]

18 Telephone
The Lessee shall make his own arrangements for the hire and operation
of a telephone service on the Property and shall solely bear the cost
thereof, but the Lessor shall sign whatever consents and the like
documents may reasonably be required of the Lessor for the purpose
and shall not unreasonably refuse to allow the Lessee to use any
telephone instrument or equipment located on the Property.

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19 Damage to or destruction of premises
19.1 If the main residential Building on the Property is destroyed or so
damaged that it can no longer be beneficially occupied, this lease shall
terminate when that happens unless the parties agree in writing otherwise.
19.2 If such Building or any other Building on the Property is significantly
damaged but can still be beneficially occupied, this lease shall remain in
force and the Lessor shall repair the damage without undue delay but the
Rent shall be abated so as to compensate the Lessee fairly for the effects
on the enjoyment of the Property of the damage and repair work. Failing
agreement on such abatement or on the applicability of this clause to any
particular circumstances, the matter shall be referred to an expert
appointed by the parties jointly or, if they do not agree on such
appointment, nominated by the President for the time being of The
Institute of Estate Agents of South Africa, and the decision of such expert
shall be final and binding. The expert’s fees and disbursements, including
any inspection costs, shall be borne by the parties in equal shares.
Pending determination of the abatement the Lessee shall continue to pay
the Rent in full as if there had been no damage (or be excused from
payment of the Rent), and as soon as the matter has been resolved the
Lessor shall make the appropriate repayment to the Lessee (or the
Lessee shall make up the arrears in the Rent as abated).
19.3 If any damage to any of the Buildings or the destruction thereof is
caused by an act or omission for which either party is responsible in
terms of this lease or in law, the other party shall not be precluded by
reason of any of the foregoing provisions of this clause 19 from
exercising or pursuing any alternative or additional right of action or
remedy available to the latter party under the circumstances.
19.4 The foregoing provisions of this clause 19 shall apply also to any
damage to, or the destruction of, all or any of the Lessor’s Equipment
which occurs together with any damage to or the destruction of the
Buildings or any of them, the foregoing references to repairs to be read as
including reference to the replacement of any items of the Lessor’s
Equipment which are destroyed or irreparably damaged.

20 Special remedy for breach

20.1 Should the Lessee default in any payment due under this lease or be in
breach of its terms in any other way, and fail to remedy such default or
breach within (state exactly) days after receiving a written demand that it
be remedied, the Lessor shall be entitled, without prejudice to any
alternative or additional right of action or remedy available to the Lessor
under the circumstances without further notice, to cancel this lease with
immediate effect, be repossessed of the Property and the Lessor’s
Equipment, and recover from the Lessee damages for the default or
breach and the cancellation of this lease.
20.2 Clause 20.1 shall not be construed as excluding the ordinary lawful

115
 consequences of a breach of this lease by either party (save any such
consequences as are expressly excluded by any of the other provisions
of this lease) and in particular any right of cancellation of this lease on the
ground of a material breach going to the root of this lease.
20.3 In the event of the Lessor having cancelled this lease justifiably but the
Lessee remaining in occupation of the Property, with or without disputing
the cancellation, and continuing to tender payments of the Rent and any
other amounts which would have been payable to the Lessor but for the
cancellation, the Lessor may accept such payments without prejudice to
and without affecting the cancellation, in all respects as if they had been
payments on account of the damages suffered by the Lessor by reason of
the unlawful holding over on the part of the Lessee.

21 Option of renewal

21.1 The Lessee shall have the right to renew this lease upon the terms and
subject to the conditions set out below.
21.2 The period for which this lease may be so renewed is (state exactly for
how long) commencing on (specify date) (or the date immediately following
the date of expiry of the initial term of this lease).
21.3 All the terms of this lease shall continue to apply during the renewal period,
save that
21.3.1 the Rent shall be (state exactly and adapt clause 5.1); and
21.3.2 there shall be no further right of renewal.
21.4 The right of renewal shall be exercised by notice in writing from the Lessee
to the Lessor given and received not later than (state the exact date) (or
at least (specify) months/days prior to the date on which the renewal period
is to commence), and shall lapse if not so exercised.
21.5 If the right of renewal is duly exercised, this lease shall be renewed
automatically and without the need for any further act of the parties.
21.6 The Lessee may not, however, exercise the right of renewal while in
breach or default of any of the terms of this lease.
21.7 If this lease does not endure at least for the full term for which it is initially
contracted (or until (state the exact date)), the right of renewal shall lapse
and any notice of exercise thereof given prior to such lapsing shall be null
and void.

22 New tenants and purchasers The Lessee shall at all reasonable times
22.1 during the Lease Period, allow prospective purchasers of the Property or
of any shares or other interests in the Lessor; and
22.2 during the last (state exactly) months of the Lease Period, allow

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 prospective tenants of the Property, to enter and view the Property, the
interiors of the Buildings and the Lessor’s Equipment.
22.3 The Lessor, however, undertakes that he will not accept any offer for the
purchase of the premises without first offering to sell the premises to the
Lessee.

23 Costs
The legal costs incurred in the preparation of this lease and the stamp
duty payable thereon shall be borne by (specify the lessor, the lessee, or
the parties in equal shares).

24 Domicilia and notices

24.1 The parties choose as their domicilia citandi et executandi their respective
addresses but such domicilium of either party may be changed by written
notice from such party to the other party with effect from the date of receipt
or deemed receipt by the latter of such notice.
24.2 Any notice, demand or other communication properly addressed by either
party to the other party at the latter’s domicilium in terms hereof for the
time being and sent by prepaid registered post shall be deemed to be
received by the latter on the (specify) business day following the date of
posting thereof. This provision shall not be construed as precluding the
utilisation of other means and methods (including telefacsimile) for the
transmission or delivery of notices, demands and other communications,
but no presumption of delivery shall arise if any such other means or
method is used.

25 Whole agreement
25.1 This is the entire agreement between the parties.
25.2 Neither party relies in entering into this lease upon any warranties,
representations, disclosures or expressions of opinion which have not
been incorporated into this lease as warranties or undertakings.
25.3 No variation or consensual cancellation of this lease shall be of any force
or effect unless reduced to writing and signed by both parties.

26 Non-waiver
26.1 Neither party shall be regarded as having waived, or be precluded in any
way from exercising any right under or arising from this lease by reason
of such party having at any time granted any extension of time for, or
having shown any indulgence to the other party with reference to, any
payment or performance hereunder, or having failed to enforce, or
delayed in the enforcement of, any right of action against the other party.
26.2 The failure of either party to comply with any non-material provision of this
lease shall not excuse the other party from performing the latter’s
obligations hereunder fully and timeously.
27 Warranty of authority
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 The person signing this lease on behalf of the Lessor expressly warrants
his authority to do so.

28 Suretyship
This lease is subject to the suspensive condition that (full name of surety
and co- principal debtor) becomes bound to the Lessor in writing on the
terms of the draft document annexed to this lease (and being the (specify)
schedule thereto) as surety and co-principal debtor for all the obligations
of the Lessee to the Lessor under this lease as well as those arising in
consequence of any termination thereof. If that condition remains
unfulfilled by (specify time and date) or any later time and date agreed
upon between the parties in writing, this lease shall not come into
operation but shall be null and void save that the Lessee shall then solely
bear and pay or reimburse the Lessor on demand with the costs of this
lease and the Lessor’s expenses in reletting the Property, including any
agent’s commission and advertising costs.

29 Sale of property
The validity of this lease shall not in any way be affected by the transfer
of the Property from the Lessor pursuant to a sale thereof. It shall
accordingly, upon registration of transfer of the Property into the name of
the purchaser, remain of full force and effect save that the purchaser shall
be substituted as lessor and acquire all rights and be liable to fulfil all the
obligations which the Lessor, as lessor, enjoyed against or was liable to
fulfil in favour of the Lessee in terms of the lease
30 Termination by death or insolvency

30.1 This lease shall not terminate with the death of either the Lessor or
the Lessee. The executor of the deceased Lessee’s estate shall have the
option, depending upon the circumstances of the estate, either to abide
by the contract for the remainder of the lease period (the successor or
successors of the Lessee assuming his rights and obligations) or to cancel
the lease by giving the Lessor (state exactly the number of) months written
notice of termination, such notice to be given not more than (specify
number of months after the death of the Lessee.
30.2 The insolvency of either the Lessor or the Lessee shall not terminate this
lease. However, the trustee of the Lessee’s insolvent estate shall have
the option to terminate the lease by notice in writing to the Lessor. If the
trustee does not within three months of his appointment as trustee notify
the Lessor that he desires to continue with the lease on behalf of the
estate, he shall be deemed to have terminated the lease at the end of the
three months.

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SIGNED at .................... (place) on this .................................... (day, month, year)
in the presence of the undersigned witnesses

Witnesses:

1 ………………………….. ………………………….

2 ………………………….. ………………………….
(Signatures of witnesses) (Signature of lessor)

SIGNED at............................... (place) on this.....................................(day,

month, year) in the presence of the undersigned witnesses
Witnesses:

1 …………………………………………..

2 ………………………………………….
(Signatures of witnesses)

……………………………………………………
(Signature of lessee)

2 Contract of a lease contract for an office or suite of offices

EXAMPLE:

MEMORANDUM OF AGREEMENT OF LEASE OF AN OFFICE

Entered into by and between

Forrester’s Pty (Ltd), a public company established and registered in terms of
the Companies
Act 61 of 1973 with registration no ................... (hereinafter referred to as the
lessor)

whose address is the following:

0000 Meerlust Rd
Willow Glen
0040

herein represented by .................................... in his capacity as

................................................................................... and duly authorised thereto

on the one side

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AND

Mokheti (Pty) Ltd, a public company established and registered in terms of the
Companies Act
61 of 1973 with registration no ...................(hereinafter referred to as the Lessee)

Whose address is the following:

........................................................
........................................................
........................................................

herein represented by ...............................................in his/her capacity as

.................................................................................... and duly authorised thereto

WHEREAS:
The Lessor is the owner of the office/suite of offices located in the building
Equestria situated at
0000 Meerlust Rd, Willow Glen

AND WHEREAS:
the Lessor is desireous of letting the office/suite of offices situated at 0000 Meerlust
Rd, Willow
Glen

AND WHEREAS:
the Lessee is desirous of hiring the office/suite of offices owned by the Lessor

NOW THEREFORE THE PARTIES HERETO AGREE AS FOLLOWS:

1 Interpretation

1.1 In this lease, except in a context indicating that some other meaning is
intended,
1.1.1 “Associate” in relation to the Lessee means a company which is for the
time being
1.1.1.1 a subsidiary or holding company of the Lessee within the meaning ascribed
to such terms in the Companies Act 61 of 1973; or
1.1.1.2 a subsidiary or holding company of a company referred to in 2.1.1.1 above;
1.1.2 “the Building” means the building known as (state the name of building)
situated on the Property, and includes, where the context so allows, all
permanent improvements on the Property;
1.1.3 “Common Areas” means portions of the Building which are not suitable for
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 letting and are not actually let by the Lessor;
1.1.4 “day” means any day of the week, excluding Sundays and public holidays;
1.1.5 “the Lease Period” means the period for which this lease subsists,
including any period for which it is renewed;
1.1.6 “month” means a calendar month, and more specifically
1.1.6.1 in reference to a number of months from a specific date, a calendar month
commencing on that date or the same date of any subsequent month; and
1.1.6.2 in any other context, a month of the calendar, that is, one of the 12
months of the calendar, and “monthly” has the corresponding meaning;
1.1.7 “the Premises” means office(s) No(s) (state exactly) on the (state
exactly) floor of the Building;
[An alternative clause which can be used:
“the Premises” means the portion of the (state exactly) floor of the Building
identified by (specify markings, lettering, etc) on the annexed plan signed by
the parties and having a Rentable Area of (state exactly) square metres;)
1.1.8 “the Property” means (describe);
1.1.9 “the Rates” means the assessment rates payable on the Property and
includes any other charges payable by the Lessor to the local authority
(such as, but not limited to, refuse removal charges or sanitary fees), but
not charges for water, electricity or gas;
1.1.10 “Rentable Area” in relation to the Premises means the area of the
Premises determined in accordance with clause 17;
1.1.11 “year” means a period of 12 consecutive months, and “yearly” refers to a
year commencing on the date on which the lease comes into operation or
any anniversary of that date;
1.1.12 references to notices, statements and other communications by or from
the Lessor include notices by or from the Lessor’s agent;
1.1.13 expressions in the singular also denote the plural, and vice versa;

1.1.14 words and phrases denoting natural persons refer also to juristic
persons, and vice versa; and
1.1.15 pronouns of any gender include the corresponding pronouns of the other
gender.

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1.2 Any provision of this lease imposing a restraint, prohibition or restriction on
the Lessee shall be so construed that the Lessee is not only bound to
comply therewith but is also obliged to procure that the same restraint,
prohibition or restriction is observed by everybody occupying or entering
the Premises or any other part of the Property or the Building through,
under, by arrangement with, or at the invitation of, the Lessee, including
(without limiting the generality of this provision) its Associates and the
directors, members, officers, employees, agents, customers and invitees
of the Lessee or its Associates.
1.3 Clause headings appear in this lease for purposes of reference only and
shall not influence the proper interpretation of the subject matter.
1.4 This lease shall be interpreted and applied in accordance with South
African law.

2 Letting and hiring

The Lessor lets and the Lessee hires the Premises on the terms of this
lease.

3 Duration
This lease shall come into operation on (state the exact date) and shall
subsist for (state exactly) years and (state exactly) months from that date.
[An alternatively clause which can be used:

This lease shall come into operation on (state the exact date) and shall subsist
from month to month, being terminable on one month’s notice in writing from either
party to the other (, which notice shall not be given so as to terminate this lease
with effect prior to (state the exact date)).]

4 Rent
4.1 The rent shall be
4.1.1 R.......... (..........RAND) for each month of the first year of the Lease Period;
4.1.2 R.......... (..........RAND) for each month of the second year; (and so on). [An
alternative clause 4.1 which can be used:

4.1 The rent shall be

4.1.1 R.......... (..........RAND) for each month of the first year of the Lease Period;
and
4.1.2 an amount for each month of every subsequent year of the Lease Period
which is ..........% (..........PERCENT) greater than the amount of the rent
for the last month of the preceding year.)

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[A further alternative clause 4.1 which can be used:
4.1 The rent shall be
4.1.1 R.......... (..........RAND) per square metre of Rentable Area of the Premises
for each month of the first year of the Lease Period, namely R..........
(..........RAND);
4.1.2 R.......... (..........RAND) per square metre of Rentable Area of the Premises
for each month of the second year of the Lease Period, namely R..........
(..........RAND); (and so on).)
4.2 The Lessee shall pay the rent monthly in advance on or before the
(state exactly) day of every month.

5 Operating costs

5.1 For the purposes of this clause 6

5.1.1 “the Operating Costs” means the reasonable costs (for which the Lessee
is not otherwise liable in terms of this lease) incurred by the Lessor in
connection with the ownership, management, maintenance, repair and
operation of the Property and the Building, including, but not limited to, the
Rates and the costs of
5.1.1.1 cleaning the Building and the Property;
5.1.1.2 providing security in respect of the Building;
5.1.1.3 maintaining lifts and escalators, if any;
5.1.1.4 repairing and maintaining air-conditioning and air-conditioning installations;
5.1.1.5 insuring the Building;
5.1.1.6 providing electricity, water, gas, oil or any necessary service to Common
Areas;
5.1.1.7 maintaining internal and external roofs, walls and finishes;
[It is possible to specify any other reasonable costs which the lessor wishes to
include specifically in the operating costs.]
and
5.1.2 “the Lessee’s Contribution” means
5.1.2.1 R.......... (..........RAND) for each month of the first year of the Lease Period;
and
5.1.2.2 an amount for each month of every subsequent year of the Lease
Period which is ..........% (..........PERCENT) greater than the amount
payable for the last month of the preceding year.

123
[An alternative clause 5.1.2 which can be used:
5.1.2 “the Lessee’s Contribution” means
5.1.2.1 R.......... (..........RAND) per square metre of the Rentable Area of the
Premises for each month of the first year of the Lease Period; and
5.1.2.2 an amount for each month of every subsequent year of the Lease
Period which is ..........% (..........PERCENT) greater than the amount
payable for the last month of the preceding year.)
[A further alternative clause 5.1.2:
5.1.2 “the Lessee’s Contribution Percentage” means .......% (......PERCENT).)
5.2 The Lessee shall be obliged to contribute towards the Operating Costs
incurred during the Lease Period by way of monthly payments to the
Lessor in the amount of the Lessee’s Contribution, payable monthly in
advance together with, and in addition to, the rent.
[An alternative clause 5.2 which can be used:
5.2 The Lessee shall be obliged to contribute towards the Operating Costs
incurred during the Lease Period to the extent of the Lessee’s Contribution
Percentage thereof as follows:
5.2.1 The Lessor may from time to time give notice in writing to the Lessee of
5.2.1.1 the Lessor’s estimate of the Operating Costs for any period of months
specified in such notice which is, or includes, part of the Lease Period (“the
Specified Period”);

5.2.1.2 the monthly amount of such estimate, that is, the amount arrived at by
dividing the amount of the estimate by the number of months in the
Specified Period; and
5.2.1.3 the amount of the Lessee’s Contribution Percentage of such
monthly amount (“the Provisional Contribution”).
5.2.2 The Lessee shall then pay the Provisional Contribution to the Lessor
monthly in advance over the Specified Period together with, and in
addition to, the rent. If, however, the Lessor’s notice is received by the
Lessee after the Specified Period has commenced, the Provisional
Contributions for the months which have expired prior to the Lessee’s
receipt of such notice shall not be payable by the Lessee.
5.2.3 The Specified Period may not be less than (state exactly) months or more
than (state exactly) months.
5.2.4 Within (state the specific period of days or months) after the end of the
Specified Period, the Lessor shall give the Lessee a further notice in writing
setting out
5.2.4.1 in the form of an itemised statement, the Operating Costs for the Specified
Period as they were actually incurred; and

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5.2.4.2 the amount by which the total payments made by the Lessee to the Lessor
in terms of clause 6.2.2 above have exceeded or fallen short of the
Lessee’s Contribution Percentage of the actual costs.
5.2.5 If there has been such an excess, the Lessor shall then immediately
repay the amount thereof to the Lessee. If there has been such a
shortfall, the Lessee shall then immediately pay the amount thereof to the
Lessor. (If the Lessee has made no Provisional Contributions at all for the
Specified Period, there shall be deemed to be a shortfall equivalent to the
full amount of the Lessee’s Contribution Percentage of the actual costs for
the Specified Period.)
5.2.6 If this lease terminates before the end of the Specified Period, the
references to the Specified Period in clauses 6.2.2, 6.2.4 and 6.2.5 above
shall apply only to the portion of the Specified Period which falls within the
Lease Period, but this provision shall not be so construed as to
circumscribe the damages, if any, recoverable by the Lessor from the
Lessee in consequence of any premature termination of this lease or any
breach preceding such termination.]
5.3 Any dispute between the Lessor and the Lessee concerning the
Lessee’s liability for any amount claimed by the Lessor under this clause
6, whether related to reasonableness or any other factor or fact, shall be
determined by the Lessor’s auditors acting as experts and not as
arbitrators and their decision shall be final and binding on the parties,
provided that
5.3.1 such auditors will have made such determination in good faith and after
taking all reasonable measures to verify the relevant information; and
5.3.2 if the dispute is determined in favour, or substantially in favour, of the
Lessor, the Lessee shall bear, and pay on demand to the Lessor or its
auditors, the reasonable costs of the determination and all expenses
incurred by the auditors in connection therewith.

[The following alternative clause 5 should be used where the lessor does not wish
to recover a contribution towards operating costs from the lessee, but only a share
of increases in the rates:

5 Increases in the rates

5.1 Whenever the Rates are increased during the Lease Period, the Lessor
may, by written notice to the Lessee, increase the monthly rent for the
Premises by an amount which bears the same ratio to the increase in
Rates, calculated on a monthly basis, as the rent payable by the Lessee
for the Premises bears for the time being to the total rentals receivable by
the Lessor from all tenants of the Building. Every such increase in the rent
shall take effect on the first day of the month following that in which the
Lessor’s notice of the increase is received by the Lessee or, whichever is
the later, the date on which the corresponding increase in the Rates takes
effect.

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5.2 For the purposes of clause 5.1, any premises in the Building which
are not part of the Common Areas but are unlet for the time being shall
be deemed to be let for the rental that was last receivable by the Lessor
for the same premises or, if they were never let, a fair market rental
determined in good faith by a reputable estate agent appointed by the
Lessor.]

6 Additional charges
In addition to paying the rent and other amounts, the Lessee shall
reimburse the Lessor, monthly in arrear, within (state exactly) days after
receiving an account from the Lessor reflecting the amount(s) so payable,
with the cost of electricity, water and gas consumed on the Premises,
determined at prevailing municipal rates in accordance with readings of
separate submeters or, if there are no such submeters, on the basis of
the Lessee being liable to bear ..........% (..........PERCENT) of the total cost
of all electricity, water and gas consumed on the Property.

7 Payments
7.1 All payments due by the Lessee to the Lessor under this lease shall be
made to (state exactly the lessor or agent) at (state place) or to such other
person, if any, at such other place, if any, as the Lessor has designated
for the time being by written notice to the Lessee.
7.2 The Lessee shall not withhold, defer, or make any deduction from any
payment due to the Lessor, whether or not the Lessor is indebted to the
Lessee or in breach of any obligation to the Lessee.
7.3 The rent and all other amounts payable by the Lessee under this lease
shall be inclusive of value-added tax in so far as it is applicable.
[An alternative clause which can be used:
The rent and all other amounts payable by the Lessee under this lease shall be net
of value-added tax in so far as it is applicable and such tax shall be recoverable by
the Lessor from the Lessee in addition to the rent and such other amounts.]
7.4 The Lessee shall be liable for interest on all overdue amounts payable
under this lease at a rate per annum ..........% (..........PERCENT) above
the (state exactly) rate per annum of (name of bank) from time to time,
reckoned from the due dates of such amounts until they are respectively
paid.

8 Deposit
8.1 On entering into this lease the Lessee shall pay the Lessor a deposit of
R.......... (..........RAND), which amount the Lessor may apply, in whole or
part, in meeting any payment due by the Lessee to the Lessor at any time
during the Lease Period or after the termination of this lease.
8.2 Whenever during the Lease Period the deposit is so applied in whole or
part, the Lessee shall on demand reinstate the deposit to its original

126
 amount.
8.3 As soon as all the obligations of the Lessee to the Lessor have been
discharged following the termination of this lease, the Lessor shall refund
to the Lessee, free of interest, so much of the deposit as has not been
applied in terms of the above provisions.

9 Insurance
9.1 The Lessee shall not keep or do in or about the Premises anything which
is liable to enhance any of the risks against which the Building is insured
for the time being to the extent that such insurance is rendered void or
voidable or the premiums of such insurance are, or become liable to be,
increased.
9.2 Without prejudice to any other right of action or remedy which the Lessor
may have arising out of a breach of the foregoing provision, the Lessor
may recover from the Lessee on demand the full amount of any increase
in insurance premiums in respect of the Building attributable to such
breach.
9.3 For the purposes of the above provisions, the Lessee shall be entitled
to assume that the Building is at all material times insured against such
risks, on such terms, for such amounts, and at such premiums as are for
the time being usual in respect of similar buildings in similar locations.

10 Assignment and subletting

10.1 The Lessee shall not be entitled, except with the prior written consent of
the Lessor
10.1.1 cede or assign any or all of the rights and obligations of the Lessee under
this lease; or
10.1.2 to sublet or give up possession of the Premises, in whole or part, to any
third party which is not an Associate of the Lessee.
10.2 The Lessor shall not, however, unreasonably withhold its consent to a
subletting of the whole of the Premises to any third party.

11 Sundry obligations of the lessee

The Lessee shall
11.1 keep the Premises clean and tidy;
11.2 not use the Premises or allow them to be used, in whole or part, for any
purpose other than as offices;
11.3 not place or leave any article or other thing in or about any passage, lift,
stairway, pathway, parking garage, or other common part of the Building
so as to cause a nuisance or obstruction;
11.4 not bring into the Premises or the Building any article which, by reason
of its weight or other characteristics, is liable to cause damage to the

127
 Building or the Premises;
11.5 not contravene any of the conditions of title of the Property or any of the
laws, rules or regulations affecting owners, tenants or occupiers of the
Property or the Building;
11.6 not cause or commit any nuisance on the Property or cause any
annoyance or discomfort to other tenants or occupiers of the Building;
11.7 not leave refuse or allow it to accumulate in or about the Premises except
in the refuse bins provided;
11.8 refrain from interfering with the electrical, plumbing or gas installations or
systems serving the Premises or the Building, except as may be
necessary to enable the Lessee to carry out its obligations of maintenance
and repair in terms of this lease;
11.9 take all reasonable measures to prevent blockages and obstructions from
occurring in the drains, sewerage pipes and water pipes serving the
Premises;
11.10 provide at the Lessee’s own expense all electric, fluorescent and
incandescent light bulbs required in the Premises;
11.11 not paint, affix or attach to the Premises or any part of the Building any
sign, notice, awning or canopy without the Lessor’s prior written consent,
which shall not be unreasonably withheld;
11.12 keep any such sign, notice, awning or canopy which has been so approved
by the Lessor in good order, condition and repair at all times;
11.13 not erect any radio or television aerial on the roof or exterior walls of the
Premises or the Building without the Lessor’s prior written consent, which
shall not be unreasonably withheld; and
11.14 be responsible for all glass, both internal and external, on the Premises.

12 Maintenance and repairs

12.1 The Lessee shall at its own expense and without recourse to be Lessor
12.1.1 throughout the Lease Period maintain in good order and condition the
interior of the Premises and all parts thereof, including (without limitation
of the generality of this obligation) all windows, doors, appurtenances,
fixtures and fittings contained in the Premises;

128
12.1.2 promptly repair or make good all damage occurring in the Premises from
time to time during the Lease Period, whatever the cause of such
damage, and including damage to any part of the interior of the Premises
or to any shop front, window, door, appurtenance, fixture or fitting, and
replace all such items (as well as any keys) which have been broken,
lost or destroyed (again regardless of cause); and
12.1.3 on the termination of this lease, howsoever and whenever it terminates,
return the Premises and all such parts thereof (including all keys) to the
Lessor in good order, condition and repair, fair wear and tear excepted
12.2 If the Lessee notifies the Lessor in writing within (state exactly) days after
having taken possession of the Premises of the need for any repairs to or
in the Premises or of the fact that any part of the Premises, including any
lock, key, door, shop front, window, appurtenance, fixture or fitting, is
damaged, missing, or out of order, the Lessor shall promptly cause the
necessary repair or replacement to be effected at the Lessor’s own
expense. If or in so far as the Lessee does not give such notice, the
Lessee shall be deemed to have acknowledged that the Premises and all
parts thereof were intact, in place, and in good order, condition and repair
when the Lessee took possession of the Premises under this lease.
12.3 The Lessor shall be responsible for the maintenance of, and for all repairs
and replacements becoming necessary from time to time in or to, the
Building and all parts thereof other than those which are the responsibility
for the time being of tenants or of the local authority, and the Lessor’s
obligations in this respect shall include the maintenance and repair of the
structure of the Building, all systems, works and installations contained
therein, the roofs, the exterior walls, the lifts, the grounds and gardens, and
all other parts of the Common Areas.
12.4 The Lessor shall not, however, be in breach of clause 13.3 in so far as any
of its obligations thereunder are not or cannot be fulfilled by reason of any
vis major or the acts or omissions of others over whom the Lessor has no
direct authority or control, and where the Lessor is indeed in breach of
clause 13.3, the Lessee’s only remedy against the Lessor shall be a right
of action for specific performance.
12.5 Should the Lessee fail to carry out any of its obligations under this lease
with regard to any maintenance, repair or replacement, the Lessor shall
be entitled, without prejudice to any of its other rights or remedies, to effect
the required item of maintenance, repair or replacement and to recover the
cost thereof from the Lessee on demand.

129
13 Alterations, additions and improvements
13.1 The Lessee shall not make any alterations or additions to the Premises
without the Lessor’s prior written consent, but the Lessor shall not withhold
its consent unreasonably to an alteration or addition which is not structural.
13.2 If the Lessee does alter, add to, or improve the Premises in any way,
whether in breach of clause 13.1 or not, the Lessee shall, if so required in
writing by the Lessor, restore the Premises on the termination of this lease
to their condition as it was prior to such alteration, addition or improvement
having been made. The Lessor’s requirement in this regard may be
communicated to the Lessee at any time, but not later than the (state
exactly) day after the Lessee has delivered up the Premises pursuant to
the termination of this lease; and this clause 13.2 shall not be construed
as excluding any other or further remedy which the Lessor may have in
consequence of a breach by the Lessee of clause 13.1.
13.3 Save for any improvement which is removed from the Premises as required
by the Lessor in terms of clause 13.2, all improvements made to the
Premises shall belong to the Lessor and may not be removed from the
Premises at any time. The Lessee shall not, whatever the circumstances,
have any claim against the Lessor for compensation for any improvement
to the Premises, unless such improvements were made with the Lessor’s
prior written consent, nor shall the Lessee have a right of retention in
respect of any improvements.

14 Exclusion of lessor from certain liability and indemnity

14.1 The Lessee shall have no claim for damages against the Lessor and may
not withhold or delay any payment due to the Lessor by reason directly or
indirectly of
14.1.1 a breach by the Lessor of any of its obligations under this lease;
14.1.2 any act or omission of the Lessor or any agent or servant of, or contractor
to, the Lessor, whether or not negligent, or otherwise actionable at law,
and including (without limiting the generality of the foregoing) any act or
omission of any cleaner, maintenance person, handyman, artisan,
labourer, workman, watchman, guard, or caretaker;
14.1.3 the condition or state of repair at any time of the Property, the Building, or
any part of the Property or the Building;
14.1.4 any failure or suspension of, or any interruption in, the supply of water,
electricity, gas, air-conditioning, heating, or any other amenity or service
to the Premises, the Building, or the Property (including, without generality
being limited, any cleaning service), whatever the cause;

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14.1.5 any breakdown of, or interruption in the operation of, any machinery, plant,
equipment, installation or system situated in or on, or serving the
Property, the Building, or the Premises, and including (but without limiting
the generality of the foregoing) any lift, escalator, geyser, boiler, burglar
alarm, or security installation or system, again regardless of cause;
14.1.6 any interruption of, or interference with, the enjoyment or beneficial
occupation of the Premises or any of the Common Areas of the Property
or the Building caused by any building operations or other works to or
in the Building or elsewhere on or about the Property, whether by the
Lessor or by anybody else; or
14.1.7 any other event or circumstance whatever occurring, or failing to occur,
upon, in, or about the Property, the Building, or the Premises, whether or
not the Lessor could otherwise have been held liable for such occurrence
or failure, and the Lessee indemnifies the Lessor against all liability to any
of the associates, directors, members, agents, customers, servants,
guests and other invitees of the Lessee or of any of its Associates, and all
other persons who may enter upon the Premises or any parts thereof
through or under the Lessee, in consequence of any such matter as is
referred to in clauses 14.1.1 to 14.1.7 above.

14.2 The Lessor shall not, however, be excused from specific performance of
any of its obligations under this lease, whether express or implied, and
particularly (but not only) its obligations to afford the Lessee occupation
and enjoyment of the Premises as contemplated by this lease and to carry
out such maintenance and repairs as are incumbent upon the Lessor in
terms hereof; and if the Lessor fails to carry out any such obligation of
maintenance or repair with reasonable speed or efficiency, and persists
in such default after reasonable notice in writing requiring that it be
remedied, the Lessee may cause the necessary maintenance or repair
(including any incidental or necessary replacement) to be carried out and
may then recover the reasonable cost thereof from the Lessor on demand.

14.3 The Lessor does not warrant that the Premises are suitable for the
purposes of the Lessee or any of its Associates or that the Lessee or any
of its Associates will be granted any licence or consent which may be
necessary for the carrying on of any business or activity in the Premises.

15 Lessor’s rights of entry and carrying out of works

15.1 The Lessor’s representatives, agents, servants and contractors may at all
reasonable times, without thereby giving rise to any claim or right of action
on the part of the Lessee or any other occupier of the Premises

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15.1.1 enter the leased Premises in order to inspect them, to carry out any
necessary repairs, replacements, or other works, or to perform any other
lawful function in the bona fide interests of the Lessor or any of the
occupiers of the Property; or
15.1.2 carry out elsewhere in the Building or on the Property any necessary
repairs, replacements, or other works, but the Lessor shall ensure that
this right is exercised with due regard for, and a minimum of interference
with, the beneficial enjoyment of the Premises by those in occupation
thereof.
15.2 The Lessor shall not, however, cause or allow any major building works
to be carried out anywhere upon the Property for a duration longer than
(state exactly the period) from the date of their commencement unless
15.2.1 such works are necessary and do not merely involve additions to the
Building, the construction of additional buildings, or redecoration of a solely
aesthetic nature; or
15.2.2 the Lessee has consented otherwise in writing.

16 Area of the premises

If it is necessary in terms of this lease to determine the area, in square
metres, of the Premises or any other part of the Building, such
determination shall be made according to the (specify SAPOA or BOMA)
standard method for measuring floor areas. Any dispute between the
Lessor and the Lessee as to any such area shall be determined by an
independent architect, acting as expert and not as arbitrator, whose
certificate as to such area shall be final and binding on the parties. If
the parties fail to agree on the identity of such architect, he shall be
appointed by the Executive Director for the time being of the South
African Institute of Architects.

17 Rules
17.1 The Lessee shall at all material times comply with such reasonable rules
and regulations as are laid down in writing by or on behalf of the Lessor
for observance by tenants and other occupiers of the Property and their
invitees, including (without generality being limited) rules and regulations
in connection with
17.1.1 the security of the Property and the protection of persons and property
thereon, including in particular (again without generality being restricted)
any rules for the control and identification of persons and vehicles entering
the Property or any parts thereof;
17.1.2 the driving and parking of vehicles on or about the Property;
17.1.3 the utilisation of common amenities and facilities on the Property;
17.1.4 the air-conditioning plant, if any, servicing the Building.

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17.2 Clause 17.1 shall not be construed as implying that the Lessor assumes
any liability which it would not otherwise have had in connection with the
subject matter of any such rule or regulation.

18 Parking
18.1 The Lessee shall throughout the Lease Period (or from month to month,
such arrangement being terminable on one month’s notice in writing from
the Lessor to the Lessee or vice versa) have the exclusive use for its
directors, officers, members, partners, employees, clients, customers and
invitees (delete whichever is inapplicable) of parking bays/garages Nos
(state exactly) in (specify where in or about the building) at an initial total
monthly rental of R.......... (..........RAND), payable in addition to, and
increasing from time to time simultaneously with and proportionately to, the
rent for the Premises (whatever the cause or basis of such increase).
18.2 All the terms of this lease relating to the Premises themselves shall apply
mutatis mutandis to the parking bays/garages referred to in clause 18.1
except those which are obviously inapplicable.
18.3 The parking arrangement in terms of clause 18.1 shall at all events
terminate simultaneously with this lease in so far as it relates to the
Premises.

19 Damage to or destruction of premises

19.1 If the Premises are destroyed or so damaged that they can no longer be
beneficially occupied, this lease shall terminate when that happens unless
the parties agree in writing otherwise.
19.2 If the Premises are significantly damaged but can still be beneficially
occupied, this lease shall remain in force and the Lessor shall repair the
damage without undue delay but the rent shall be abated so as to
compensate the Lessee fairly for the effects of the damage and repair
work on the enjoyment of the Premises. Failing agreement on such
abatement or on the applicability of this clause to any particular
circumstances, the matter shall be referred to an expert appointed by
the parties jointly or, if they do not agree on such appointment, nominated
by the President for the time being of The Institute of Estate Agents of
South Africa, and the decision of such expert shall be final and binding.
The expert’s fees and disbursements, including any inspection costs, shall
be borne and paid by the parties in equal shares. Pending determination
of the abatement the Lessee shall continue to pay the full rent for the
Premises as if they had not been damaged (or be excused from the
payment of rent for the Premises) and as soon as the matter has been
resolved the Lessor shall make the appropriate repayment to the Lessee
(or the Lessee shall make up the arrears in the rent as abated).

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19.3 Subject to clause 14, if any damage to the Premises or the destruction
thereof is caused by an act or omission for which either party is
responsible in terms of this lease or in law, the other party shall not be
precluded by reason of any of the foregoing provisions of this clause 19
from exercising or pursuing any alternative or additional right of action
or remedy available to the latter party under the circumstances (whether
in terms of this lease or in law).

20 Special remedy for breach

20.1 Should the Lessee default in any payment due under this lease or be in
breach of its terms in any other way, and fail to remedy such default or
breach within (state exactly) days after receiving a written demand that it
be remedied, the Lessor shall be entitled, without prejudice to any
alternative or additional right of action or remedy available to the Lessor
under the circumstances, and without further notice to cancel this lease
with immediate effect, be repossessed of the Premises, and recover from
the Lessee damages for the default or breach and the cancellation of this
lease.
20.2 Clause 20.1 shall not be construed as excluding the ordinary lawful
consequences of a breach of this lease by either party (save any such
consequences as are expressly excluded by any of the other provisions
of this lease) and in particular any right of cancellation of this lease on the
ground of a material breach going to the root of this lease.
20.3 In the event of the Lessor having cancelled this lease justifiably but the
Lessee remaining in occupation of the Premises, with or without disputing
the cancellation, and continuing to tender payments of rent and any other
amounts which would have been payable to the Lessor but for the
cancellation, the Lessor may accept such payments without prejudice to
and without affecting the cancellation, in all respects as if they had been
payments on account of the damages suffered by the Lessor by reason of
the unlawful holding over on the part of the Lessee.

21 Option of renewal
21.1 The Lessee shall have the right to renew this lease upon the terms and
subject to the conditions set out below.
21.2 The period for which this lease may be so renewed is (state the exact
period) commencing on (specify date) (or the date immediately following
the date of expiry of the initial term of this lease).
21.3 All the terms of this lease shall continue to apply during the renewal period,
save that
21.3.1 the rent shall be (state the exact amount or formula, adapting clause 4.1);
and
21.3.2 there shall be no further right of renewal.

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21.4 The right of renewal shall be exercised by notice in writing from the Lessee
to the Lessor given and received not later than (state the exact date) (or
at least (specify how many) months/days prior to the date on which the
renewal period is to commence) and shall lapse if not so exercised.
21.5 If the right of renewal is duly exercised, this lease shall be renewed
automatically and without the need for any further act of the parties.
21.6 The Lessee may not, however, exercise the right of renewal while in
breach or default of any of the terms of this lease.
21.7 If this lease does not endure at least for the full term for which it is initially
contracted (or until (state exact date)), the right of renewal shall lapse and
any notice of exercise thereof given prior to such lapsing shall be null and
void.

22 New tenants and purchasers

The Lessee shall at all reasonable times
22.1 during the Lease Period, allow prospective purchasers of the Property or
of any shares or other interests in the Lessor; and
22.2 during the last (state the exact number) months of the Lease Period, allow
prospective tenants or purchasers of the Premises, to enter and view the
interior of the Premises.

23 Costs The legal costs incurred in the preparation of this lease and the stamp
duty payable thereon shall be borne and paid by (specify the lessor, the
lessee, or the parties in equal shares).

24 Domicilia and notices

24.1 The parties choose as their domicilia citandi et executandi the
addresses mentioned in above, provided that such domicilium of either
party may be changed by written notice from such party to the other
party with effect from the date of receipt or deemed receipt by the latter
of such notice.
24.2 Any notice, acceptance, demand or other communication properly
addressed by either party to the other party at the latter’s domicilium in
terms hereof for the time being and sent by prepaid registered post shall
be deemed to be received by the latter on the (specify) business day
following the date of posting thereof. This provision shall not be construed
as precluding the utilisation of other means and methods (including
telefacsimile) for the transmission or delivery of notices, acceptances,
demands and other communications, but no presumption of delivery
shall arise if any such other means or method is used.

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25 Whole agreement
25.1 This is the entire agreement between the parties.
25.2 Neither party relies in entering into this agreement on any warranties,
representations, disclosures or expressions of opinion which have not
been incorporated into this agreement as warranties or undertakings.
25.3 No variation or consensual cancellation of this agreement shall be of
any force or effect unless reduced to writing and signed by both parties.

26 Non-waiver
26.1 Neither party shall be regarded as having waived, or be precluded in any
way from exercising, any right under or arising from this lease by reason
of such party having at any time granted any extension of time for, or
having shown any indulgence to, the other party with reference to any
payment or performance hereunder, or having failed to enforce, or
delayed in the enforcement of, any right of action against the other party.
26.2 The failure of either party to comply with any non-material provision of this
lease shall not excuse the other party from performing the latter’s
obligations hereunder fully and timeously.

27 Warranty of authority
The person signing this lease on behalf of the Lessor expressly warrants
his authority to do so.

28 Suretyship
This lease is subject to the suspensive condition that (full name(s) of
surety (or sureties) and co-principal debtor(s)) becomes/become bound
to the Lessor in writing on the terms of the draft document annexed to this
lease as surety and co-principal debtor (or joint and several sureties and
co-principal debtors) for all the obligations of the Lessee to the Lessor
under this lease as well as those arising in consequence of any
termination thereof. If that condition remains unfulfilled by (specify time
and date) or any later time and date agreed upon between the parties in
writing, this lease shall not come into operation but shall be null and void
save that the Lessee shall then solely bear and pay, or reimburse the
Lessor on demand with, the costs of this lease and the Lessor’s expenses
in reletting the Premises, including any agent’s commission and
advertising costs.

29 Preliminary works
29.1 In this clause
29.1.1 “the Preliminary Works” means the partitioning and decoration provided for
in clause 29.2; and
29.1.2 “the Architect” means the architect engaged by the Lessor in connection
with alterations and improvements in and to the Building.
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29.2 The Lessor shall cause the Premises to be partitioned and decorated in
accordance with the plans and specifications (or schedule of finishes)
signed by the parties.
29.3 If the cost to the Lessor of the Preliminary Works exceeds R..........
(..........RAND), the Lessee shall reimburse the Lessor with the excess on
demand (or the rent shall be increased as set out in the schedule annexed
to this lease marked (specify)).
29.4 The Lessor shall take all reasonable measures to have the Preliminary
Works completed prior to the date fixed for the commencement of this
lease, but if they are not completed by that date
29.4.1 the commencement of this lease shall be delayed until such later date as
the Lessor may reasonably specify on (specify) days’ prior notice in writing
to the Lessee;
29.4.2 the period of this lease shall still expire on the same date as that on which
it should otherwise have expired;
29.4.3 the rent for the period from the date on which this lease commences until
the end of the month in which that date falls (“the First Rental”) shall be an
amount which bears the same ratio to the rent that should otherwise have
been payable for that month as the number of days in that period bears to
the number of days in that month;
29.4.4 the First Rental shall be paid within (state exactly how many) days after the
date on which this lease has commenced;
29.4.5 the Lessor shall not be liable to the Lessee or any Associate of the
Lessee for any damages whatsoever in consequence of the delay in the
commencement of the lease, regardless of the cause thereof, whether
or not the Lessee cancels or resiles from this lease in terms of clause
29.4.6; and
29.4.6 the Lessee shall not be entitled to cancel or resile from this lease by reason
of the delay unless it extends beyond (specify period) after the date on
which this lease should have commenced in the first instance, and may
then do so with immediate effect on written notice to the Lessor (but not
after the arrival of the date of commencement specified by the Lessor
in terms of clause 29.4.1).
29.5 Any dispute between the parties about whether the Preliminary Works are
complete at any time, when they were completed, the cost thereof to the
Lessor, or the reasonableness of any date specified by the Lessor in
terms of clause 29.4.1 shall be determined by the Architect, acting as
an expert and not an arbitrator, and the certificate of the Architect on the
matter in issue shall be final and binding on the parties.

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30 Sale of premises
The validity of this lease shall not in any way be affected by the transfer of
the Premises from the Lessor pursuant to a sale thereof. It shall
accordingly, upon registration of transfer of the Premises into the name of
the purchaser, remain of full force and effect save that the purchaser shall
be substituted as lessor and acquire all rights and be liable to fulfil all the
obligations which the Lessor, as lessor, enjoyed against or was liable to
fulfil in favour of the Lessee in terms of the lease.

31 Termination by death or insolvency

31.1 This lease shall not terminate with the death of either the Lessor or
the Lessee. The executor of the deceased Lessee’s estate shall have the
option, depending upon the circumstances of the estate, either to abide
by the contract for the remainder period of the lease (the successor or
successors of the Lessee assuming his rights and obligations) or to cancel
this lease by giving the Lessor (state exactly the number of) months
written notice of termination, such notice to be given not more than (state
exactly the number of ) months after the death of the Lessee.
31.2 The insolvency of either the Lessor or the Lessee shall not terminate this
lease. However, the trustee of the Lessee’s insolvent estate shall have the
option to terminate this lease by notice in writing to the Lessor. If the
trustee does not within three months of his appointment as trustee notify
the Lessor that he desires to continue with the lease on behalf of the
estate, he shall be deemed to have terminated the lease at the end of the
three months.

SIGNED at .......................... (place) on this .................................................. (day,

month, year) in the presence of the undersigned witnesses

Witnesses:

1............... ......................................

2......................................................

(Signatures of witnesses)

…………………………………………
(Signature of lessor)

SIGNED at ............................................................................... (place) on this

(.........................................................(day, month, year) in the presence of the
undersigned witnesses

Witnesses:

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1 ..................................................

2 ..................................................

(Signatures of witnesses)

………………………………………
(Signature of lessee)

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B DRAFTING A CONTRACT OF LETTING AND HIRING OF WORK

1 Introduction

Since time immemorial this type of contract has been extremely problematic.

Firstly, the parties to the contract are confusing. The party undertaking to perform
or execute a particular piece of work and to produce a certain specified result
is called the conductor or lessee; he hires the work from the party contracting
out. The person commissioning the work is the locator or lessor; he lets out the
work to be done. The confusing part is that the lessor must pay the lessee for the
work. It is thus advised to refrain from using the terminology of lessor and lessee,
but use to use the terms 'contractor' and 'client or customer.'

The second difficulty is that the contract of letting and hiring of work, borders on
several other contracts. For example where an artisan or craftsman is
commissioned to make something from materials supplied by the customer, the
contract is one of letting and hiring of work. But where the materials for the final
product belonged to the contractor, the contract is one of purchase and sale.
Building contracts where the building contractor supplies the materials, are,
however, an exception, and are contracts of letting and hiring of work.

Another borderline is found in the contract of employment. In an employment

contract, the employee lets his services to the employer and the latter must pay
the wages. In the contract of letting and hiring of work, the client contracts out
certain work and must pay the contractor for the result. The employee works under
supervision, and the contractor is his own boss; employees use their boss’
equipment, while the contractor supplies his own equipment; the contractor works
until the job is finished and the employee works until four o'clock; and very
important, the labour legislation is applicable to employees, but the contractor is
his own boss and does not fall under the scope of such Acts.

To sum up: The contract of letting and hiring of work covers the situation where a
piece of work is contracted out; the person who does the work is an
independent contractor and not an employee of the person for whose benefit the
work is executed and who pays the remuneration. The work to be performed need
not be of a physical nature, it may be mental for example an auditor may be an
independent contractor, an insurance agent or the developer of computer
software.

Thus before you draft, you must carefully ascertain which contract is applicable on
the facts of the relationship between the parties. One and the same job can be
performed by either an employee or a contractor, but be careful not to employ the
contractor; don't mandate where a certain result is required and don't buy where a
specific product has to be tailor-made.

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Two contracts will be used as examples.

First, the consultancy contract which has become very common as companies
attempt to cut costs and avoid labour legislation.

1. MEMORANDUM OF AGREEMENT WITH REGARD TO CONSULTANCY

Entered into by and between:

The Agrarian Reform Company (Pty) Ltd, a public company established and
registered in terms of the Companies Act 61 of 1973 with registration no
............................................................................ (hereinafter referred to as ARC)

whose address is the following:

Snelhoogte road
Stellendam
……….......

herein represented by ................. in his capacity as Director of the ARC nd duly

authorised thereto
and

on the one side

......................... (hereinafter referred to as the consultant) ID no 630121 600 2048

whose address is the following:

22 Koopiesroad
Deventer
………...

on the other side

WHEREAS:

It is the objective of the ARC to maximise the future of the people of Africa
through the promotion of agrarian reform and agri-industry;

AND WHEREAS:

In order to achieve this objective the ARC co-operates with persons, institutions
and associations undertaking research, development and technology transfer;

AND WHEREAS:

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The consultant has the qualifications, experience and contacts to assist the ARC in
the promotion of research, development and technology transfer in agrarian
industry.

NOW THEREFORE THE PARTIES HERETO AGREE AS FOLLOWS:

1. The consultant undertakes to act as an independent contractor in respect

of certain work, which work is fully set out in Schedule 1 attached hereto
and duly initialed and signed by both parties (hereinafter referred to as
the projects, and to provide the required professional expertise and inputs.

2. The consultant shall exercise all reasonable skill, care and diligence in
the execution of the projects and shall carry out all his obligations in
accordance with international professional standards. The consultant shall
in all professional matters act as a faithful adviser to the ARC and, in so
far as any of his duties are discretionary, act fairly between the ARC and
third parties. The consultant shall respect the laws and customs of the
countries and provinces in which any business in relation to the projects is
conducted.

3. The consultant shall report progress. The reports shall list individual
project activities and indicate planned progress as well as actual progress.

4. Copies of all documents prepared by the consultant in relation to the

project shall be delivered to the ARC.

5. The ARC shall furnish without charge and within a reasonable time all
pertinent data and information in her possession to the consultant and
shall give such assistance as shall reasonably be required by the
consultant for the carrying out of his responsibilities under this agreement.

6. The ARC shall appoint a project manager, who shall have the authority
to administer, supervise and co-ordinate this agreement on behalf of the
ARC and who shall be the channel of communication between the ARC
and the consultant.

7. The consultant must arrange for the consultancy to be of the utmost

objectivity and recuse himself in any given situation in which a possible
conflict of interests could be construed.

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8. Notwithstanding anything to the contrary set out in this agreement, the
consultant shall indemnify and hold harmless the ARC for and against any
and all claims, damages, expenses and cost (including those asserted by
third parties) directly or indirectly related to the projects, in delict, for breach
of statutory duty or otherwise.

9. The ARC undertakes to pay to the consultant in consideration for his work
at a consultancy rate of R 2000- (Two thousand Rand) per hour, with the
proviso that the remuneration of the consultant is limited to the following
amounts per project:

a) ZX 1810; R20 000- (Twenty thousand Rand); ii) AW 1851; R15 000-
(Fifteen thousand Rand); iii) WB 8824; R15 000- (Fifteen thousand Rand);
iv) AA 1025; R15 000- (Fifteen thousand Rand); v) PRLD; R40 000-
(Forty thousand Rand).

10. The consultancy fee includes any costs, expenses and expenditure made
by the consultant in respect of the projects in question and no additional
moneys shall be payable to the consultant by the ARC in respect of travel,
office, telephone, fax, or any other costs, with the exception of travel and
accommodation expenses relating exceptional location, if specially
approved beforehand by the ARC.

11. ARC shall make each payment on receipt of an invoice stipulating the
amount due and payment will be made subject to the following conditions
and terms:

a) that the invoice has been approved and signed by the ARC project
manager appointed in terms of clause 6;

b) that all suspensive conditions contained within this contract have been
fulfilled;

c) that the consultant's activities within the different projects are in

adherence with the time-schedules.

12. The ARC may, by written notice of suspension to the consultant, suspend
all payments to the consultant if the consultant fails to perform any of the
obligations under his agreement, provided that such notice of suspension
shall specify the nature of the failure and that the ARC has requested the
consultant to remedy such failure within a period nor exceeding thirty days
after receipt of such notice.

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13. The consultant agrees and undertakes to treat all information concerning
the intellectual property of the ARC supplied by ARC or which may come
to its attention as strictly confidential. The consultant will not at any time
after last signature hereof divulge to any party not signatory hereto any
information relating to the intellectual property of the ARC without having
concluded the necessary confidentiality agreement with such party.

14. The consultant shall hold in confidence all information received from ARC,
directly or indirectly, which could possibly harm the good name, reputation
and standing of the ARC.

15. Neither of the parties may, without the prior consent of the other, bring in
outside parties to participate in the projects. Such outside participation
shall be in terms of a written agreement approved by both parties, which
agreement shall in no way conflict with the provisions of this contract.

16. This agreement shall not be construed as establishing or creating a

relationship of master and servant or principal and agent.

17. Neither party shall without the written consent of the other party, in any
way assign or transfer the benefits or obligations under this agreement.

18. This agreement will commence on the first day of April 2000 and will
terminate with the exception of the provisions regarding the ownership of
intellectual property and confidentiality which shall survive such
termination, upon:

a) the thirty first day of March 2001;

b) completion of all projects, in the event that such completion should
materialise prior to the date mentioned in clause 18 a);
c) mutual agreement between the parties;
d) either one of the parties to the contract failing to fulfil any of the
essential obligations undertaken by him and failing to remedy the breach
within a period of thirty days after receiving written notification demanding
that the breach be rectified, the other party is entitled, without further
notice, to cancel the agreement without prejudice to any claim which that
party might have for damages, breach of contract or otherwise.

19. The ARC may, by twenty four hours written notice of termination to
the consultant terminate this agreement;

a) if the consultant becomes insolvent or bankrupt or enters into any

agreements with its creditors for relief of debt or takes advantage of any
law for the benefit of debtors or goes into liquidation or receivership
whether compulsory or voluntary;
b) if the consultant submits to the ARC a statement which has a material
effect on the rights, interests or obligations of the ARC and which the ARC
knows to be false;

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c) if the ARC, in its sole discretion and for any reason whatsoever, decides
to terminate this agreement.

20. Any dispute arising from any matters relating to this agreement or the
validity or meaning or execution thereof must be solved by means of
arbitration, in accordance with procedures stipulated hereunder:

a) Any party shall be entitled to demand in writing that the dispute be

referred for arbitration within 10 days after agreement could not be
reached.

b) The arbitrator shall be, if the matter in dispute is:

i) primarily an accounting matter, an independent registered chartered

accountant;

ii) primarily a legal or any other matter, a practising advocate; agreed upon
between the partners involved in the dispute and failing agreement in that
regard within ten days after the arbitration has been demanded, appointed
by the president of the Cape Town bar.

c) Within 30 (thirty) days after the notice in 20.1a each party shall submit a
comprehensive written statement to the arbitrator containing all evidence,
sworn statements, facts, submissions of expert witnesses etc. on which
their case is based, a copy of which is to be served on the other party.

d) Within 14 days after receipt of a copy of the above mentioned

documents the other party may reply thereto and submit a supplementary
document to the arbitrator, a copy of which is to be served on the other
party.

e) The arbitrator shall consider the dispute and based on the documents
before him, without appearance of the party or any legal representative
before him, decide the issue. Should the arbitrator be unable to decide
the issue on the documents, he may request the parties to present further
evidence or to call witnesses to testify in the presence of the parties. These
witnesses must be questioned by the arbitrator and may be questioned by
the parties.

f) The arbitrator may announce any decision or make any award which
according to his discretion is legally valid, fair and appropriate.

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g) The arbitrator must take cognisance of the intention of the parties and
reach a decision based on the South African law. He is not strictly bound
by the rules of law but must be guided by the principles of justice.

h) The finding of the arbitrator shall be final and binding on the parties and
may only be made a court order should one of the parties fail or refuse to
give effect to the arbitrator's finding or award.

20.2 This clause shall be severable and shall remain valid notwithstanding the
termination or invalidity of the agreement.

21. Any notice, instruction or request required or permitted to be given or

made under this agreement shall be in writing. Such notice, instruction or
request shall be deemed to be duly given or made when it shall have been
delivered by hand, mail or facsimile at the domicilium citandi et executandi
of the party concerned as specified below. Any facsimile notice must be
followed up by the original document. Mailed notices will be regarded as
having been received seven days after despatch by registered mail.

22. No variations of the terms of this contract will be binding unless reduced
to writing and signed by both the parties to the contract.

23. The parties confirm:

(a) that this document and Schedule 1 contain the whole agreement
between the parties;
(b) that no other terms apart from those contained herein were stipulated;
(c) that no other suggestions, guarantees and motives apart from those
contained herein have been made by either the parties themselves or on
their behalf.

24. The parties hereto choose for all purposes and in regard to this contract
their respective addresses as domicilium citandi et executandi

25. The invalidity of any provision of this agreement shall not impair, affect or
invalidate the other provisions of this agreement.

26. This agreement shall not be construed as establishing or creating a

relationship of master and servant or principal and agent or partnership
between the parties.

27. Both parties undertake to perform their obligations under this agreement
in the utmost good faith.

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28. The law applicable to this agreement is South African law.

THUS DONE AND SIGNED at ........................................on the............................

day of ......................19.. in the presence of the undersigned witnesses:

WITNESSES:

1)...............................................................

2)............................................................... on behalf of the ARC

THUS DONE AND SIGNED at........................................on the ..............................

day of ...............................19…….. in the presence of the undersigned witnesses:

WITNESSES:
1) ...............................................

2) ...............................................

2. The second example is a contract for the development of software by a

supplier which is another example of letting and hiring of work.

READ KLINGER Drafting and negotiating IT contracts (2013) 93-129; 215-274;

303-384; and 559-694

First, the drafter must identify very carefully whether the client is acquiring a ready-
made package in which case it is a straight forward contract of purchase and sale
or whether the client has software custom made to his requirements. It is this latter
case which falls into the category of letting and hiring of work.

In this discussion the subject of enhancement of an existing software package will

also be dealt with. The agreements relating to potential licensing of the software
will also be provided. At the end of this section you will find an example of a contract
for the development of software which you can also adapt to relate to
enhancement of software packages. Finally, the format used is such that you can
use this as the basis of other contracts for the letting and hiring of work. However,
it is vital to note that each individual agreement must be tailored to meet the
requirements of each individual situation.

As stated above it is suggested that you use the term contractor or supplier for
the party doing the work, while using the word client or customer for the person
paying for the work to be done. This way you will avoid falling into the quagmire of
confused terminology mixing purchaser and lessor, partner and party and all the
concomitant naturalia of the various contracts.

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Table of Contents

1. Introduction
2. Objectives
3. Specifying What is Wanted
4. Options for Development
5. Specifying the Environment
6. Special Issues with Package Agreements
7. Special Issues with Software Development
8. Who Owns the Software?
9. How is Payment Made?
10. Other Issues
11. Managing the Agreement
12. Conclusion
13. The Agreement
13.1 Terms and Conditions
13.2 Schedules
14. Sample Agreement

1. Introduction

There are three areas of importance in regard to software.

a) The first relates to the definition of exactly what is being required to be

developed. For software this is much more difficult to specify than for
example a car, which has exactly defined physical attributes and
performance. The specification of the software being developed or
licensed is thus of the utmost importance. Thus the client must clearly
state what is required. Only if this is properly done, can the contractor
quote a price. The two parties are then able to agree with reference to the
specification and price.

b) The second important point relates to the question of ownership of the

completed product - there are various options and implications for both
parties here.

c) The third area relates to the methods of payment for the software.
Software development and enhancements to packages, and
implementation of both can be carried out on a time and materials basis
or for a fixed price. Both options have advantages and disadvantages. We
discuss all of these topics in this section.
2. Objectives

The main objective of the Client at contract negotiation time should be to achieve
agreement with the contractor on the best commercial terms and conditions for
the supply of the agreed software system.

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Any well drafted agreement should attempt to achieve the following objectives:

1. Clearly state the rights and obligations of both parties so that each party
knows what it must do under the agreement and what benefits it will
receive in return.

2. Set out the plan and timetable which will apply to the delivery and
implementation of the products and services specified in the agreement.

3. Provide a clear procedure for the parties to implement possible changes

to the project, and agree on the impact that any changes will have on the
timetable and the price.

4. Set out a clearly defined acceptance procedure in terms of which the

client shall accept when the contractor has completed delivery and
implementation as specified.

5. Set out a clear timetable for payment of the contract price.

6. Allocate ownership of intellectual property.

7. Define the procedures to resolve any disputes promptly and provide

effective and commercially realistic remedies for both parties in the event
of contractual default by the other.

3. Specifying What is Wanted

What is the Client ordering? While it may seem obvious, defining this is the most
important step in reaching a sound agreement. As was pointed out earlier your
contract is only as good as your specifications. If this is not drafted so
comprehensively as to cover everything that the contractor must do and by when
it will be very difficult to pin him down for breach of contract. Just as the true cost
of constructing a building cannot be determined until the specification is complete,
the same is true of software. Producing a building specification in a software
agreement is the identification and documentation of the functionality to be
delivered by the Contractor.

The Client must therefore specify:

a) the functionality of the software itself; and
b) the environment the software will operate in; and
c) the performance of the software in the chosen environment.

These specifications may be set out in a Request for Proposal (RFP). If not,
they need to be identified before a final agreement is established. The ideas
about the nature of the software required may change during the drawing up of
the specifications. It is also probable that more detail is required by the Contractor
than was provided in the RFP.

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4. Options for Development

When using a third party to develop software, a Client can follow two approaches:

a) the Client specifies the system in a general way and negotiates an

agreement for production of user requirements, detailed design and
development; or

b) the Client specifies the detailed user requirements and then negotiates
an agreement for detailed design and development.

The user requirements describe what the system is required to do, with the
detailed design describing how it should do it.

The disadvantage of going for the first option is that any Contractor will be very
wary of committing to a fixed price or even an estimate at this stage for the whole
job. In view of the risk in fixed price contracts, Contractors will include a
contingency amount which will vary with the degree of risk. At that stage of the
development the risk will be high and therefore will increase the contingency
amount. This would be the same as the case where a Contractor contracts to
build a house for a fixed price, not knowing the size of the house, the layout or
the materials needed.

One alternative to a premature commitment to price is to adopt some variation

of the second option described above. Here the project is divided into separate
phases with exit clauses at significant milestones.

For example the first phase of the project could involve the production of a detailed
specification which could then be used to price and build the solution. However
the Client needs to be aware that the longer the Contractor is involved, the more
investment is created with the Contractor and the larger the losses to terminate and
re-commence with a new one.

5. Specifying the Environment

It is important that the environment in which the proposed software will operate is
specified in the agreement. There are two possibilities:

a) an existing hardware/network infrastructure; or

b) a completely new hardware/network infrastructure.

If it is the first of these options, the Client needs to consider whether its existing
hardware infrastructure requires upgrading as a result of this software purchase.
For the second option the Client needs to consider the effect of these changes on
other applications used in their organisation. For both, the Client will need to
consider and allocate responsibility for sizing and implementing the changes. If the
Client's organisation does not wish to undertake this responsibility, they may wish
to consider use of another third party to co-ordinate the different Contractors

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involved in such an undertaking.

In any event, decisions need to be made about the environment and

communicated to the Contractor. These include such issues as:

a) what hardware must be used; and

b) what operating system will run on that hardware; and
c) how the network will be configured; and
d) which database management system will be used; and e) the nature of
the application ie will it be a traditional host based system or client/server?

It may be that the Client will wish to specify the business solution to the problem
alone, without prescribing any of the above, and adopt the environment
recommended by the Contractor. This is an acceptable strategy but the Client
needs to take into account the interaction of the new application with the others
in their organisation eg:

- will the application need to interface with other systems; and

- who will be responsible for creating these interfaces; and
- will users of existing systems need to access the new one from their
equipment; and
- what are the implications for the Client's IT staff in supporting a range
of different hardware/databases?

6. Special Issues with Package Agreements

One approach to package implementation is to choose a package solution closest

to the Client's requirements, and change the business to fit the package. Often
relationships between Contractors and Clients break down because a package
was agreed upon and, for a variety of reasons, the Client requires substantial
modifications to the package which are then not controlled properly. This can
occur in an ad hoc manner without the changes being thought through,
documented and cost justified at the beginning of the process. If a package
requires significant change, an organisation must also ask itself whether this is the
route to follow?

Presuming these changes are required, it must be recognised that any change,
even minor, adds to the complexity and cost, both now and in the future. Further
releases of the package must make allowances for these changes to the base
package. Changes require rigorous (and costly) testing to ensure they do not
affect other parts of the product. The mechanism for managing future changes
and releases needs to be specified in the agreement.

The Client must agree with the Contractor how amendments to packages will be
administered and charged for, both during implementation and for on-going
maintenance. This varies widely, some examples are:

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- incorporating amendments in future releases to the standard package at
no charge to the Client other than the agreed maintenance and support
charges; or

- charging enhancements to the Client requiring the change but then

bundling these enhancements into the product as free to all other users,
thus an organisation may pay for their particular needs but gain from
someone else; or

- charging enhancements to the Client requiring the change but then

charging subsequent customers again for the same or similar
enhancements; or

- selling the software to the Client and permitting them to amend it as they
wish (note this means the Client is concluding a contract of Purchase and
Sale and is opting out of future releases of the software since the
Contractor cannot control what is being changed and cannot guarantee
conformity with future releases and probably will not give the usual
common law guarantees applicable to contracts of purchase and sale).
7. Special Issues with Software Development

When selecting a Contractor the Client will probably have considered such issues
as:

- whether the Contractor is reliable and stable and able to offer on-going
support; and

- the Contractor's track record in development; and cost effectiveness; and

- the professionalism of the Contractor's approach.

The Client also may feel that it should not restrict itself to specifying what is to be
delivered by the Contractor but may wish to review how the end result is achieved.
This would encompass examination and approval of the methods used and
vetting the people allocated to the project. In this case the Client needs to consider
whether this is to be specified in the agreement and if so how it is to be controlled.
Will all new staff allocated to the project need to be vetted? if so by whom? and
who will ensure that the project conforms to the method?

8. Who Owns the Software?

There are two major areas to consider here. The first relates to software which is
custom built to the Client's requirements. The second relates to derivative works
or similar versions of that software developed later.

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With regard to software built for the Client, the ownership of that software needs
to be defined. Contractors have a range of approaches to this issue including:

- building the software for the Client's specific needs, the Client owns the
software and it is used only by their company; or

- the Contractor owns the developed software, licences it back to the Client
and reserves the right to licence it to others; or

- the Client owns the software and licences it back to the Contractor for
marketing; or

- the Client and the Contractor participate in a joint venture to market the
software.

The first option will be adopted where the software is so specific to the Client's
organisation that it has no market value. It may also be appropriate where the
software could be used by a competitor and the Client wishes to prevent its use
by that competitor. This first option will however be the most expensive, because
there is no opportunity for the Contractor to defray the development costs. At the
end of this section I have provided you with a standard contract which fulfils these
requirements.
With the remaining choices discussed above the Client may gain, either
indirectly, through a reduced cost from the Contractor in the hope that they will
sell the product later, or through the Client participating in the risk and obtaining
some cash flow from future sales. It should be recognised that an application
developed for the Client is not immediately suitable for marketing as a package.
There are costs in generalising the software, documenting it in a manner suitable
for multiple use and marketing it.

Some Clients adopt the first option and choose to market and support the software
themselves. In this case the Client certainly needs to consider whether this is
part of their core business or whether this is best left to a Contractor who
understands the marketing and support issues of software.

The second issue relates to development of similar systems in the future.

Contractors will typically reserve the right to retain the know-how, technical ideas
and innovations developed by the Contractor during the project and the ability to
use these in the future. They may also retain the right to re-use or re-licence
specific components.

9. How is Payment Made?

There are two ways to pay for software development, amendments to existing
packages and implementations of both:

- fixed price; or
- time and materials

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As stated earlier a Contractor will charge a premium for a fixed price relative to
the risks involved. The more defined the product to be delivered the less the risk.
The less the risk the lower the premium. Despite this premium it may be worth the
apparent extra cost of the fixed price as it provides a degree of certainty to the
Client.

However fixed prices also lead to a degree of rigidity in that Contractors, for their
own protection, will build in a much more controlled process to address changes
of any sort to the originally specified system. Under a fixed price system, the
Contractor will deliver what was contracted for even if the Client later decides it
is not what they want, unless the Purchaser follows an appropriate change
control procedure. This procedure must be defined in the agreement.

Paying on a time and materials basis, while allowing more flexibility, may lead to
a less disciplined approach to the project. The Contractor may not be formally
bound to produce what the Client has asked for within a set cost and time.
Indeed the Contractor may gain by a variation in the original requirements as
this may lead to extra income. The onus is thus much more on the Client to ensure
that the costs do not grow significantly. It may be appropriate to develop change
control procedures here for the Client's sake rather than the Contractor's. In any
case this needs to be specified in the agreement.

The Client should also ensure that agreement is reached on issues such as the
rates at which resources will be charged and disbursements (the acceptable levels
of expenses for accommodation, meals, travel etc) especially when overseas
resources are involved.

Both parties need to consider when payment for services will occur. Will this be
in one amount at the end of the project, as the expenses are incurred, or some
other staged approach? If this latter method is adopted then typically the
agreement would include a payment schedule which sets out the agreed
milestones and the payments which become due upon their achievement.
10. Other Issues

After the implementation of the software there may be a need for support from
the Contractor, for a period, until the Client's own staff come up to speed. There
may then be a need for the Contractor to provide help desk support and be on-
call with a guaranteed response time. The need, period covered and the costs of
these services must be explicitly defined in the agreement.

Other issues which have to be defined include:

- what documentation is to be produced, to what standard and who provides

it; and

- who installs the software and at what cost; and

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- what actions must be performed as a condition of acceptance (eg.

- what tests will be carried out) and who does them; and

- what data conversion is required and who does it; and

- what quality assurance tasks are required and who performs them?

11. Managing the Agreement

By the time the agreement is signed the parties will have invested significant time
and effort in completing negotiations and assembling all the required schedules
into the final document. Both parties should now put this investment to work for
them to ensure that all stages of the delivery, installation and acceptance are
completed in accordance with their agreement and as contemplated by both
parties.

Each party should appoint their own project manager or other representative who
will be responsible for managing the agreement and monitoring progress
through each stage. The project managers should each have a clear
understanding of the contractual requirements and processes.

This management time should result in the early identification of any problems or
issues arising and enable the parties to take any co-operative action required.
With this understanding the agreement can facilitate a successful and mutually
beneficial working relationship between the parties.

12. Conclusion

The above should have provided some constructive guidance or participants in the
procurement process in order to help understand the issues involved in software
contract negotiations.

13. The Agreement

In order to minimise the costs and time associated with developing an

agreement, the parties should endeavour to identify a starting point that is close to
their respective positions.

The following section covers an example of a contract that could be used as a

basis for negotiations. The example contract can be changed to apply to the
various situations as set out above.

Read KLINGER Drafting and negotiating IT contracts (2013) 559-694 for examples
of different IT related types of contracts

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As stated earlier, the contract discussed in this module also involves issues
relating to potential licensing of the applications themselves. An example of a
licensing contract therefore follows the sample letting and hiring contract.

The letting and hiring of developing a computer program contract presumes:

- that hardware and network provisions are already in existence;

- that the software development will be carried out in two phases, the first
to produce a detailed specification based on the user's requirements, the
second to actually build the software; and the Client will own the software
outright.
13.1 Terms and Conditions

The general terms and conditions of the contract set out the majority of the rights
and obligations of each party. In a contract of letting and hiring the general terms
and conditions should include:

Preamble: A full description of the parties, the processes leading up to

the agreement stage and the essence of the agreement.

Definitions: A precise definition of the terms used within the agreement.

Interpretations: Any clarifications relating to gender, references, schedules

and appendices, other documents, conflicts between
documents, etc.

Scope: General description of what is to be supplied (the

deliverables), any additional services to be provided and any
options.

Schedules: A reference to the schedules to the agreement Payments:

which should specify all deliverables including hardware,
software, delivery, installation, training and documentation,
with the price for each.

Delivery: Specification of the dates, locations, responsibilities and any

conditions relating to delivery of products and services to the
site. Set out the responsibility for any site preparation work
required prior to delivery.

Installation: Specification of the responsibilities, milestones and dates

for installation by the Contractor.

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Acceptance: This clause will specify when acceptance testing will
commence, what will trigger the testing and who will
undertake the tests. The clause will also lay out the
consequences and remedies in the event:

acceptance testing isn't commenced within an agreed period;

any tests should fail and require correction and re-testing;
testing cannot be successfully completed within an agreed period.

It is usual to include a schedule to the agreement that lays out in detail:

the tests and the acceptance criteria;

the time table;
notification and re-testing procedures;
repair, maintenance and support of products during acceptance testing.

Confidentiality: Requires the parties to keep confidential, information they

acquire with respect to each other.

Publicity: Sets out the rules with respect to either party wishing to
making any use of the name of the other or to publicise that
the parties have entered into a contract.

Documentation: A reference to the schedule to the agreement which should

specify what documentation is to be supplied with the
products and services.

Access Security: The requirements of the contractor to conform to the

Client's security arrangements and the obligations of the
Client to assist in arranging these.

Training: The training services to be supplied.

Warranties: Specifies what either party is required to warrant with

respect to the agreement.

This can include:

quality of services;
personnel;
fitness for purpose;
performance against specification;
warranty maintenance period and service levels.

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Ownership: Specifies when any change of title to products occurs. It
also specifies intellectual property rights. "Intellectual
property" is intangible property involving some degree of
creative effort eg software design. This clause will protect
both parties’ rights to retain control over their intellectual
property including the rights to their use, publication and
copying.

Intellectual The agreement should also include a clause setting

Property out an indemnity that the Contractor will give to the
Indemnity: Client to protect the Client against claims of infringement
with respect to any products supplied.

Limitation of Sets out the extent to which the Contractor's liability

Liability: may be limited.

NB: Whether a drafter includes this clause will depend on whom the drafter’s client
is. If the client is the party ordering the programme don’t include it. But if your client
is the contractor include it.

Termination: The parties must agree and set out the basis for any
termination of the agreement.

This will usually only be for situations where one or other is in breach or default
of its obligations as specified in the agreement.

This clause will set out what notice is required to be given to the other party and
will generally allow a period for the default or breach to be remedied before the
other party is entitled to exercise remedies under the agreement.

Force Majeure: Allows the agreement to be suspended or terminated

without liability in the event of circumstances arising that are
outside of the control of either party.

Waiver: Allows the parties to retain any rights under the agreement
that they may not elect to enforce in the first instance.

Severability: Allows for a particular term or condition, which subsequently

proves to be illegal or unenforceable, to be excluded without
compromising the rest of the agreement.

Notices: How and where any formal correspondence between the

parties with respect to the agreement must be delivered.

Assignment: Requires the parties to have the consent of the other prior
to transferring their rights and obligations under the
agreement to any other party.

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Amendments: Specifies how any subsequent changes to the deliverables
as requested by either party will be handled.

Survival: Any clauses that continue after the term of the agreement.

Entire Details the boundaries of the agreement, usually

Agreement excluding any previous agreements or terms written or oral.

Disputes & This section defines the processes for both parties to
Remedies resolve any disputes constructively by means of Arbitration.

13.2 Schedules

Further detail may be included in Schedules attached to the agreement and may
include: Requirements:

- The functional specifications of the software to be delivered.

- Installation Plan.
The development schedule including important delivery dates.

- Training Plan.
Details of courses to be provided.

- Acceptance Tests.
The acceptance test plan, procedures, and responsibilities.

- Payment Schedule.
The payments, as agreed between the parties, for the major agreement
milestones including signature, installation and/or acceptance as set out
in a Payment Schedule.

- Detailed Specification.
The detailed specification which may be appended at a later stage.

- Documentation.
Documentation to be supplied.

- RFP etc.
Copies of other relevant documentation.

- Licence.
Contracts for Software that is licensed to the Client ordering the
programme.

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3. The contract of letting and hiring of work could be adapted for the
acquisition of a small to medium sized software development. It can also
be modified for use in a package acquisition with associated
enhancements. Note that it does not include detailed clauses relating to
licensing, these will be covered in a separate contract.

MEMORANDUM OF AGREEMENT WITH REGARD TO THE DEVELOPMENT

OF SOFTWARE

Entered into by and between

........................................................................... (hereinafter referred to as Client)

whose address is the following:

0000 Park st
HATFIELD
0083

herein represented by .......... in his capacity as .............. of the ...................... of

the Client and duly authorised thereto

on the one side

AND
............................................................. (hereinafter referred to as the Contractor)

whose address is the following:

....................................
....................................
....................................

herein represented by ...........................................................................................

in his capacity as ................................. and duly authorised thereto on the other

side

WHEREAS:

The Client has asked in 'The Request for Proposal Document', attached hereto
as Annexure H, for proposals regarding the development of a computer program
that will perform in accordance with the requirements set out in Annexure A;

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AND WHEREAS:

The contractor has the necessary expertise to develop such computer program as
required by the
Client;

AND WHEREAS:

The contractor is desirous of developing such computer program and has made
an offer to the
Client to develop this computer program;

AND WHEREAS:
The Client has evaluated all proposals received and has selected the offer from
the contractor as most fitting to the requirements of the Client.

NOW THEREFORE THE PARTIES HERETO AGREE AS FOLLOWS:

1. Definitions and Interpretation

In this agreement, unless the context otherwise indicates-

'acceptance' means the successful completion of all acceptance tests by the Client;

'acceptance date' means the date on which all acceptance tests were successfully
completed;

'acceptance tests' means the tests specified in Annexure D attached hereto

and duly signed and initialed by both parties;

'agreement' means this agreement and includes all Annexures attached hereto;

'contractual correspondence' means any correspondence between the parties

relating to this agreement;

'detailed specifications' means the specifications as set out in Annexure F,

attached hereto and duly signed and initialed by both parties;

'documentation' means user manuals, handbooks, maintenance libraries,

education materials and other publications, all of these in both hard and/or
softcopy, containing specifications supplied in order to assist the use, operation
and/or support of the software;

'equipment' means computer hardware, telecommunications hardware,

accessories, attachments, alterations of and spare parts for such equipment;

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'installation date' means the date on or before which installation of the products
must be completed as specified in Annexure B, attached hereto and duly signed
and initialed by both parties;

'installation site' means the location at which the products must be installed as
specified in Annexure B;

'payment schedule' means the period, percentage and conditions of payment for
equipment, products and services, as set out in Annexure E, attached hereto
and duly signed and initialed by both parties;

'products' means the software and documentation supplied by the contractor to the
Client in terms of this agreement;

'proposal' means the contractor's offer in response to the Client's request for
proposal document, attached hereto as Annexure H;

'requirements' means the Client's requirements for the software as set out in
Annexure A, attached hereto and duly signed and initialed by both parties;

'rfp' means the request for proposal document inviting the submission of proposals
for the supply of products and services, attached in Annexure H;

'services' means any service or task to be performed by the contractor in terms of

this agreement;

'software' means the source code and executable object code for all computer
programs, subroutines, diagnostic routines, control software or special software to
be delivered by the contractor to the Client in terms of this agreement, with
exclusion of the licensed software.

1.2 For the purposes of interpretation and construction of this agreement-

words importing one gender include the others; words importing the
singular or plural number include the plural or the singular number
respectively; annexures attached to the agreement and the content thereof
are part of the agreement; the preamble and headings are part of the
agreement; in the event of any conflict between the body of this
agreement and the Annexures attached thereto the following order of
precedence will prevail: 1. the body of the agreement; 2. Annexures A, B,
C, D, E, F, G; 3. Annexure H.

2. Scope

2.1 The contractor undertakes to perform all services necessary to develop

the products for the Client in two phases, in accordance with the
installation services and plan specified in Annexure B.

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2.1.1 The contractor undertakes to prepare detailed specifications for the
development of software fitting to the requirements of the Client.

2.1.2 After completion and delivery of these detailed specifications to the

Client, the latter shall have thirty days to determine whether said
specifications conform to its requirements.

2.1.3 After written notification by the Client to the contractor that the detailed
specifications and the estimated costs are agreed upon, these
specifications shall be duly signed and initialed by both parties and
attached to this agreement as Annexure F.

2.1.4 In the event that the detailed specifications and the estimated costs do
not obtain the approval of the Client, the latter shall notify in writing such
disapproval and shall specify in writing to the contractor which changes
are required, and the contractor shall accordingly amend the detailed
specifications and/or the estimated costs.

2.1.5 Upon the agreement set out in clause 2.1.3, the contractor will develop,
code, test and debug the software, prepare the documentation and install
the software on the equipment of the Client. The Client will perform
acceptance testing in accordance with clause 5.

2.2 The products and services which are the subject of this agreement are as
specified in the following Annexures:
Annexure A; requirements;
Annexure B; installation services and plan; Annexure C: training services
and plan; Annexure D; acceptance testing and plan; Annexure E; payment
schedule;
Annexure F; detailed specifications; Annexure G; documentation;
Annexure H; rfp (request for proposal), proposal and contractual
correspondence; Annexure I; licence agreements.

2.3 Change request procedure

The contractor shall develop the software and documentation in accordance with
the detailed specifications as agreed upon between the parties and attached as
Annexure F. No changes in or deviation from the detailed specifications will be
made by the contractor unless the following procedure is followed:

a) The Client must submit a written request setting out in detail any
changes it desires;

b) Within ten days of the date of receipt of such request, the contractor will
inform the Client in writing of any problem posed by the proposed change,
of any costs of carrying out analysis and specification of the change, and
of any changes in payment schedule and/or installation services and plan
which will be caused by the proposed change in specifications.
c) The parties must agree to the change in writing. The written request for a

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 change and the contractor's written response thereto shall be attached to
Annexures B, E and F and shall constitute an amendment to the
agreement.

3. Price, charges and payment

3.1 Price

The price payable by the Client to the contractor for the products and services
is the amount detailed in the payment schedule attached hereto as Annexure E
and duly signed and initialed by both parties.

3.2 VAT

Value-Added Tax at the rate applicable at the time of invoice, shall be payable
by the Client.

3.3 Payment schedule

The contractor shall invoice the Client for the products and services according
to the payment schedule and the Client shall make payment to the contractor
within thirty days of receipt of the invoice.

3.4 Total charges

The price specified in Annexure E shall be the total charges to the Client,
with the proviso that the costs of any agreed changes in the detailed specifications
shall be attached to the payment schedule.

3.5 Suspension

The Client may, by written notice of suspension to the contractor, suspend all
payments to the contractor if the latter fails to perform any of the obligations under
this agreement, provided that such notice of suspension shall specify the nature
of the failure and shall request the contractor to remedy such failure within a period
not exceeding five business days after receipt of such notice.

4. Delivery and installation

4.1 The contractor will deliver the products to the installation site and in
accordance with the installation services and plan as specified in
Annexure B.

4.2 The contractor will comply with the Client's security procedures for access
to the installation site as well as access to the equipment and system of the
Client.

4.3 The contractor will provide to the Client the instructions and

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 environmental specifications necessary to prepare the equipment and
system on the installation site for installation.

4.4 The contractor will install the software on the Client's equipment and
system before the installation date.

4.5 The contractor will provide the documentation specified in Annexure G to

the Client.

5. Acceptance testing and acceptance

5.1 Acceptance testing

Acceptance of the products shall be subject to the condition that the products shall
have successfully completed all acceptance tests before the agreed date for
completion and that the contractor shall have performed all obligations undertaken
in terms of this agreement before this date.

5.2 Acceptance

After delivery and installation of the products to the Client, the latter shall with the
assistance of the contractor, operate the software on its equipment and system
for a period of ten business days in order to determine whether:

a) the software conforms to the detailed specifications;

b) the software is capable of processing on a repetitive basis a variety of the
Client's data without failure; and
c) the documentation for the software meets the requirements of this
agreement.

5.3 Successful completion and notice of acceptance

If the products successfully meet the acceptance tests, based upon reasonable
judgment of pass and fail, the Client shall within five business days confirm such
successful completion of the acceptance tests to the contractor in writing,
provided that if such notice is not given the products shall be deemed to have
been accepted and the end of the testing period shall be the date of acceptance.

5.4 Unsuccessful completion

If the products fail to meet the acceptance tests, the Client shall notify the
contractor of such failure in writing and the contractor shall have twenty business
days after receipt of such notice, to correct, modify, or improve the products to
conform to the detailed specifications. Thereafter, the Client shall have ten
business days in which to reconduct the acceptance tests. This process shall be
repeated as may be necessary until the products are accepted or deemed to
be accepted, provided that if the products are not accepted by the agreed date
for completion, the Client may take the actions set out in clause 5.6.
5.5 Constructive acceptance

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In the event that the Client should

a) without reason delay the commencement of acceptance testing for

more than seven days after being advised by the contractor that the
products are ready for such testing;
b) use the software subject to acceptance testing for other purposes prior to
acceptance;
c) fail to provide any material or resources required for acceptance testing,
the products shall be deemed to have been accepted.

5.6 Acceptance tests failure

In the event that the products should fail to pass the acceptance tests before the
agreed date for completion, the Client may elect to

a) agree to an extension of time for the completion of the acceptance tests;

b) accept the products upon terms acceptable to the Client;
c) terminate this agreement without prejudice to any claim which that party
might have for damages, breach of contract or otherwise.

6. Project manager

The Client shall appoint a project manager, who shall have the authority to
administer, supervise and co-ordinate this agreement on behalf of the Client and
who shall be the channel of communication between the Client and the contractor.

7. Training

The contractor will provide the Client with the training in accordance with the
training services and plan and the costs as specified in the payment schedule,
fully set out in Annexure E. Additional training will be subject to additional charges.

8. Confidentiality

The contractor agrees and undertakes to treat all intellectual property and
information supplied by Client or which may come to its attention as strictly
confidential. The contractor will not at any time after last signature hereof divulge
to any party not signatory hereto any information relating to the intellectual
property and information received from the Client.

9. Approval for promotion and marketing

The contractor will not advertise or conduct promotional or marketing activities

making use of this agreement without the prior written approval of the Client.

10. Warranties

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10.1 The contractor warrants that it has the skill, expertise and experience
necessary to program for the operating system in the programming
language and to develop and provide the products supplied in terms of this
agreement.

10.2 The contractor warrants that the products developed and supplied in terms
of this agreement will be of original development by the contractor and will
not infringe upon or violate any patent, copyright, trade secret, confidential
information or any other rights of any third party.

10.3 The contractor warrants that the products developed and supplied in terms
of this agreement will conform to the detailed specifications. The
contractor will without additional charge to the Client make such additions,
modifications, or adjustments to the products as may be necessary to
correct any problems or defects discovered and reported inwriting by the
Client to the contractor within a period of six months after the
acceptance date. This warranty shall not apply in the event that the
software is modified or misused by the Client.

10.4 The contractor warrants that the products developed and supplied in
terms of this agreement will be fit for the requirements, but does not
warrant the merchantability of the products.

11. Intellectual Property Rights

11.1 All intellectual property rights, including but not limited to patents, patent
applications, inventions, discoveries and improvements, copyright in
documents, computer software, drawings, designs, operational analysis,
technology and know-how related to and in the products developed and
supplied under this agreement shall be the sole property and right of
the Client.

11.2 Ownership of licensed software shall remain with the proprietor thereof
and the Client shall be granted a licence to use such licensed software
upon the terms of the licence agreement attached in Annexure I.

12. Indemnities

12.1 The contractor indemnifies and holds the Client harmless against all
losses or expenses incurred or claims made of whatever nature, criminal
or civil, together with any legal fees and costs incurred by the Client,
arising out of the conduct of the contractor, its employees, agents and/or
other natural or juridical persons connected with the contractor, in
conjunction with the development and supply of the products by the
contractor pursuant to this agreement.

12.2 The contractor indemnifies and holds the Client harmless against any
claims that the products infringe upon any patent, copyrights, trade
secret or other right of any third party. In the event of such claim the

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 contractor shall furthermore at its own expense either:

a) obtain for the Client the right to continue using the products; or
b) modify the products to end the infringement; or
c) replace the products or the infringing parts thereof with an equivalent
product or part thereof.

12.3 Notwithstanding anything to the contrary set out in this agreement, the
contractor shall indemnify and hold harmless the Client for and against
any and all claims, damages, expenses and costs (including those
asserted by third parties) directly or indirectly related to this agreement, in
delict, for breach of statutory duty or otherwise.

12.4 Neither party will under any circumstances be liable in delict, contract,
for breach of statutory duty or otherwise for any loss of profits or for
consequential damages, however caused, arising out of this agreement.

13. Effective date

This agreement will commence on the date of last signature hereof by the parties.

14. Termination

14.1 This agreement will terminate upon:

a) mutual agreement between the parties;

b) the parties failing to reach agreement on the detailed specifications and
the estimated costs;
c) successful completion of the acceptance tests combined with full payment
of the price;
d) either one of the parties to the contract failing to fulfil any of the
obligations undertaken by him and failing to remedy the breach within a
period of twenty business days after receiving written notification
demanding that the breach be rectified, the other party is entitled, without
further notice, to cancel the agreement without prejudice to any claim
which that party might have for damages, breach of contract or otherwise.

14.2 The Client may, by twenty four hours written notice of termination to
the contractor terminate this agreement;

a) if the contractor becomes insolvent or bankrupt or enters into any

agreements with its creditors for relief of debt or takes advantage of any
law for the benefit of debtors or goes into liquidation or receivership
whether compulsory or voluntary;
b) if the contractor submits to the Client a statement which has a material
effect on the rights, interests or obligations of the Client and which the
Client knows to be false.

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15. Survival

The provisions regarding the ownership of intellectual property, warranties,

arbitration and confidentiality shall survive termination of this agreement.

16. Force Majeure

In case of "force majeure", the parties will not be considered liable for not fulfilling
their obligations. To be considered as cases of "force majeure" are any
inescapable events which would hinder the parties from fulfilling the agreement
correctly, such as, natural catastrophes, traffic accidents, war, strikes, embargo,
government provision, and similar incidents.

17. Severability

The invalidity of any provision of this agreement shall not impair, affect or invalidate
the other provisions of this agreement.

18. Waiver

No indulgence, waiver or concession to the contractor in regard to the performance

of its obligations shall be regarded as binding on the Client, nor shall such conduct
found estoppel against the Client nor preclude the Client from relying on the full
rights and recourse available in law.

19. Notices

Any notice, instruction or request required or permitted to be given or made under

this agreement shall be in writing. Such notice, instruction or request shall be
deemed to be duly given or made when it shall have been delivered by hand, mail
or facsimile at the domicilium citandi et executandi of the party concerned as
specified below. Any facsimile notice must be followed up by the original
document. Mailed notices will be regarded as having been received seven days
after despatch by registered mail.

20. Assignment

The rights and duties arising from this agreement cannot be assigned, nor
transferred without prior written consent from the other party.

21. Amendments

No variations of the terms of this contract will be binding unless reduced to writing
and signed by both the parties to the contract.

22. Entire Agreement

The parties confirm:

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(a) that this document and the Annexures A, B, C, D, E, F, G H, and I
contain the whole agreement between the parties;
(b) that no other terms apart from those contained herein were stipulated;
(c) that no other suggestions, guarantees and motives apart from those
contained herein have been made by either the parties themselves or on
their behalf.

23. Disputes and arbitration

23.1 Any dispute arising from any matters relating to this agreement or the
validity or meaning or execution thereof must be solved by means of
arbitration, in accordance with procedures stipulated hereunder:

a) Any party shall be entitled to demand in writing that the dispute be

referred for arbitration within 10 days after agreement could not be
reached.

b) The arbitrator shall be, if the matter in dispute is:

i) primarily an accounting matter, an independent registered chartered

accountant;

ii) primarily a legal or any other matter, a practising advocate;

agreed upon between the parties involved in the dispute and failing agreement
in that regard within ten days after the arbitration has been demanded, appointed
by the president of the Pretoria bar.

c) Within 30 (thirty) days after the notice in 22.1.a each party shall submit a
comprehensive written statement to the arbitrator containing all evidence,
sworn statements, facts, submissions of expert witnesses etc. on which
their case is based, a copy of which is to be served on the other party.

d) Within 14 days after receipt of a copy of the above mentioned

documents the other party may reply thereto and submit a supplementary
document to the arbitrator, a copy of which is to be served on the other
party.

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e) The arbitrator shall consider the dispute and based on the documents
before him, without appearance of the party or any legal representative
before him, decide the issue. Should the arbitrator be unable to decide
the issue on the documents, he may request the parties to present further
evidence or to call witnesses to testify in the presence of the parties. These
witnesses must be questioned by the arbitrator and may be questioned by
the parties.

f) The arbitrator may announce any decision or make any award which
according to his discretion is legally valid, fair and appropriate.

g) The arbitrator must take cognisance of the intention of the parties and
reach a decision based on the South African law. He is not strictly bound
by the rules of law but must be guided by the principles of justice.

h) The finding of the arbitrator shall be final and binding on the parties and
may only be made a court order should one of the parties fail or refuse to
give effect to the arbitrator's finding or award.

23.2 This clause shall be severable and shall remain valid notwithstanding the
termination or invalidity of the agreement.

24. No employment or agency

This agreement shall not be construed as establishing or creating a relationship of

master and servant or principal and agent.
25. Applicable law

The law applicable to this agreement is South African law.

26. Good faith

The parties undertake to act in respect of this agreement and to perform their
obligations arising from this agreement in the utmost good faith.

27. Domicilium citandi et executandi

The parties hereto choose for all purposes and in regard to this contract their
respective addresses as domicilium citandi et executandi.

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28. The language of this contract is the English language. THUS DONE AND

SIGNED at ................. on the ......... day of

................ 2000 in the presence of the undersigned witnesses: WITNESSES:

1)............................................................... on behalf of the Client

2)...............................................................on behalf of the Contractor

THUS DONE AND SIGNED at........................................on the ..............................

day of .........................200… in the presence of the undersigned witnesses:

WITNESSES:
1) ...............................................

2) ...............................................

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ADDENDUM A1

STATUTORY REGULATIONS REGARDING CERTAIN CONTRACTS OF

SALE AND LEASE

THE LAW OF SALE AND LEASE AND THE CONSTITUTION

1. Introduction

Before you start with the statutory regulations pertaining to contracts of sale and
lease, it is important that you understand how the law of sale and lease fits into the
constitutional framework of the South African law. You are probably already
familiar with the specific constitutional provisions as well as the ideas of
substantive equality, social justice and ubuntu which impact this area of private
law. Nevertheless, short explanations are provided (where necessary) to refresh
your memory and assist you in understanding how these ideas are expressed in
the law of sale and lease.

2. Role of the Constitution in developing the common law of sale and

lease

Although the Constitution of the Republic of South Africa, 1996 (“the Constitution”)
recognises the common law as a source of law, it only does so to the extent that
the common law is consistent with the Bill of Rights (section 39(3) of the
Constitution). Accordingly, the common law of sale and lease is subject to the
Constitution. Section 39(2) further provides that when interpreting legislation or
developing the common law, a court must promote the spirit, purport and objects
of the Bill of Rights.

The spirit, purport and objects of the Bill of Rights refer to the underlying value
system of the Constitution. The founding values of the Constitution are set out in
section 1 of the Constitution and include the values of human dignity, the
achievement of equality and freedom. The Constitutional Court has also confirmed
that the African value of ubuntu is an underlying constitutional value (S v
Makwanyane and another 1995 3 SA 391 (CC) paras 237 & 302; Port Elizabeth
Municipality v Various Occupiers 2005 1 SA 217 (CC) para 37).

The inclusion of these values means that the Constitution establishes “an objective
normative value system” which guides the introduction of new laws and the
application and development of existing laws (Carmichele v Minister of Safety and
Security and another (Centre for Applied Legal Studies intervening) 2001 4 SA 938
(CC) para 54). Accordingly, the common law of sale and lease is subject to the

1
The case law and all the articles referred to in this section are included purely for completeness and you
do not have to read the cases or the articles for this course. Neither the cases nor the articles will be asked
in the assignments or the examination.

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Constitution and its application and development is informed by these underlying
values. There are not many examples where the courts have developed the
common law of sale and lease in line with the Constitution. One of the few
examples is the Cape High Court’s judgment in Janse van Rensburg v Grieve Trust
CC 2000 1 SA 315 (C). In this case the court held a seller liable if he or she sells
a thing with latent defects, even if he or she did not give an express or tacit
guarantee, or even if he/she did not make a misrepresentation or a statement of
any kind. Thus the seller’s warranty against latent defects is a naturale imposed
by the common law, where the parties do not indicate a contrary intention.

It is important to note that constitutional development of the law of sale or lease is

principally driven by legislative enactments.

3. Constitutional legislative intervention in the sphere of sale and lease

As was seen above, one of the founding constitutional values is the “achievement
of equality”. The right to equality is enshrined in section 9 of the Constitution.
Section 9(1) provides that “[e]veryone is equal before the law and has the right to
equal protection and benefit of the law”. This is referred to as formal equality before
the law.

FORMAL EQUALITY refers to the idea that the law must treat everyone the
same. It assumes that everyone is equal to each other and therefore any
differentiation in treatment (for example based on race) is irrational and
arbitrary. In other words, inequality can be eradicated by granting the same
rights and entitlements to everyone. Therefore, formal equality does not take
account of the actual lived social and economic circumstances of the person or
group and denotes a formal prohibition against discrimination. (Albertyn &
Goldblatt “Equality” para 35.1(c); De Vos “Equality, human dignity and privacy
rights” 421.)

Section 9(2) of the Constitution further provides as follows:

Equality includes the full and equal enjoyment of all rights and freedoms. To
promote the achievement of equality, legislative and other measures designed to
protect or advance persons, or categories of persons, disadvantaged by unfair
discrimination may be taken.

This provision is usually cited in support of the claim that the Constitution also aims
to achieve substantive equality in law (e.g. Bato Star Fishing (Pty) Ltd v Minister of
Environmental Affairs and Tourism and others 2004 4 SA 490 (CC) para 75).

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 SUBSTANTIVE EQUALITY recognises that inequality is rooted in the existing
social and economic differences within the society. It requires an understanding
of the social and economic conditions that create and reinforce inequality within
the society. Subsequently, it involves an investigation into the surrounding
context, specifically the actual lived, social and economic conditions of the
relevant persons or groups. It is, therefore, concerned with social justice and
welfare. (Albertyn & Goldblatt “Equality” para 35.1(c).)

The idea that the Constitution is concerned with the achievement of substantive
equality means that the Constitution aims to establish an egalitarian society by
addressing the social and economic injustices of the past, including the injustices
resulting from apartheid. This is also reflected in the Preamble of the Constitution
which recognises “the injustices of our past” and adopts the Constitution as the
supreme law of the country in order to “[h]eal the divisions of the past and establish
a society based on democratic values, social justice and fundamental human
rights” and to “[i]mprove the quality of life of all citizens and free the potential of
each person”.

As provided for in section 9(2) of the Constitution, the State may enact legislation
that promotes substantive equality in law. Furthermore, such legislation must be
interpreted in ways to achieve substantive equality (Standard Bank of South Africa
Ltd v Dlamini 2013 JOL 30897 (KZD) para 30). In this module, you learn about four
statutes that aim to promote substantive equality in the law of sale and lease,
namely:

The Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of
1998 (Study Guide 1, study unit 14);
The Rental Housing Act 50 of 1999 (Study Guide 1, study unit 19);
The National Credit Act 34 of 2005 (Study Guide 3, study units 3-17); and
The Consumer Protection Act 68 of 2008 (Study Guide 3, study units 18-23).

4. Ubuntu, substantive equality and the law of sale and lease

In African philosophy the value of ubuntu promotes the ideas of social justice and
substantive equality. According to eminent South African philosopher Mabogo
More, ubuntu is concerned with the “enhancement of human well-being … [and]
human welfare” and encourages “the practice of sharing in all forms of communal
existence” (More “Philosophy in South Africa under and after apartheid” 156-157).
In other words, in African culture, every community member has a moral duty to
care about the other community members’ well-being and welfare, and as such,
their socio-economic circumstances.

The above ideas of ubuntu have been incorporated into law by the Constitutional
Court in a number of cases. The following statement by the Constitutional Court in
Bhe and others v Magistrate, Khayelitsha, and others (Commission for Gender
Equality as amicus curiae) 2005 1 SA 580 (CC) para 163 serves as illustration:

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“A sense of community prevailed from which developed an elaborate system of
reciprocal duties and obligations among the family members. This is manifest in
the concept of ubuntu — umuntu ngumuntu ngabantu – a dominant value in
African traditional culture. This concept encapsulates communality and the inter-
dependence of the members of a community. As Langa DCJ put it, it is a culture
which “regulates the exercise of rights by the emphasis it lays on sharing and co-
responsibility and the mutual enjoyment of rights”. It is this system of reciprocal
duties and obligations that ensured that every family member had access to basic
necessities of life such as food, clothing, shelter and healthcare.”

As a result, ubuntu (as an underlying constitutional value) has been utilised by the
Constitutional Court to promote social justice and substantive equality in law. In S
v Makwanyane and another 1995 3 SA 391 (CC) para 237, Justice Madala linked
ubuntu to the ideal of social justice and in a number of cases thereafter it was used
to promote the realisation of socio-economic rights, and as such, the idea of
substantive equality in section 9(2) of the Constitution.

In this module, the case of Port Elizabeth Municipality v Various Occupiers 2005 1
SA 217 (CC) is particularly relevant for the law of lease and dealt with the granting
of an eviction order in terms of section 6 of the Prevention of Illegal Eviction from
and Unlawful Occupation of Land Act 19 of 1998 (“PIE”). You should already be
familiar with this case from your studies of the Law of Property (PVL3701).

In this case, the Constitutional Court confirmed the status of ubuntu as an

underlying constitutional value that should be used to inform the interpretation of
legislation in terms of section 39(2) of the Constitution. Specifically, Justice Sachs
(at para 37) held as follows:

The Constitution and PIE confirm that we are not islands unto ourselves. The spirit
of ubuntu, part of the deep cultural heritage of the majority of the population,
suffuses the whole constitutional order. It combines individual rights with a
communitarian philosophy. It is a unifying motif of the Bill of Rights, which is
nothing if not a structured, institutionalised and operational declaration in our
evolving new society of the need for human interdependence, respect and
concern.

Section 6 of PIE permits an eviction order if it is just and equitable to make the
order after consideration of all the relevant circumstances. By relying on ubuntu,
Justice Sachs emphasised the importance of taking account of the actual
circumstances of the case, including the socio-economic position of the unlawful
occupiers within the post-apartheid context. In other words, the Constitutional
Court relied on the underlying constitutional value of ubuntu to promote the idea of
substantive equality when considering a possible eviction order in terms of PIE.

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Thus in terms of PIE if an unlawful occupier has occupied premises for more than
six months, the eviction procedure becomes more cumbersome. In this instance,
a court may grant an order for eviction if it is of the opinion that it is just and
equitable to do so after considering all the relevant circumstances (s 4(6)). Included
in the relevant circumstances are the rights and needs of the elderly, children,
disabled persons and households headed by women, as well as the fact that land
has been made available or can reasonably be made available by a municipality
or other organ of state or another landowner (s 4(7)).

Before an eviction order can be made, the court must first consider all the relevant
circumstances. This principle is enshrined in the Constitution of the Republic of
South Africa, 1996, but also in PIE. It is clear from case law that the courts cannot
merely pay lip service to this requirement. “Have regard to” means that due weight
should be given to all the relevant circumstances. If there is not sufficient
information placed before the court, the court must ensure that it obtains the
necessary information, thus moving beyond the normal functions of a court (Port
Elizabeth Municipality v Various Occupiers 2005 1 SA 217 (CC)). It is a balancing
act between the interests of the unlawful occupier, on the one hand, and the
owner’s right, on the other hand, while also taking into account modern eviction
law principles and constitutional values. It would for instance as a general rule not
be just and equitable to grant an eviction order where this would leave the occupier
homeless (Occupiers, Shulana Court, 11 Hendon Road, Johannesburg v Steele
[2010] 4 All SA 54 (SCA) [16]).
In regard to the scope and effect of the Prevention of illegal Eviction from and
Unlawful Occupation of Land Act READ: Glover Kerr’s Law of Sale and Lease 481-
489.

The Constitution, and the subsequent enactment of PIE, has influenced the
common law principles of eviction as relevant to lease agreements. This Act is a
clear example of introducing equality into the law of contract.

5. Consumer laws as legislation in terms of section 9(2) of the

Constitution

The last three statutes listed in paragraph 3 (Rental Housing Act, National Credit
Act and Consumer Protection Act) are generally described as consumer
legislation. As explained by De Stadler Consumer law 1, consumer law refers to
“the area of law that regulates the private relationship between businesses and
their customers” and is generally aimed at protecting the customer (usually called
the consumer) who finds him- or herself in a disadvantaged bargaining position
when trading with large and powerful businesses.

You will recall from your studies of the Law of Contract (PVL3702) that in everyday
life consumers rarely have the power to negotiate and/or dictate contract terms in
their dealings with large and powerful businesses. Social and economic
circumstances frequently leave consumers with little choice whether or not to enter
into a contract and businesses tend to present contracts to consumers on a “take
it or leave it” basis with little or no room for negotiation.

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Consumer legislation aims to address the unequal bargaining relationship that
exits between businesses and consumers and protect the consumer against unfair
or exploitative practices by businesses in a stronger bargaining position. In other
words, consumer law is concerned with the socio-economic position of the
consumer and how this position places the consumer in a disadvantaged position
when dealing with powerful traders in the market. Therefore, consumer legislation
is aimed at the promotion of substantive equality as envisaged by section 9(2) of
the Constitution.

6. Consumer law from an African perspective

In the same way that the provisions of PIE have been interpreted with reference to
the underlying constitutional value of ubuntu to promote substantive equality when
dealing with eviction orders, the consumer laws discussed in this module are also
informed by and should be interpreted with reference to ubuntu in order to promote
substantive equality in contracts governed by these laws. In this way, consumer
laws can promote the Constitution’s vision for social justice and its goal to establish
an egalitarian society.

7. Conclusion

You should keep this constitutional framework in mind as you study this module,
especially when dealing with the statutes mentioned above. This will provide you
with a much better understanding of the policy considerations underlying the
relevant statutes and how these statutes play a role in promoting the constitutional
vision for social justice and equality in sale and lease agreements. Finally, we hope
you will realise how, as a lawyer, you play an important role in promoting the
constitutional vision for social justice and equality when you interpret and apply
these legal principles in your chosen profession.

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Bibliography

Albertyn & Goldblatt “Equality” in Woolman S & Bishop M (eds) Constitutional law
of South Africa 2 ed revision service 6 (2014) available at www.jutalaw.co.za (Date
of use: 25 January 2016)

De Stadler E Consumer law unlocked (Siber Ink South Africa 2014)

De Vos “Equality, human dignity and privacy rights” in De Vos P & Freedman W
(eds) South African constitutional law in context (Oxford University Press South
African Cape Town 2014)

More “Philosophy in South Africa under and after apartheid” in Wiredu K (ed) A
companion to African philosophy (Blackwell Publishing Ltd Malden 2004)

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THE CONSUMER PROTECTION ACT 68 OF 2008

1 GENERAL BACKGROUND

The Consumer Protection Act 68 of 2008 (“the CPA”) became fully operational on
31 March 2011. The CPA consolidates most previous consumer legislation in
South Africa. The Minister of Trade and Industry made regulations to the CPA in
terms of section 120(1)(d) of the Act which were published in GN R 293 in GG
34180 of 1 April 2011 (“CPA Regulations”). The Act (read with the regulations) will
have far-reaching consequences for sale and lease agreements affected by it.

PLEASE NOTE:
In this section we have referred to some of the recent literature on the CPA.
You do not have to read or study any of these references for the
examination. It is just to provide you with a comprehensive list of sources
should you need more information in the future. For the examination the
notes we have provided are sufficient.
READ CAREFULLY
In this module we cannot provide you with a complete overview of the CPA; that
is a module all on its own. We aim only to alert you to some of the more important
provisions that potentially impact on sales and leases and do so in a summarised
version. If you would like to look at the CPA and the CPA Regulations yourself,
you can download copies from the “Laws of South Africa: Consolidated
Legislation” website by following the steps below:
1. Go to www.lawsofsouthafrica.up.ac.za;
2. Click on the “Current Legislation” tab.
3. A new page opens with a list of subjects (in alphabetical order). Scroll down
and click on “Sales and Lease” to expand the options under this topic.
4. Click on “Consumer Protection Act 68 of 2008”. This should expand a
further list.
5. You can now download the Act by clicking on “Act”.
6. To download the CPA regulations, click on “Regulations and Notices”. This
should expand a list of all the regulations and notices published under the
CPA.
7. Click on “68 OF 2008 CONSUMER PROTECTION ACT_Regs_GNR293_1
Apr 2011 – to date.pdf” to download the CPA Regulations.

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1 PURPOSE

The main purpose of the CPA is to promote and advance the social and economic
welfare of consumers in South Africa (section 3(1)). This must be accomplished by
the establishment and maintenance of a fair, accessible, efficient and sustainable
consumer market (section 3(1)(a)); also, by promoting fair business practices
(section 3(1)(c)) and protecting consumers from unfair trade practices and conduct
(section 3(1)(d)). Specifically, the CPA aims to protect the rights of vulnerable
persons (section 3(1)(b)). These would include persons from low-income and
remote communities, minors, seniors, illiterate persons or persons with a low
literacy level, the visually impaired and persons who have limited language skills
in the language in which the advertisement, agreement or other visual
representation is presented.
2 INTERPRETATION

Section 2 of the CPA prescribes how the Act should be interpreted. Of special
relevance to this discussion, the following can be mentioned: first, the CPA should
be interpreted to give effect to the purposes detailed in section 3 (section 2(1)).
Secondly, when interpreting the CPA, the interpreter may consider international
law, international conventions, declarations or protocols relating to consumer
protection and foreign law (section 2(2)). Finally, the CPA should not be interpreted
in such a way as to preclude a consumer from exercising any of his or her common-
law rights (section 2(10)).
When, in terms of the CPA, a matter is brought before a court, the court has the
following obligations: first, the court must develop the common law to improve the
realisation and enjoyment of consumer rights generally and, in particular, to
improve the position of the vulnerable persons referred to above (section 4(2)(a)).
Secondly, the court must promote the spirit and purposes of the CPA (section
4(2)(b)(ii)). Section 4(3) provides that if any provision in the CPA can have more
than one meaning, the court must prefer the meaning that best promotes the spirit
and purposes of the CPA and will best improve the realisation and enjoyment of
consumer rights and, in particular, the position of the vulnerable persons
mentioned above.
Furthermore, section 4(4)(a) provides that when the court must interpret a
document prepared by the supplier and there are ambiguities in the document, the
document must be interpreted to the benefit of the consumer. It has been argued
that this is a confirmation (and possible extension) of the contra proferentem rule
Where the rights of the consumer are limited in the document, the court must
interpret such limitation “to the extent that a reasonable person would ordinarily
contemplate or expect” (section 4(4)(b)). Factors that the court must take into
consideration include the content of the document, the manner and form in which
it was prepared and presented, and the circumstances of the transaction or
agreement (section 4(4)(b)(i)–(iii)).

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3 SCOPE AND APPLICATION

3.1 General definitions

The CPA applies to every transaction occurring in South Africa unless it is

exempted from the operation of the Act (section 5(1)(a)).

The word “occur” is not defined in the CPA. Bradfield G & Lehmann K Principles
of the Law of Sale & Lease 3rd edition, Juta, Cape Town at 8 fn 23 argue that occur
should be given its normal meaning, namely, “happen” or “take place”. As such, a
sale or lease would occur in South Africa if the contract for the sale or lease is
concluded or the performance of its terms takes place in South Africa (ibid).

In section 1 a transaction is defined as:

[I]n respect of a person acting in the ordinary course of business –

(i) an agreement between or among that person and one or more other
persons for the supply or potential supply of any goods or services in
exchange for consideration.

Goods have a very wide definition and include anything marketed for human
consumption, any tangible or intangible object or a licence to use an intangible
object, a legal interest in land or any other immovable property, gas, water and
electricity (section 1). Likewise, services also have a wide definition and include
the provision of any accommodation or sustenance; access or a right of access to
an event or any premises, activity or facility; and access to or use of any premises
or other property in terms of a rental (section 1).
Supply in relation to goods refers to sell, rent and hire and in relation to services
includes the granting of access to any premises, event, activity or facility (section
1). Such a supply must be for consideration. Consideration is defined in section 1
as anything of value given and accepted in exchange for goods or services
(including money) and therefore includes the sale and lease of goods.
Furthermore, the supply must be in the ordinary course of business. The phrase
ordinary course of business is not defined in the Act. Sharrock argues that the
test is “whether the making of the contract falls within the scope of that business
and whether ordinary business persons would have concluded the contract”
(Sharrock RD “Judicial control of unfair contract terms: The implications of
Consumer Protection Act” 2010 22 SA Merc LJ 295-325 at 302 referring to
Amalgamated Banks of South Africa Bpk v De Goede 1997 4 SA 66 (SCA)). This
means, that while the CPA will probably not affect once-off transactions for the sale
of immovable property, it will probably apply to the sale of land, units or houses by
a developer.

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The Act refers to the terms “suppliers” and “consumers”. A supplier is any person
who markets (promotes or supplies) goods or services. As mentioned above,
“supply” refers to sale or rent. As such, in the context of sale and lease, supplier
will generally refer to the seller or the lessor.

IMPORTANT:

We will refer to “supplier” throughout this discussion, but keep in mind

that it will generally refer to the seller when dealing with sale or the lessor
when dealing with lease.

Section 5(8) provides that it is irrelevant whether the supplier:

(a) resides or has its principal office within or outside the Republic;
(b) operates on a for-profit basis or otherwise;
(c) is an individual, juristic person, partnership, trust, organ of state, an entity
owned or directed by an organ of state, a person contracted or licensed by
an organ of state to supply goods or services, or a public-private
partnership;
(d) is required or licensed in terms of any public regulation to make the supply
of the particular goods or services available to all or part of the public.
A consumer is any person to whom particular goods or services are marketed
(promoted or supplied) in the ordinary course of the supplier’s business. In other
words, a consumer is any person to whom the goods or services are sold or rented.
As such, in the context of sale and lease, “consumer” will generally refer to the
buyer or lessee.

IMPORTANT:

We will refer to “consumer” throughout this discussion, but keep in mind

that it will generally refer to the buyer when dealing with sale or the lessee
when dealing with lease.

However, it is important to remember that the definition of consumer includes more

persons than just the buyer or lessee. In terms of section 1, the definition of
consumer also includes a person who has entered into a transaction with a supplier
in the ordinary course of the supplier’s business (unless the transaction is exempt
from the application of this Act); a user of those particular goods or a recipient or
beneficiary of those particular services, irrespective of whether that user, recipient
or beneficiary was a party to a transaction concerning the supply of those particular
goods or services; and a franchisee in terms of a franchise agreement.
The CPA also applies to the promotion of any goods or services, or of the supplier
of any goods or services, within the Republic (unless those goods or services could

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not reasonably be the subject of a transaction to which the Act applies, or the
promotion of those goods or services has been exempted) (section 5(1)(b)).
3.2 Specific exemptions

Although it is true that the CPA has a wide scope of application in respect of sale
and lease agreements, the application of the Act is limited by a number of
exemptions set out in the Act. The most important exemptions are discussed
below.
(a) Goods or services supplied to the State
The CPA does not apply where the goods or services are promoted or
supplied to the State. In other words, where the State is the consumer
(section 5(2)(a)).
(b) Consumer is a juristic person with an asset value or annual turnover
exceeding the prescribed threshold
The CPA does not apply where the consumer is a juristic person whose
asset value or annual turnover, at the time of the transaction, equals or
exceeds the threshold value determined by the Minister (currently R 2
million) (section 5(2)(b)). It is important to note that for purposes of the
CPA, a juristic person includes a body corporate, a partnership, an
association or a trust (section 1).
(c) Transactions exempted by the Minister
In terms of section 5(2)(c), the Minister may exempt certain transactions
from the application of the CPA in accordance with the procedures and
requirements detailed in section 5(3)-(4).
(d) Credit agreements under the National Credit Act
The CPA does not apply where the transaction constitutes a credit
agreement under the National Credit Act, but the goods or services that
are the subject of the credit agreement are not excluded from the ambit of
the CPA (section 5(2)(d)).
The meaning of this provision was considered in MFC (a division of Nedbank Ltd)
v Botha (6981/13) [2013] SAWCHC 107 (15 August 2013) (hereafter “MFC v
Botha”).
MFC v Botha clearly illustrates the difficulty experienced by the court when
applying section 5(2)(d) of the CPA. In this case, the bank purchased a vehicle
from a car dealership for the purpose of selling it to Botha in terms of an instalment
sale agreement, which would qualify as a credit agreement in terms of the NCA.
The credit agreement excluded any warranty by the bank as to the condition of the
vehicle. Botha returned the vehicle to the bank because the vehicle was defective.
He argued that he was entitled to return the vehicle in terms of section 56(2) of the
CPA. Section 56(2) provides that the consumer may return goods to the supplier
if the goods fail to satisfy the required standards of quality contemplated in the
CPA. Section 56 is dealt with in more detail in paragraph 5.5(b) below.

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The court criticised section 5(2)(d) because “[i]t is not plainly evident how a
consumer in the position of … [Botha] would be able to avail of the protection
offered to consumers in terms of section 56(2) of the CPA”. First, the court held
that the real role of the bank in the sale was not as supplier of the vehicle but as
credit provider and therefore Botha could not return the vehicle to the bank.
Secondly, Botha could not return the vehicle to the car dealer (the actual supplier)
because ownership of the vehicle vested in the bank, and it was the bank, and not
Botha, who had paid the purchase price. Furthermore, the court held that Botha
was not entitled to the relief in section 56(2) because the contract between Botha
and the bank was a credit agreement in terms of the NCA, and as such, excluded
from the application of the CPA in terms of section 5(2)(d).
This decision is open to criticism. Although, the credit agreement itself is excluded
from the application of the CPA, the vehicle is subject to the provisions of the Act,
and Botha would have been able to rely on section 56(2) of the CPA. Furthermore,
the bank would qualify as a supplier, as defined in the CPA. A supplier is defined
as “a person who markets any goods”. “Market” is defined as “promote or supply”,
and “supply” includes selling. The bank had purchased the vehicle from the car
dealership and sold it to Botha in terms of an instalment sale agreement.
Therefore, the bank is a supplier for purposes of the CPA, and Botha would have
been able to return the vehicle to the bank in terms of section 56(2). The bank
would then have to pursue the claim against the dealer. Finally, the exclusion of
any warranty by the bank as to the condition of the vehicle in the credit agreement
would qualify as an unlawful provision in terms of section 90 of the NCA, and as
such, the bank would not be able to rely on this provision when Botha returned the
vehicle to the bank.
(e) Further exemptions
The CPA also does not apply to a transaction pertaining to services
supplied under an employment contract (section 5(2)(e)); giving effect to a
collective bargaining agreement in terms of section 23 of the Constitution
and the Labour Relations Act (section 5(2)(f)); and giving effect to a
collective agreement as defined in section 213 of the Labour Relations Act
(section 5(2)(g)).
3.3 Specific inclusions

The CPA provides for specific inclusions. Firstly, where any goods are supplied
within the Republic to any person in terms of an exempted transaction, those goods
and the importer, producer, distributor and retailer of those goods are subject to
sections 60 and 61 of the Act. These provisions are dealt with in more detail in
paragraph 5.5(c) below. Secondly, the CPA provides that certain arrangements
must always be regarded as a transaction in terms of the Act (section 5(6)). These
inclusions refer to goods and services supplied by voluntary associations
(sections 5(6)(a)) and various transactions in connection with franchise
agreements (section 5(6)(b)-(e)).
3.4 Interplay between the common law, the CPA and other statutes

You already know that all sale and lease agreements are governed by specific
common law principles. However, specific statutes modify or amend the common

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law principles in respect of sale and lease contracts governed by that specific
statute. The CPA is one such statute but there are also other statutes. We have
made a summary of the different statutes that could affect the common law
principles of sale and lease and which are dealt with in this module.

You should also notice from the above discussion, that although the CPA has a
very wide scope of application, it does not apply to all contracts of sale and lease.
As such, it is important to determine first whether the CPA is applicable to a given
set of facts before you can apply the provisions of the CPA.

Finally, you should remember that it is possible that the CPA can apply in
conjunction with other statutes. For example, it is possible that both the CPA and
the Rental Housing Act could apply to a specific lease. Where this is the case and
a conflict arises between the provisions of the CPA and the other Act,
section 2(9)(b) of the CPA provides that the Act which afford greater protection to
the consumer will apply.

4 PROMOTION AND PROTECTION OF CONSUMER RIGHTS

The Act recognises a number of fundamental consumer rights to give effect to its
aims and, amongst other things, prohibits or limits certain terms in consumer
contracts. This means that if the CPA applies to a specific sale or lease transaction,
the buyer or lessee in that transaction is given certain rights and remedies in terms
of the CPA. The fundamental consumer rights in the CPA are the rights to (a)
equality in the consumer market; (b) privacy; (c) choice; (d) disclosure and
information; (e) fair and responsible marketing; (f) fair and honest dealing; (g) fair,
just and reasonable terms and conditions; and (h) fair value, good quality and
safety. We deal with the most relevant rights for this module below.

4.1 Consumer’s right to choose

Section 14: Expiry and renewal of fixed-term contracts

Section 14 is very important in regard to contracts of lease. It does not apply to

transactions between juristic persons (section 14((1)). A fixed term contract may
not, as a general rule, be longer than 24 months from the date of signature by the
consumer, unless inter alia such longer period is expressly agreed with the
consumer and the supplier can show a demonstrable financial benefit to the
consumer (section 14(2)(a) and regulation 5 of the CPA Regulations).

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The consumer may cancel the agreement at any other time before the expiry of
the agreement by giving the supplier 20 business days’ written notice (section
14(2)(b)(i)(bb)). In contrast, the supplier may only cancel the agreement giving 20
business days’ written notice to the consumer of a material failure by the consumer
to comply with the agreement, unless the consumer has rectified the failure within
that time (section 14(2)(b)(ii)). In both these cancellations the consumer remains
liable to the supplier for any amounts owed to the supplier in terms of the
agreement up to the date of cancellation and a reasonable cancellation penalty (if
the supplier has imposed one) with respect to any goods supplied, services
provided, or discounts granted, to the consumer in contemplation of the agreement
enduring for its intended fixed term (section 14(3)). The supplier must credit the
consumer with any amount that remains the property of the consumer as of the
date of cancellation (s 14(3)). See regulations 5(2) and (3) for the factors that
determine the reasonableness of the credits and charges.

At a certain stage before expiry of the contract, the supplier must notify the
consumer in writing of the impending expiry date, any material changes that would
apply if the agreement is to be renewed or may otherwise continue beyond the
expiry date and the options available to the consumer in terms of section 14(2)(d)
(section 14(2)(c)). Section 14(2)(d) provides that on the expiry of the fixed term of
the consumer agreement, it will be automatically continued on a month-to-month
basis, subject to any material changes of which the supplier has given notice,
unless the consumer expressly directs the supplier to terminate the agreement on
the expiry date or agrees to a renewal of the agreement for a further fixed term. If
the consumer chooses to cancel the agreement he may do so without penalty or
charge (s 14(2)(b)(i)(aa)), but he remains liable to the supplier for any amounts
owed to the supplier in terms of the agreement up to the date of cancellation
(section 14(3)(a)).

INFLUENCE ON EXISTING LAW:

The common law places no limit on the duration of a fixed-term lease. As such,
section 14(2)(a) and regulation 5 have modified the common law in this respect
by placing a limitation on the duration of certain fixed-term leases (except where
certain requirements are met).
Section 14 prescribes how a fixed-term lease agreement can be terminated by
the consumer or the supplier and provides for the automatic renewal of a fixed-
term lease agreement. In this respect, these provisions have amended the
common law position.
It is possible that both the CPA and the Rental Housing Act (RHA) can apply to
the same transaction. Where the RHA also applies to the lease, both section 4(5)
of the RHA and section 14 of the CPA will apply. Although both Acts provide for
the automatic renewal of a fixed-term lease agreement as a periodic lease on a
month-to-month basis, the CPA provides the lessor with an opportunity to amend
the terms of the agreement by giving appropriate notice to the lessee (which
could include an increase in the rental). However, following the argument in
Maphango v Aengus Lifestyle Properties (Pty) Ltd 2012 (3) SA 531 (CC) that the

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 termination of a periodic lease in order to increase the rental could constitute an
unfair practice, Bradfield and Lehmann (at 198-199) argue that the variation
provisions in section 14(2)(c) would be subject to the unfair practice provisions
in the RHA. This is because such an interpretation would afford greater
protection to the consumer (i.e. the lessee) as required by section 2(9)(b) of the
CPA.

Section 16: Consumer’s right to a cooling-off period after direct marketing

Section 16 provides the consumer with a right to a cooling-off period after direct
marketing. Direct marketing means to approach a person, either in person or by
mail or electronic communication (which includes telephone, fax, sms, wireless
computer access and email) for the direct or indirect purpose of promoting or
offering to supply, in the ordinary course of business, any goods or services to the
person; or requesting the person to make a donation of any kind for any reason
(section 1). Section 16 provides that (subject to an exception where section 44 of
the Electronic Communications and Transactions Act 25 of 2002 (“the ECTA”
applies) a consumer may rescind a transaction resulting from any direct marketing
without reason or penalty, by written notice to the supplier within five business days
after the later of the date on which the transaction or agreement was concluded;
or the goods were delivered to the consumer. A supplier must return any payment
received from the consumer within 15 business days after receiving notice of the
rescission (if no goods were delivered to the consumer in terms of the transaction),
or receiving from the consumer any goods supplied in terms of the transaction; and
must not attempt to collect any payment in terms of a rescinded transaction (except
as permitted in terms of section 20(6)). Section 20(4)(a) provides that goods
returned to the supplier in terms of section 16 must be returned at the consumer’s
risk and expense.
Section 32 of the CPA obliges any person who engages in direct marketing and
concludes an agreement with a consumer to inform the consumer of the right to
rescind that agreement in terms of section 16.

INFLUENCE ON EXISTING LAW:

There is no common law equivalent to the cooling-off right in the CPA. Under the
common law, once a sale or lease agreement is concluded the parties are bound
by the agreement (unless there is some other ground for rescission). However,
similar cooling-off rights have been created by other statutes, for example the
cooling-off in respect of certain credit agreements created by the National Credit
Act and the cooling-off right of certain purchasers of land created by the
Alienation of Land Act .

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Section 17: Consumer’s right to cancel advance reservation, booking or
order
Section 17(2) provides the consumer with the right to cancel an advance order for
goods. However, the supplier is entitled to require the payment of a reasonable
deposit and may impose a reasonable charge for the cancellation of the order
(section 17(3)). The factors that should be taken into account to determine whether
the charge is reasonable are listed in section 17(4) but section 17(5) states that a
supplier may not charge any cancellation fee where the consumer is unable to
honour the order because of the death or hospitalisation of the person for whom
or for whose benefit the order was made. Section 17 does not apply to a franchise
agreement or an advance order for special-order goods (section 17(1)).

INFLUENCE ON EXISTING LAW:

As mentioned above, under the common law, once a sale or lease agreement is
concluded the parties are bound by the agreement (unless there is some other
ground for rescission). Therefore, this provision grants a consumer an additional
right to cancel an agreement under the specific circumstances and subject to the
specific requirements mentioned.

Section 19: Consumer’s right with respect to delivery of goods

This section deals with the supplier’s duty to deliver the goods including the time
and place of delivery, the right of the consumer to examine the goods when
delivery takes place, the consumer’s rights when the supplier delivers a larger
quantity of goods than the consumer agreed to buy and the consumer’s rights
when the supplier delivers some of the goods the supplier agreed to supply mixed
with goods of a different description.
Section 19(2) provides for certain implied terms (in the absence of an express or
tacit agreement to the contrary). Of specific importance is section 19(2)(c) which
provides that the goods to be delivered remain at the supplier's risk until the
consumer has accepted delivery of them. Section 19(4) determines that the
consumer is regarded to have accepted delivery of any goods when (a) the
consumer communicates such acceptance to the supplier (expressly or implicitly)
or (b) the goods have been delivered to the consumer, and he does anything in
relation to the goods that would be inconsistent with the supplier's ownership of
them or after he lapse of a reasonable time, the consumer retains the goods
without intimating to the supplier that the consumer has rejected delivery of them.
The provisions in section 19 do not apply to the supply of goods to a franchisee in
terms of a franchise agreement or a transaction governed by section 46 of the
ECTA (section 19(1)).

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 INFLUENCE ON EXISTING LAW:
Generally, section 19 codifies the seller’s common-law duty to deliver the goods
and details further rights and obligations. However, it is important to note that
section 19(2)(c) changes the common-law rule regarding the passing of risk in a
contract of sale.

Section 20: Consumer’s right to return goods

Aside from the right to return unsafe or defective goods (see section 56 discussed
in paragraph 5.5(b) below) or any other right between a supplier and consumer to
return goods and receive a refund, section 20 provides that the consumer may
return goods to the supplier, and receive a full refund of any consideration paid for
those goods, if the supplier has delivered (a) goods to the consumer in terms of an
agreement arising out of direct marketing, and the consumer has rescinded that
agreement during the cooling-off period, in accordance with section 16; (b) goods
that the consumer did not have an opportunity to examine before delivery, and the
consumer has rejected delivery of those goods for any of the reasons
contemplated in section 19(5); (c) a mixture of goods, and the consumer has
refused delivery of any of those goods, as contemplated in section 19(8); or (d)
goods intended to satisfy a particular purpose communicated to the supplier as
contemplated in section 55(3), and within 10 business days after delivery to the
consumer, the goods have been found to be unsuitable for that particular purpose.
There are, however, circumstances in which goods cannot be returned (eg for
reasons of public health or where the goods have been altered, changed, affixed
or combined with other goods).
Such goods must be returned to the supplier within 10 business days after delivery
to the consumer (section 20(4)). Where the consumer returns goods after
rescission of the agreement arising out of direct marketing, the goods must be
returned at the consumer’s risk and expense (section 20(4)(a)). In all other cases
the goods must be returned at the supplier’s risk and expense (section 20(4)(b)).
Although the supplier must refund to the consumer the price paid for the goods, it
may charge the consumer for certain costs (section 20(5)). Such charges may
include a reasonable amount for the use, consumption or depletion of the goods
by the consumer and necessary restoration costs (see section 20(6) for more
details).

INFLUENCE ON EXISTING LAW:

These provisions have amended the buyer’s common law duty to take delivery
of the goods in that they provide the consumer with a right to return the goods
under certain circumstances. These are additional rights granted to the
consumer in terms of the Act.

4.2 Consumer’s right to disclosure and information

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Section 22: Consumer’s right to information in plain and understandable
language
Section 22(1) provides that any notice, document or visual representation required
in terms of the Act or any other law, must be in the prescribed form in terms of the
Act or other legislation or in plain language where no form has been prescribed.
Section 22(2) provides for a test for plain language: Whether an ordinary consumer
of the class of persons, for whom the document is intended, with average literacy
skills and minimal experience as a consumer of those goods or services, could be
expected to understand the content, significance and import of document. A
number of factors should be taken into account, namely (a) the context,
comprehensiveness and consistency of the document; (b) the organisation, form
and style of the document; (c) the vocabulary, usage and sentence structure of the
document; and (d) the use of any illustrations, examples, headings or other aids to
reading and understanding.

INFLUENCE ON EXISTING LAW:

This right is similar to the right to plain language found in section 64 of the NCA.
We will refer to this section in this discussion where relevant.

Section 23: Disclosure of price of goods or services

Generally, a supplier may not display goods for sale without displaying a price in
respect of those goods (section 23(3)). The exceptions to this rule are where (a)
the transaction is one to which section 43 of the ECTA applies, (b) a supplier has
provided an estimate or the consumer has waived such an estimate in terms of
section 15 of the CPA, (c) the goods are displayed predominantly as a form of
advertisement of the supplier, or of goods or services, in an area within the
retailer’s premises to which the public does not ordinarily have access. A “retailer”
is defined as a person who in the ordinary course of business, supplies those
goods to a consumer and as such would refer to the seller.
There are detailed provisions relating to when a price is adequately displayed
(section 23(5)) but for purposes of our discussion it is important to remember that
the price must be expressed in the currency of the Republic and should therefore
refer to a monetary value. Furthermore, section 23(6) provides that a supplier may
not require a consumer to pay a higher price than the displayed price, or where
two different prices are displayed a higher price than the lowest price displayed (eg
where the price on the price ticket differs from the price on the shelf). This would
be the case whether or not the supplier is obliged to display a price. There are a
few exceptions to this rule: (a) where the price is determined by public regulation;
(b) where the price is covered completely by a second displayed price; (c) where
the displayed price contains an inadvertent and obvious error, provided the error
has been corrected and reasonable steps were taken to inform consumers; and
(d) if the displayed price was altered, covered or removed by an unauthorised
person (section 23(7)-(10)).

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 INFLUENCE ON EXISTING LAW:
These provisions result in additional obligations on sellers to display a price for
goods displayed for sale (except in certain circumstances). The question arises
whether this provision would preclude a contract of sale for a reasonable price,
in which no price is stipulated and where the price is determined by a third party
or one of the contracting parties where the supplier is obliged to display a price
and consequently would be bound by such a price. Only time will tell how the
courts will interpret this provision.

4.3 Consumer’s right to fair and honest dealing

Section 40: Unconscionable conduct

Section 40(1) provides that a supplier (or an agent of the supplier) must not use
physical force against a consumer, coercion, undue influence, pressure, duress or
harassment, unfair tactics or any other similar conduct, in connection with any –
(a) marketing of any goods or services;
(b) supply of goods or services to a consumer;
(c) negotiation, conclusion, execution or enforcement of an agreement to
supply any goods or services to a consumer;
(d) demand for, or collection of, payment for goods or services by a consumer;
or
(e) recovery of goods from a consumer.
Section 40(2) provides that in addition it is unconscionable for a supplier knowingly
to take advantage of the fact that a consumer was substantially unable to protect
the consumer’s own interests because of physical or mental disability, illiteracy,
ignorance, inability to understand the language of an agreement, or any other
similar factor.

INFLUENCE ON EXISTING LAW:

Section 40 not only largely coincides with what under common law would qualify
as duress, undue influence and even material mistake, but also goes further by
prohibiting the supplier from taking advantage of entirely subjective factors
relating to the consumer. Potentially the supplier will have to take reasonable
steps to ascertain whether the consumer is fully aware of the implications of the
transaction. Therefore, the supplier must within reason look after the interests of
the consumer, whereas in terms of the common law each party is required to
look after its own interests.

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Section 41: False, misleading or deceptive representations
Section 41(1) provides that in relation to the marketing of any goods or services,
the supplier must not, by words or conduct
(a) directly or indirectly express or imply a false, misleading or deceptive
representation concerning a material fact to a consumer;
(b) use exaggeration, innuendo or ambiguity as to a material fact, or fail to
disclose a material fact if that failure amounts to a deception; or
(c) fail to correct an apparent misapprehension on the part of a consumer,
amounting to a false, misleading or deceptive representation, or permit or
require any other person to do so on behalf of the supplier.
Section 41(2) provides that a person acting on behalf of a supplier of any goods or
services must not falsely represent that the person has any sponsorship, approval
or affiliation or engage in any conduct that the supplier is prohibited from engaging
in under subsection (1).
Without limiting the generality of the provisions regulating misrepresentations, the
CPA specifies particular instances of false, misleading or deceptive
misrepresentations. Section 41(3) provides that it is a false, misleading or
deceptive representation to falsely state or imply, or fail to correct an apparent
misapprehension on the part of a consumer of a number of things, including that
(a) the supplier of any goods or services has any particular status, affiliation,
connection, sponsorship or approval that they do not have;
(b) any goods or services-
(i) have ingredients, performance characteristics, accessories, uses,
benefits, qualities, sponsorship or approval that they do not have;
(ii) are of a particular standard, quality, grade, style or model;
(iii) are new or unused, if they are not or if they are reconditioned or
reclaimed, subject to subsection (4);
(iv) have been used for a period to an extent or in a manner that is
materially different from the facts;
(v) have been supplied in accordance with a previous representation; or
(vi) are available or can be delivered or performed within a specified
time;
(c) any land or other immovable property-
(i) has characteristics that it does not have;
(ii) may lawfully be used, or is capable of being used, for a purpose that
is in fact unlawful or impracticable; or

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 (iii) has or is proximate to any facilities, amenities or natural features that
it does not have, or that are not available or proximate to it;
(d) the necessary service, maintenance or repair facilities or parts are readily
available for or within a reasonable period;
(e) any service, part, replacement, maintenance or repair is needed or
advisable;
(f) a specific price advantage exists;
(g) a charge or proposed charge is for a specific purpose;
(h) an employee, salesperson, representative or agent has the necessary
authority to negotiate the terms of, or conclude, an agreement;
(i) the transaction affects, or does not affect, any rights, remedies or
obligations of a consumer;
(j) a particular solicitation of, or communication with, the consumer is for a
particular purpose; or
(k) the consumer will derive a particular benefit if they assist the supplier in
obtaining a new or potential customer.
Section 41(4) provides that a representation contemplated in subsection (3)(b)(iii)
to the effect that any goods are new is not false, misleading or deceptive if those
goods have been used only by or on behalf of the producer, importer, distributor
or retailer and for the purposes of reasonable testing, service, preparation or
delivery.
Section 48(2)(c) provides that a term is unfair, unreasonable or unjust if the
consumer relied upon a false, misleading or deceptive representation
contemplated in section 41 or a statement of opinion provided by or on behalf of
the supplier, to the detriment of the consumer.
Section 52(1) provides that, if the court is dealing with a matter in terms of section
41 and the Act does not provide for a remedy sufficient to correct the prohibited
conduct, the court must consider the factors set out in section 52(2) (discussed in
paragraph 5.4(a) below). Thereafter, the court may make an order contemplated
in section 52(3). Section 52(3) provides that the court may declare the agreement
(in whole or in part) to constitute a prohibited conduct and make any further order
the court considers just and reasonable in the circumstances. This may include an
order to restore money to the consumer, to compensate the consumer for losses
or expenses related to the transaction or the court proceedings, or requiring the
supplier to cease or alter any practice or document to avoid a repetition of the
supplier’s conduct.

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 INFLUENCE ON EXISTING LAW:
Section 41 generally relates to what under the common law would qualify as
culpable misrepresentation (negligent or intentional), innocent
misrepresentation, and a dictum et promissum. It is important to note that a
misrepresentation can be either positive (eg a statement) or negative (failure to
remove an incorrect impression). In terms of the common law a negative
misrepresentation or non-disclosure will only give rise to a remedy where there
was a legal duty to speak in the circumstances. Section 41, however, is phrased
so broadly that conceivably it may go even further and encompass situations
that would not normally provide redress in terms of the common law. For
instance, the supplier may not indulge in the use of “exaggeration, innuendo or
ambiguity as to a material fact” which might in terms of common law be
permissible as being mere puffery. Time will tell how broadly the courts are
prepared to interpret section 41.

Section 44: Consumer’s right to assume supplier is entitled to sell goods

Section 44 provides that every consumer has a right to assume and it is an implied
provision in every transaction that the supplier -
(a) has the legal right or authority from the legal owner to sell or lease the
goods and that the supplier will have a legal right or the authority of the
owner to sell or lease the goods at the time the title of the goods pass to
the consumer (in the case of sale) or the consumer takes possession of
the goods (in the case of lease) (section 44(1)(a)-(b));

(b) is fully liable to the consumer for any charge or encumbrance over goods
in favour of any third party unless such charge or encumbrance is
disclosed in writing to the consumer prior to the conclusion of the
agreement or the supplier and the consumer has colluded to defraud the
third party (section 44(1)(c));

(c) guarantees that the consumer is to have and enjoy quiet possession of the
goods, subject to any charge or encumbrance disclosed in terms of section
44(1)(c).

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 INFLUENCE ON EXISTING LAW:
These provisions have resulted in some important changes to the common law
position related to the warranty against eviction.
Firstly, it has been argued that these provisions are similar to the common law
warranty against eviction (see Jacobs et al at 350).
Secondly, it has been argued that because these provisions are statutorily
implied and there is nothing in the provisions to provide otherwise, it is not
necessary for the consumer to comply with the common law requirements for
liability for eviction when relying on these provisions (Barnard The influence of
the Consumer Protection Act 68 of 2008 on the common law of sale (LLD thesis,
University of Pretoria, 2013) at 339).
Thirdly, these provisions have been criticised because they are silent on the
remedy the consumer may rely on if the required legal right or authority does not
exist or does not come into existence (R Sharrock Business transactions law
(2011), 8th edition, Juta, Cape Town, at 406).
Finally, Barnard (at 341) has argued that these statutory provisions or the
common law warranty against eviction cannot be excluded by agreement. This
is based on the argument that excluding these provisions or the warranty against
eviction would be prohibited by section 51(1)(a)-(b) or would be considered an
unfair term in terms of section 48 of the CPA. (These provisions are discussed
in more detail below.) This is similar to the position in respect of credit sale
agreements governed by the National Credit Act.

4.4 Consumer’s right to fair, just and reasonable terms and conditions

Sections 48 and 52: Unfair, unreasonable or unjust contract terms

This section will be divided into two parts, namely unfair terms and unfair prices.
UNFAIR TERMS
General prohibition against unfair terms
Section 48(1)(a)(ii) provides that a supplier must not offer to supply, supply or enter
into an agreement to supply, any goods on terms that are unfair, unreasonable or
unjust. Furthermore, section 48(1)(c)(i) provides that a supplier may not require a
consumer to waive any rights, assume any obligation or waive any liability of the
supplier on terms that are unfair, unreasonable or unjust, or impose any such terms
as a condition for entering into the transaction.

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Presumed unfair terms (“grey list” terms)
The Act itself does not contain any provision dealing with the onus of proof when
a consumer alleges that a term is unfair and the onus rests on the consumer to
prove that the term is unfair. However, there are exceptions, because certain terms
are presumed to be unfair (called “grey list” terms). These terms are contained in
regulation 44(3) of the CPA Regulations, but regulation 44(1) provides that this list
only applies to a term in a consumer contract
between a supplier operating on a for-profit basis and acting wholly or mainly for
purposes related to his or her business or profession and an individual consumer
or individual consumers who entered into it for purposes wholly or mainly unrelated
to his or her business or profession.

A term is presumed to be unfair if it has the purpose and effect of a term listed in
regulation 44(3) but does not fall under the exceptions listed in regulation 44(4). It
is also important to remember that a term listed may be fair in view of the particular
circumstances of the case (regulation 44(2)(a)) and that the list in non-exhaustive
(regulation 44(2)(b)). In other words, although a term is not listed, it could still be
unfair in terms of section 48 and even the terms listed are subject to the test of
unfairness set out in sections 48-52 of the Act (discussed below). We have copied
some of the more relevant grey list terms below:
(a) excluding or restricting the legal rights or remedies of the consumer
against the supplier or another party in the event of total or partial breach
by the supplier of any of the obligations provided for in the agreement,
including the right of the consumer to set off a debt owed to the supplier
against any claim which the consumer may have against the supplier
(regulation 44(3)(b))
(b) modifying the normal rules regarding the distribution of risk to the detriment
of the consumer (regulation 44(3)(g));
(c) allowing the supplier to increase the price agreed with the consumer when
the agreement was concluded without giving the consumer the right to
terminate the agreement (regulation 44(3)(h));
(d) enabling the supplier to unilaterally alter the terms of the agreement
including the characteristics of the product or service (regulation 44(3)(i));
(e) giving the supplier the right to determine whether the goods or services
supplied are in conformity with the agreement or giving the supplier the
exclusive right to interpret any term of the agreement (regulation 44(3)(j));
(f) permitting the supplier, but not the consumer, to avoid or limit performance
of the agreement (regulation 44(3)(n));
(g) allowing the supplier an unreasonably long time to perform (regulation

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 44(3)(p));
(h) requiring any consumer who fails to fulfil his or her obligation to pay
damages which significantly exceed the harm suffered by the supplier
(regulation 44(3)(r));
(i) permitting the supplier, upon termination of the agreement by either party,
to demand unreasonably high remuneration for the use of a thing or right,
or for performance made, or to demand unreasonably high reimbursement
of expenditure (regulation 44(3)(s)).
Test for unfair terms
The test for unfairness is set out in section 48(2). Section 48(2)(a) provides that a
term is unfair, unreasonable or unjust if it is excessively one-sided in favour of any
person other than a consumer. Section 48(2)(b) states that if a term of an
agreement is so adverse to the consumer as to be inequitable, the term will be
unfair, unreasonable or unjust. When determining whether a term is unfair, the
court must consider all the factors listed in section 52(2), which are:
(a) the fair value of the goods or services in question;

(b) the nature of the parties to that transaction, their relationship to each other
and their relative capacity, education, experience, sophistication and
bargaining position;
(c) those circumstances of the transaction or agreement that existed or were
reasonably foreseeable at the time that the conduct or transaction
occurred, irrespective of whether the Act was in force at that time;
(d) the conduct of the supplier and the consumer, respectively;
(e) whether there was any negotiation between the supplier and the
consumer, and if so, the extent of that negotiation;
(f) whether, as a result of conduct engaged in by the supplier, the consumer
was required to do anything that was not reasonably necessary for the
legitimate interests of the supplier;
(g) the extent to which any documents relating to the transaction or agreement
satisfied the plain language requirements in section 22;
(h) whether the consumer knew or ought reasonably to have known of the
existence and extent of any particular provision of the agreement that is
alleged to have been unfair, unreasonable or unjust, having regard to any
custom of trade, any previous dealings between the parties and the
amount for which, and circumstances under which, the consumer could
have acquired identical or equivalent goods or services from a different
supplier; and
(j) in the case of supply of goods, whether the goods were manufactured,

198
 processed or adapted to the special order of the consumer.
Although, section 52(2) is silent on the issue, it has been argued that the list of
factors is not an exhaustive list and that the court should be able to consider any
other relevant factors (Sharrock 2010 SA Merc LJ 314).

Remedies
Section 52(1) provides that, if the court is dealing with a matter in terms of section
48 and the Act does not provide for a remedy sufficient to correct the unfairness,
the court must consider the factors set out in section 52(2). Thereafter, the court
may make an order contemplated in section 52(3). Section 52(3) provides for
different remedies where the court determines that an agreement (in whole or in
part) is unfair. The court may declare the agreement (in whole or in part) unfair and
make any further order the court considers just and reasonable in the
circumstances. This may include an order to restore money to the consumer, to
compensate the consumer for losses or expenses related to the transaction or the
court proceedings, or requiring the supplier to cease or alter any practice or
document to avoid a repetition of the supplier’s conduct.
UNFAIR PRICE
In terms of section 48(1)(a)(i) of the CPA, a seller may not offer to supply, supply
or enter into an agreement to supply, any goods at a price that is unfair,
unreasonable or unjust. The test of unfairness contained in section 48(2) is not
applicable to price, and the test that must be used is not provided for in the CPA.
The courts will therefore have to create a test that must be applied when
determining whether the price is unfair. However, the factors listed in section 52(2)
must still be considered. The same remedies in respect of unfair terms will also be
applicable to unfair price.

INFLUENCE ON EXISTING LAW:

The courts have always shied away from making a contract for the parties. In a
radical departure from this approach, the courts have now been granted an
equitable jurisdiction to evaluate the substantive fairness of consumer
agreements. This means that the terms in a contract governed by the CPA will
now be subject to the test for fairness in accordance with the above provisions.
In addition, the price in a contract for sale governed by the CPA may not be
unfair, unreasonable or unjust. This is also a departure from the common law
position where there is no requirement that the price should be fair.

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Section 49: Notice required for certain terms and conditions
Section 49(1) provides that any notice to consumers or provision of a consumer
agreement that purports to (a) limit in any way the risk or liability of the supplier or
any other person; (b) constitute an assumption of risk or liability by the consumer;
(c) impose an obligation on the consumer to indemnify the supplier or any other
person for any cause; or (d) be an acknowledgement of any fact by the consumer,
must be drawn to the attention of the consumer.
The fact, nature and effect of the provision or notice must be drawn to the attention
of the consumer in a conspicuous manner and form that is likely to attract the
attention of an ordinarily alert consumer, having regard to the circumstances
(section 49(4)(a)). It also has to be in plain language as described in section 22
(section 49(3)). This has to be done before the consumer enters into the
transaction or agreement or is required or expected to offer consideration for the
transaction or agreement, whichever is the earliest (section 49(4)(b)). The
consumer must be given an adequate opportunity in the circumstances to receive
and comprehend the provision or notice (section 49(5)).
Section 48(2)(d) provides that a term or condition is unfair, unreasonable or unjust
if the agreement was subject to a term or condition, or a notice to a consumer
contemplated in section 49(1) and the term, condition or notice is unfair,
unreasonable or unjust or the fact, nature and effect of that term, condition or notice
was not drawn to the attention of the consumer in a manner that satisfied the
applicable requirements of section 49.
Section 52(4) provides that if there has been no compliance with the above
requirements a court may sever the provision or notice from the agreement or
declaring it to have no force or effect with respect to the transaction and make any
further order that is just and reasonable in the circumstances with respect to that
agreement, provision or notice, as the case may be.

INFLUENCE ON EXISTING LAW:

Hawthorne L “Responsive governance: Consumer protection legislation and its
effect on mandatory and default rules in the contract of sale” 2011 (26) SAPL
431 at 441 argues that because the CPA has introduced a new default rule in
respect of risk (section 19(2)(c) discussed above), any deviation from the new
default rule would need to comply with the provisions of section 49 above.

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Section 50: Written consumer agreements
Although there is no general requirement in the CPA that consumer agreements
must be in writing, the Minister may prescribe this for certain categories of
consumer agreements (section 50(1)). Where a consumer agreement is in writing
(whether as required or voluntary), the signature of the consumer is not required
for it to binding on the parties (section 50(2)(a)). Furthermore, the supplier is
obliged to provide the consumer with a free copy or free electronic access to a
copy of the terms and conditions which must satisfy the plain language
requirements in section 22 and set out an itemised break-down of the consumer’s
financial obligations under the agreement (section 50(2)(b)). Where the consumer
agreement is not in writing, the supplier must keep a record of such transactions
(s 50(3)).

INFLUENCE ON EXISTING LAW:

Generally, under the common law no formalities are required to validly conclude
a sale or lease agreement.

Section 51: Prohibited transactions, agreements, terms or conditions

Section 51 contains a list of contractual terms that are specifically prohibited and
may not be included in any contract (called “black list” terms). The benefit of a
black list is that it brings certainty as the parties know in advance that such terms
will be void. Section 51 provides that a supplier must not make a transaction or
agreement subject to any term or condition, including where
(a) its general purpose or effect is to defeat the purposes and policy of the
Act, mislead or deceive the consumer or subject the consumer to
fraudulent conduct (section 51(1)(a));

(b) it directly or indirectly purports to waive or deprive a consumer of a right in

terms of this Act; avoid a supplier's obligation or duty in terms of this Act;
set aside or override the effect of any provision of this Act; or authorise the
supplier to do anything that is unlawful in terms of this Act or fail to do
anything that is required in terms of this Act (section 51(1)(b));

(c) it purports to limit or exempt a supplier of goods or services from liability

for any loss directly or indirectly attributable to the gross negligence of the
supplier or any person acting for or controlled by the supplier; constitute
an assumption of risk or liability by the consumer for such a loss; or impose
an obligation on a consumer to pay for damage to, or otherwise assume
the risk of handling, any goods displayed by the supplier, except to the
extent that the loss or damage to displayed goods results from the
consumer’s conduct amounting to gross negligence or recklessness,
malicious behaviour or criminal conduct (sections 51(1)(c) and 18(1));
(d) it requires the consumer to enter into a supplementary agreement, or sign
a document, that contains a prohibited term or condition (sections 51(e)
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 and 51(2)(a));

(e) it falsely expresses an acknowledgement by the consumer that before

the agreement was made, no representations or warranties were made in
connection with the agreement by the supplier or a person on behalf of the
supplier; or the consumer has received goods or services, or a document
that is required to be delivered to the consumer (section 51(1)(g));

(f) it requires the consumer to forfeit any money to the supplier if the
consumer exercises any right in terms of the Act or to which the supplier
is not entitled in terms of the Act or any other law (section 51(1)(h));

(g) it expresses, on behalf of the consumer an authorisation for any person

acting on behalf of the supplier to enter any premises for the purposes of
taking possession of goods to which the agreement relates; an
undertaking to sign in advance any documentation relating to enforcement
of the agreement, irrespective of whether such documentation is complete
or incomplete at the time it is signed; or a consent to a predetermined value
of costs relating to enforcement of the agreement, except to the extent that
is consistent with the Act (section 51(1)(i)); or

(h) it expresses an agreement by the consumer to deposit with the supplier,

or with any other person at the direction of the supplier, an identity
document, credit or debit card, bank account or automatic teller machine
access card, or any similar identifying document or device or provide a
personal identification code or number to be used to access an account
(section 51(1)(j)). However, this does not preclude a supplier to request
possession of such an instrument for purposes of identification or to make
a copy thereof or to require a consumer to reveal any personal
identification codes where it is needed to facilitate a transaction that in the
normal course of business necessitates the provision of such code or
number (sections 51(2)(b) and 51(4)).

Section 51(3) provides that such a provision, term or condition of a transaction or

notice to which a transaction or agreement is purported to be subject, is void to the
extent that it contravenes section 51. Section 52(4) further provides that if such
terms and conditions are included in an agreement, a court may sever any part of
the relevant agreement, provision or notice, or alter it to the extent required to
render it lawful, if it is reasonable to do so having regard to the transaction,
agreement, provision or notice as a whole or even declare the entire agreement,
provision or notice void as from the date that it purportedly took effect. In addition
the court may make any further order that is just and reasonable in the
circumstances with respect to that agreement, provision or notice, as the case may
be.

INFLUENCE ON EXISTING LAW:

The prohibited list of terms in the CPA is similar to the list of unlawful terms found
in section 89 of the NCA which is applicable to credit agreements governed by
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 the NCA.

4.5 Consumer’s right to fair value, good quality and safety

Section 53: Definitions applicable

The most important definition for purposes of this discussion is the term “defect”
as used in this part of the Act. Section 53(1)(a) defines a defect as meaning -

(i) any material imperfection in the manufacture of the goods or components,

or in performance of the services that renders the goods or results of the
service less acceptable than persons generally would be reasonably
entitled to expect in the circumstances; or

(ii) any characteristic of the goods or components that renders the goods or
components less useful, practicable or safe than persons generally would
be reasonably entitled to expect in the circumstances.

Section 53(1)(b) defines “failure” as the inability of the goods to perform in the
intended manner or to the intended effect. “Hazard” is defined as “a characteristic
that (i) has been identified as, or declared to be, a hazard in terms of any other law
or (ii) presents a significant risk of personal injury to any person, or damage to
property, when the goods are utilised (section 53(1)(c)). Section 53(1)(d) defines
“unsafe” as meaning that, due to a characteristic, failure, defect or hazard,
particular goods present an extreme risk of personal injury or property damage to
the consumer or to other persons.

INFLUENCE ON EXISTING LAW:

This definition of “defect” in this part of the Act seems to correspond with the
common law requirement that there must be a defect in the article to hold the
seller liable for latent defects. You can also compare this definition to the
definition of a latent defect as found in the prescribed case of Holmdene
Brickworks (Pty) Ltd v Roberts Construction Co Ltd 1977 (3) SA 670 (A).
However, it should be clear that the definition of “defect” in the CPA does not
differentiate between latent and patent defects, and therefore, the CPA would
also cover patent defects.

Sections 55 and 56: Consumer’s right to safe, good quality goods and
implied warranty of quality
Section 56 read with section 55 creates two implied warranties.
Sections 56(1) read with section 55(2) provides that in any transaction or
agreement pertaining to the supply of goods to a consumer there is an implied

203
provision that the producer or importer, the distributor and the retailer each warrant
that the goods -
(a) are reasonably suitable for the purposes for which they are generally
intended;
(b) are of good quality, in good working order and free of any defects;
(c) will be useable and durable for a reasonable period of time, having regard
to the use to which they would normally be put and to all the surrounding
circumstances of their supply; and
(d) comply with any applicable standards set under the Standards Act 29 of
1993, or any other public regulation.

The following definitions are relevant:

(a) “Producer” is defined as a person who (a) grows, nurtures, harvests,
mines, generates, refines, creates, manufactures or otherwise produces
the goods within the Republic, or causes any of those things to be done,
with the intention of making them available for supply in the ordinary
course of business or (b) by applying a personal or business name, trade
mark, trade description or other visual representation on or in relation to
the goods, has created or established a reasonable expectation that the
person is a person contemplated above (section 1).
(b) “Importer” is defined as a person who brings those goods, or causes them
to be brought, from outside the Republic into the Republic, with the
intention of making them available for supply in the ordinary course of
business (section 1).
(c) “Distributor” is defined as a person who, in the ordinary course of business
is supplied with those goods by a producer, importer or other distributor
and in turn, supplies those goods to either another distributor or to a retailer
(section 1).
(d) “Retailer” is defined as a person who in the ordinary course of business,
supplies those goods to a consumer and as such would refer to the seller
(section 1).

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Section 56(1) read with section 55(3) also provides that there is a second implied
warranty that the goods are reasonably suitable either for the specific purpose for
which the consumer wishes to acquire the goods or for the use to which the
consumer intends to apply those goods and which the consumer has specifically
informed the supplier of, and the supplier either ordinarily offers to supply such
goods or acts in a manner consistent with being knowledgeable about the use of
those goods.
These implied warranties do not apply where the goods fail to meet the required
standard because the goods have been altered contrary to the instructions, or after
leaving the control of the producer, importer, distributor or retailer (section 56(1)).
Section 55(4) provides that in determining whether any particular goods satisfy the
requirements of the two warranties all of the circumstances of the supply of those
goods must be considered, including but not limited to -
(a) the manner in which, and the purposes for which, the goods were
marketed, packaged and displayed, the use of any trade description or
mark, any instructions for, or warnings with respect to the use of the goods;
(b) the range of things that might reasonably be anticipated to be done with or
in relation to the goods; and
(c) the time when the goods were produced and supplied.
Section 55(5) provides that for greater certainty in applying section 55(4) it is
irrelevant whether a product failure or defect was latent or patent, or whether it
could have been detected by a consumer before taking delivery of the goods; and
a product failure or defect may not be inferred in respect of particular goods solely
on the grounds that better goods have subsequently become available from the
same or any other producer or supplier.
There are two exceptions to the above warranties and rights. Firstly, goods sold at
auctions are excluded from both warranties (section 55(1)). Secondly, the first two
aspects ((a) and (b)) of the first warranty do not apply if the consumer has been
expressly informed that particular goods were offered in a specific condition and
has expressly either agreed to accept the goods in that condition, or knowingly
acted in a manner consistent with accepting the goods in that condition (section
55(6)).
Within six months after the delivery of any goods to a consumer, the consumer
may return the goods to the supplier, without penalty and at the supplier's risk and
expense, if the implied warranties are breached and the supplier must, at the
direction of the consumer, either repair or replace the failed, unsafe or defective
goods, or refund to the consumer the price paid by the consumer for the goods
(section 56(2)). If a supplier repairs any particular goods or any component of any
such goods, and within three months after that repair, the failure, defect or unsafe
feature has not been remedied, or a further failure, defect or unsafe feature is
discovered, the supplier must replace the goods or refund to the consumer the
price paid by the consumer for the goods (section 56(3)).

205
Section 56(4) further states that these implied warranties are in addition to (a) any
other implied warranty or condition imposed by the common law, the CPA or any
other public regulation; and (b) any express warranty or condition stipulated by the
producer or importer, distributor or retailer, as the case may be.

INFLUENCE ON EXISTING LAW:

These provisions have important consequences for the common law warranty
against latent defects.
First, the two implied warranties in the CPA are in addition to the common law
warranty against latent defects (section 56(4) read with section 2(10) discussed
in paragraph 3 above). Therefore, the consumer would still be able to institute
the common law remedies (namely the actio redhibitoria or the actio quanti
minoris).
Secondly, the warranties in the CPA have a wider application than the seller’s
liability for latent defects and the manufacturer’s liability for consequential loss.
It is not a requirement that the defect must be latent (both latent and patent
defects are covered by the Act). It is also irrelevant whether the defect could
have been detected by a consumer before taking delivery of the goods and the
Act also does not require that the defect must have existed at the time the
contract was entered into.
Thirdly, section 56(2) provides the consumer with the choice to request the
supplier for a repair, replacement or refund. This is not the case under the
common law. The actio redhibitoria would usually be available if the purchaser
can prove that a reasonable person would not have bought the article had he
been aware of the defects and the actio quanti minoris is intended for less
serious cases, namely where a reasonable person would still have bought the
thing, but would merely have paid less for it had he been aware of the defect.
Furthermore, the remedies under section 56 would not include consequential
damages that could be claimed with the actio empti in the case of manufacturers
and dealers. However, such damages could possibly be claimed under section
61 (see below).
Fourthly, one of the more difficult questions created by these provisions, is
whether “the six-month period set in Section 56(2) limit the implied warranty of
goods under Section 56(1) of the Act itself to six months, or does the reference
to six months only limit the consumer to exercise his/her remedies under Section
56(2) within the time period of six months?” (Jacobs et al at 372). The preferred
view is as follows (idem 373) :

Under the latter interpretation, the consumer’s remedies under Section 56(2)
would still have to be enforced within six months after delivery of the goods, but
the implied warranty of good quality will exist indefinitely, and the consumer
would be able to rely on his/her common-law rights to claim damages where
breach of the implied warranty of quality occurred six months or longer after the
delivery of the goods. The normal period of prescription for the institution of a
claim for damages would apply. It is the authors’ opinion that the latter

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 interpretation would be followed, as it provides better protection to the
consumer.

Barnard argues that this would mean that “a voetstoots clause will never become
operational” (at 391). She further argues against the survival of the voetstoots
clause referring to the following sections: Section 2(10) which provides that no
provision of the CPA may be interpreted so as to preclude a right that a
consumer has in terms of the common law (which would include the warranty
against latent defects); section 56(4) which provides that the implied warranty in
the section 56(1) is in addition to any other warranty in terms of the common law;
and section 51(1)(b)(i) which prohibits any term or condition if it directly or
indirectly purports to waive or deprive a consumer of a rights in terms of the CPA
(at 395). This does not mean that the supplier cannot sell goods in a particular
condition (for example second-hand goods). The supplier will just have to comply
with section 55(6)(a) in that the consumer was expressly informed that the
particular goods were offered in a specific condition and has expressly agreed
to accept the goods in that condition, or knowingly acted in a manner consistent
with accepting the goods in that condition. This entails a shift from the caveat
emptor rule (the buyer beware) to a general duty to disclose defects to the
consumer (buyer) (Barnard at 396-397).

Section 61: Liability for damage caused by goods

Section 61 deals with liability for damage caused by goods. Firstly, it is important
to remember that these provisions apply to any sale transaction (whether the CPA
applies to that specific transaction or not). In this respect, see paragraph 4.3 above.
Secondly, the provision cannot be waived or limited by any contractual provisions
(see again the discussion of section 51 in paragraph 5.4(d) above).
Section 61(1) provides that the producer or importer, distributor or retailer of any
goods is liable for any harm caused wholly or partly as a consequence of (a)
supplying any unsafe goods; (b) a product failure, defect or hazard in any goods;
or (c) inadequate instructions or warnings provided to the consumer pertaining to
any hazard arising from or associated with the use of any goods irrespective of
whether the harm resulted from any negligence on the part of the producer,
importer, distributor or retailer.
“Harm” includes (a) the death of, or injury to, any natural person; (b) an illness of
any natural person; (c) any loss of, or physical damage to, any property,
irrespective of whether it is movable or immovable; and (d) any economic loss that
results from harm contemplated in (a), (b) or (c) (section 61(5)).
Where more than one person is liable, their liability is joint and several
(section 61(3)).

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It is a defence if the above envisaged harm is wholly attributable to the compliance
with any public regulation, or if the alleged unsafe product characteristic, failure,
defect or hazard did not exist in the goods at the time it was supplied, or arose
from complying with the instructions provided to the supplier, or if it is unreasonable
to expect the distributor or retailer to have discovered the shortcomings in the
goods, taking into account that person’s role in marketing the goods to consumers
(section 61(4)(a)-(c)). It is also a defence that the claim for damages is brought
more than three years after the death or injury of the person, the earliest time at
which a person had knowledge of the material facts about the illness, the earliest
time at which a person with an interest in any property had knowledge of the
material facts about the loss or damage to the property or the latest date on which
a person suffered the economic loss (section 61(4)(d)).

INFLUENCE ON THE EXISTING LAW:

Negligence is a requirement for establishing delictual liability under the common
law. This has now been changed by this provision which has introduced no-fault
or strict liability. However, this liability is limited by the possible defences listed
in section 61(4).
It is also possible that the liability created under section 61 could overlap with
the common law warranty against latent defects and especially the liability of
manufacturers and dealers for consequential damages caused by latent defects.
It could also overlap with the implied warranty in respect of quality in sections
55-56 of the CPA (discussed above). As the concept of harm under section 61
is very wide, it could possibly provide for more extensive remedies than that
provided under the common law and section 56.

5. PROTECTION AND ENFORCEMENT

The rights of consumers are protected through the courts and national consumer
protection institutions, such as the National Consumer Commission and the
National Consumer Tribunal established under the National Credit Act 34 of 2005
(section 4). Failure to comply with the provisions of the CPA may lead to the issuing
of compliance notices and eventually the imposition of fines and criminal penalties.
Contractual terms that are impermissible in terms of the Act also may be declared
void to the extent of non-compliance. The protection and enforcement procedures
contained in the Act fall outside the scope of this module (except to the extent
discussed above).

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6. CONCLUSION

It should be clear that where the CPA is applicable to a specific transaction, it will
have far reaching consequences on the existing legal principles governing such
transactions. However, it should also be clear that the interpretation of the Act and
how the Act will affect the existing legal principles are not always certain and it is
hoped that some of the uncertainties will be addressed as more court decisions
dealing with these issues are handed down. This tutorial letter only serves to inform
you of the more important provisions of the Act for purposes of the Law of Sale
and Lease and of some of the views on what these provisions mean in this respect.

READ Glover Kerr’s Sale and Lease Ch 5 125-136

1. EXAMPLE OF A LEASE CONTRACT SUBJECT TO THE CPA

This is an example of a lease contract which makes provision for the CPA.
The contract contains clauses which should be included in lease contracts.
By including these provisions you can choose whether the CPA will be applicable
or not.

EXAMPLE LEASE CONTRACT

Agreement to Lease (RESIDENTIAL)

THIS AGREEMENT TO LEASE IS MADE

&
ENTERED INTO BY
&
BETWEEN

“Saulx les Champlon (Pty)Ltd (00000000000000), hereafter referred to as THE

AGENT,

herein represented by Loulou Thomas ……………………………………………….,

duly authorized herein by Harold Hawthorne hereinafter called the LANDLORD”

[After you have set out the parties to the contract include a section A and the
following terms]

SECTION A

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The Landlord declares as follows:

1.1 THAT HE/SHE/IT IS RENTING OUT THIS PROPERTY IN THE

ORDINARY COURSE OF HIS/HER/ITS BUSINESS
(in which case the provisions of the Consumer Protection Act 68 of 2008 together
with the Regulations thereto apply to this agreement)
or
1.2 THAT HE/SHE/IT IS NOT RENTING OUT THIS PROPERTY IN THE
ORDINARY COURSE OF HIS/HER/ITS BUSINESS
……………………………………………………………………………………
………………………………………………………………………………….

(In which case the provisions of the Consumer Protection Act 68 of 2008, together
with the Regulations thereto, will not apply to this agreement
(delete whichever is not applicable)

2.1 subject to the Tenant/s right to cool off from this transaction within 5
business days after conclusion hereof, if this agreement was signed as a
result of direct marketing and only in the event of the application of the
Consumer Protection Act 68 of 2008 (“the Act”) to this agreement. The
Tenant/s has to supply such notice to cool off in the prescribed format
attached hereto as Annexure “C”

2.2 and in the event of this agreement not having been entered into as a result
of direct marketing, the Tenant/s acknowledges that he will not have the
right to cool off from this agreement and that this agreement will become
effective immediately upon signature hereof.

** Clauses 2.1 and 2.2 will not apply in the event of the Landlord/s not renting
out his/her/its property in the ordinary course of business.

3.2 In the event that the Act applies to this agreement, the parties
acknowledge that this agreement will be a fixed term consumer
agreement, as provided for in the Act and in which case the following
provisions will apply: **

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3.2.1 The Tenant/s shall be entitled to cancel this agreement, at any time during
the course of the lease for no reason whatsoever, by supplying the
Landlord/s with 20 business days’ notice, which notice may be supplied to
the Landlord/s in any recorded format;
3.2.2 Should the Tenant/s elect to cancel the agreement upon the notice above,
the Tenant/s acknowledges that he/she/it will remain responsible for any
outstanding amounts due in terms of this lease agreement up to the date
of cancellation together with a reasonable penalty, which has been agreed
between Landlord/s and Tenant/s to be equal to 2 months’ rental together
with any costs for damages as provided for in clause 7 hereof, and a pro
rata contribution towards the brokerage fee, paid by the Landlord/s to the
Agent at the onset of this lease,
3.2.3 In the event that the terms of this lease are to be amended beyond the
initial period or in order to allow the Tenant/s an opportunity to indicate
his/her/its intentions to renew the initial period, the Landlord/s undertakes
to supply the Tenant/s with notice of any amendments in accordance with
the prescribed format (Addendum to Lease) not less than 40 days and not
more than 60 days prior to the date of the expiry of the initial period;
3.2.4 In the absence of cancellation, and whether the Tenant/s has received the
amendment notice from the Landlord provided for in clause 3.2.3 herein or
not, the Tenant/s confirms that he is aware of his/her/its obligation to notify
the Landlord/s of his/her/its intention not to continue with this lease,
whether it be for a further fixed term or on a month-to-month basis and
failing delivery of such notice not to renew to the Landlord/s, the Tenant/s
agrees to an automatic renewal on such monthly basis subject to the
amended terms and conditions mentioned above.
3.3 In the event that the Act does not apply to this agreement, the renewal
shall be subject to the following terms
3.3.1 The Tenant/s is hereby granted a revocable option to renew the Lease on
the same terms and conditions contained in this agreement other than the
rental which will escalate at a rate to be agreed upon in writing between
the Landlord/s and Tenant/s but which, in the event of no agreement, shall
be a minimum of 10% per annum. Should the rental be changed by
agreement between both parties, the Agent shall nevertheless be entitled
to commission at a rate agreed upon in terms of clause 26 herein. The
Tenant/s shall exercise this option by giving written notice to the Agent by
no later than two (2) calendar months prior to the expiry date of this
agreement, failing which the option will lapse. In the event of the option not
being exercised, this agreement shall automatically terminate on the expiry
date of this agreement and the Tenant/s shall be obliged to vacate the
PREMISES without notice. The Landlord/s may at any time prior to the
Tenant/s exercising the option revoke same by way of written notice to the
Tenant/s.

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 After you have completed section A go on and include a section B in
which you place all the other contractual terms usually found in a
lease agreement. I HAVE NOT INCLUDED SECTION B YOU CAN
SOURCE THESE CLAUSES FROM YOUR READER.
2. A SUPERFICIAL CHECKLIST FOR CONTRACTS WHICH COULD BE
SUBJECT TO THE CONSUMER PROTECTION ACT 68 OF 2008 – this
list is not all encompassing but provides a starting point to check
whether the CPA may apply or not

It is suggested that you include a notice just below the heading of the
contract reading:
“This is a contract which limits your rights – please read it carefully.”

CHECKLIST

1. Check whether the CPA applies to the set of facts presented by your client
Is it a transaction taking place in the RSA?
The word transaction means that the CPA will apply if:
a person (one contracting party) acts in the ordinary course of business.;
or the agreement involves a contract between parties for the supply of goods
(premises) in exchange for consideration;
or the supply of goods for consideration
Consequently if it is a transaction where the party acts in the ordinary course of
business and the transaction occurs in SA and the supply involves consideration
the CPA applies.
2. Ask whether the transaction is exempted from the CPA. If not the CPA
applies in full.
3. Are the goods (premises) promoted or supplied to the State? If YES the
CPA does not apply except for sections 60 and 61.
4. Do the facts involve a promotion of goods or services or the supply of
services in the RSA.
5. If the prospective agreement involves the supply of goods or services to
members of a club, trade union, association, society or other collectivity of
persons voluntarily associated and organised for a common purpose,
whether for fair value or otherwise, irrespective of whether there are
membership fees the CPA does apply.

Once you have decided that the CPA does apply to your agreement you must

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check for the following:
1 Check for discrimination during marketing, promoting or supplying of
goods or services
1.1 you may not unfairly exclude any person or category eg such as giving
exclusive rights to a particular consumer
1.2 you may not unfairly assign priority of supply to any person or category
1.3 you may not unfairly charge different prices
Based on the grounds of unfair discrimination in the Constitution such as: race,
sex, gender, pregnancy, marital status, ethnic or social origin, colour age, sexual
orientation, disability, religion, belief, conscience, culture, language or birth. For
example you cannot advertise premises for rent only to married couples with no
children.
2. Check if the contract is a fixed term agreement.
It is suggested that you include a clause providing for consent by the consumer for
termination as intended at the termination date, otherwise it will automatically
continue on a month-to-month basis.
It is also suggested that you make provision for a cancellation fee to be payable in
the event that the fixed term agreement is terminated prior to the termination date.
Specify what this amount will be. For example one or two months rent.
3. Check that the contract is in plain language – sec 22
4. Check that no false, misleading or deceptive presentations were made
5. Check whether the agreement is being concluded with a person lacking
legal capacity. The agreement is void if a supplier knew or ought to have
known the consumer lacks capacity.
It is suggested that you make provision for a clause, in plain language, asking the
consumer to indicate whether she is mentally fit, an unemancipated minor, acting
without adult consent.
6. Take not whether the consumer is unable to protect his interests due to
physical or mental disability, illiteracy, ignorance, inability to understand
the the language of the contract or some such factor.
It is suggested that you include a clause in which the consumer indicates any
disability, her level of education, her first language, whether she has on a previous
occasion concluded a similar contract. This will ensure that you give more detailed
information and simpler explanations where necessary.

7. Check for unfair terms – sec 48

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 A supplier must not—
(a) enter into an agreement to supply, any goods or services—
(i) at a price that is unfair, unreasonable or unjust; or
(ii) on terms that are unfair, unreasonable or unjust;

(b negotiate, enter into or administer a transaction or an agreement for the

supply of any goods or services, in a manner that is unfair, unreasonable
or unjust; or

(c) require a consumer, or other person to whom any goods or services are
supplied at the direction of the consumer—
(i) to waive any rights;
(ii) assume any obligation; or
(iii) waive any liability of the supplier,
on terms that are unfair, unreasonable or unjust, or impose any such terms as a
condition of entering into a transaction.

(2) A term in a contract is unfair, unreasonable or unjust if—

(a) it is excessively one-sided in favour of any person other than the consumer
or other person to whom goods or services are to be supplied;
(b) the terms of the transaction or agreement are so adverse to the consumer
as to be inequitable;
(c) the consumer relied on a misleading representation, or opinion of the
supplier, to her detriment or
(d) the term was not drawn to the attention of the consumer in accordance
with section 49. (see below).

Clauses to be drawn to the consumer’s attention –section 49

(1) Any notice that will—

(a) limit the risk or liability of the supplier or any other person;
(b) constitute an assumption of risk or liability by the consumer;
(c) impose an obligation on the consumer to indemnify the supplier or any
other person for any cause; or
(d) be an acknowledgement of any fact by the consumer, must be drawn to
the attention of the consumer.

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Such a provision must be written in plain language, as described in section 22.
And must be drawn to the attention of the consumer—
(a) in a conspicuous manner that is likely to attract the attention of an ordinarily
alert consumer, having regard to the circumstances; and
(b) before the consumer—
(i) enters into the agreement, or
(ii) pays.

Make sure that your contract does not contain a prohibited term – sec 51

A contract term may not:

 defeat the purpose or policy of the Act

 mislead or deceive the consumer; or

 waive or deprive a consumer of a right in terms of this Act;

 avoid a supplier’s obligation or duty in terms of this Act;
 set aside or override the effect of any provision of this Act; or authorise the
supplier to— do anything that is unlawful in terms of this Act; or fail to do
anything that is required in terms of this Act;
 impose an obligation on a consumer to pay for damage to, or otherwise
assume the risk of handling, any goods displayed by the supplier, unless the
consumer was grossly negligent or reckless or malicious or criminal
 contain a term resulting from negative option marketing;
 require the consumer to enter into a supplementary agreement,;
 may not exclude a claim by a consumer against the Guardian’s Fund
 may not falsely expresses an acknowledgement by the consumer that—
before the agreement was made, no representations or warranties were
made in connection with the agreement by the supplier or a person on behalf
of the supplier; or
the consumer has received goods or services, or a document that is required
by this Act to be delivered to the consumer;
 may not require the consumer to forfeit any money to the supplier—
(i) if the consumer exercises any right in terms of this Act; or
(ii) to which the supplier is not entitled in terms of this Act or any other law;
 may not authorise entry of premises for the purposes of taking possession of
goods to which the agreement relates;
 may not require consumer to sign in advance any documentation relating to
enforcement of the agreement, irrespective of whether such documentation
is complete or incomplete at the time it is signed; or to consent to a
predetermined value of costs;

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 may not deposit an identity document, credit or debit card, bank account or
automatic teller machine access card, or any similar identifying document or
device; or provide a personal identification code or number to be used to
access an account.

Make sure if possible, that the consumer has not specifically told the supplier what
the purpose the goods are to be acquired or what the goods are to be used for
(sec 53-58)

In this regard consider putting in a clause confirming that the goods have been
offered to the consumer in a particular condition and the consumer expressly
agreed to accept the goods in that condition. This is one of the clauses which must
be drawn to the consumer’s attention
NB This is just a rough check list and not the ultimate model according
to which you can work. It depends on the type of contract you are
drafting and the clients involved. However, it will provide you with a
starting point.

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