The Notarial Lease Agreement
A notarial lease agreement is a legal contract recognized by law and regulated by the Deeds Registries Act. Unlike an ordinary lease agreement where the parties are bound by the provisions contained therein, a notarial lease agreement must be registered in the Deeds Office to give it effect. Registration of a notarial lease agreement entitles the landlord and tenant (or lessor and lessee) to the benefits held by such an agreement.
A distinguishing feature of a notarial lease agreement is that it vest more rights on the tenant than is commonly the case in an ordinary lease agreement , such as a lease agreement wherein the tenant is not entitled to use or occupy the leased premises in terms of the notarial lease agreement.
Notarial lease agreements are frequently used in conveyancing transactions whereby the property alienated acts as security for any future debt the owner may have to the bank.
The Legal Significance of Notarization
One key legal importance of notarization is the evidentiary value it holds in court. When a lease is notarized, the signatory has taken a step to prove their identity, which a judge or jury may give credence to when attempting to ascertain the intentions of the parties. In the courtroom, the judge or jury will determine the case based on the mutual intent of the parties. It is important to note that this is the basis of all contract law, since an agreement is only enforceable if there is an agreement to be enforced. Where it is the landlord who is to benefit from the notarial process, it will still serve to buttress the presumption that the tenant freely and voluntarily entered into the agreement with the knowledge of the essential provisions so that they did not the opportunity to participate in negotiations, or trust the process to an agent or representative. Where this is not the case, the court must set aside the principle of freedom of contract and notarial proof, and proceed to consider the mutual interests and the distinctive evidence provided to it to draw inferences of fact. Consideration of the evidence relating to the terms of the agreement will be made by the judge having regard to the law, the provisions of the written document and the balance of probabilities, which includes taking into account the weight of the evidence, its credibility, reliability, the improbabilities, contradictions and the probabilities within the overall context.
The Drafting of the Notarial Lease Agreement
The process of drafting a notarial lease agreement will be influenced by the fact that it is governed by specific legislative requirements laid down in the Rental Housing Act, No. 50 of 1999 (the "RHA") and the various provincial Rental Housing Acts. These differ from one province to the next, with the Western Cape rental housing regulations having the most onerous provisions. For instance, these provinces generally compel the lessor to register the lease agreement with the Rental Housing Tribunal on a specified date immediately following signature thereof. The lessee will then become entitled to apply to the rental housing tribunal for the determination of any matter arising from the lease. Some of the considerations/steps in drafting a notarial lease agreement are set out below.
The parties will need to submit the following to the notary public for preparation of the notarial lease agreement: Among the clauses that should be included in a notarial lease agreement are the following: The notary public will execute the notarial lease agreement and affix his or her seal thereto. A notarial lease agreement must likewise be properly registered in the Deeds Registry, failing which its failure to be registered therein will render it invalid against third parties. This registration will also ensure that the notarial lease agreement is enforceable against the lessor’s estate in the event of the lessor’s insolvency.
Advantages of Notarial Lease Agreements
Advantages of Notarial Lease Agreements
One of the most significant advantages of entering into a notarial lease agreement is that it is capable of being made executable against a property, giving the holder of a right under such an agreement a right to have the terms of the notarial lease registered against the property. Apart from any express provision in this regard, such an agreement can be made executable if it is recorded and noted in the registers kept in terms of the Deeds Registries Act 1937 by the Registrar of Deeds at the deed office by which the notarial lease was executed.
The result is that execution of the notarial lease agreement against the property (and the note thereof in the appropriate Deeds Registry) will constitute a basis on which a person holding a right under such lease (the "holder") can put into force a notarial bond extending over the property concerned. The holder can then obtain execution against the property, and the proceeds of the execution sale by the Sheriff (by disposal of the asset) will be distributed to the holders of security (including the holder of the right under the lease agreement) in accordance with the relevant ranks, ensuring that holders of notarial leases are afforded a greater level of security than they would have without such registration. In cases where the rental payable under a lease agreement may not be a large amount, the fact that the holder of a right under the notarial lease can obtain greater security by way of such ranking under an execution sale, without the additional costs of a bond, will be highly attractive.
Notarial leases are also more easily cancelled by the parties to them than a normal lease simply because of the relative ease with which the relevant parties can enter into a mutually acceptable addendum to the original notarial lease (eg the use of the notarial lease document and recording thereof nominated above) to vary the terms or bring the lease to an end for whatever reason they may want to use in the future. This can be particularly useful for a lessor who wishes to terminate a lease to engage with the lessee without having to rely on normal common law principles where the breach or default or non-compliance may be in respect of a relatively treatable matter.
Frequently Found Clauses in Notarial Lease Agreements
When discussing notarial lease agreements, it is important to mention the clauses contained therein. Most notarial lease agreements would generally contain the following clauses:
- The subject of the lease: This clause would contain a description of the property, such as the address, erf or stand number, extent of the property, and structures on the property.
- Care and maintenance of the property: This clause will usually provide that the lessee is responsible for maintaining the property. However, note that in terms of the common law any improvement carried out by the lessee, would belong to the lessor in terms of the doctrine of superficies solo cedit, which means that the land always belongs to the owner. To avoid this, it is best to include a clause in the notarial lease agreement allowing the lessee to remove any such improvement before expiration or cancellation of any lease period.
- Payment of rent: The clause will contain the amount of rent, as well as when payment is due and how payment will be effected. Specifically, payment may be through deductions from the rental income if there is any, or payment can be affected by means of a bank transfer or cash; if the latter, then the person authorized to receive the rent should be mentioned.
- Period of the lease: This clause needs to cater for how long the lease period will be as well as the period that a renewal will apply in the event of a renewal. It is best to decide on these periods at the commencement stage, to prevent any future misunderstanding.
- Lessee’s obligations: This clause will usually have two sections – notarial and common law obligations for the lease . Notarial lease obligations are obligations that need to be adhered to in terms of the lease itself, while common law obligations are obligations that need to be adhered to in terms of the common law, such as paying rent.
- Insurance: It is very important that the lessee be responsible for insuring the property. However, is also advisable to place an obligation on the lessor to ensure the property. This clause is crucial, as there has been much litigation regarding insurance of properties, with each party blaming each other for the property not being insured.
- Rental increases: This clause should set out the method of rental increase, including how often rental increases will occur.
- Breach: This clause will set out the consequences of breach. It is recommended that breach be dealt with in accordance with the common law, i.e. the innocent party may cancel the lease if one party is in default after being given 14 days’ notice of such default, unless there is a failure to pay rent. In that case, 30 days’ notice of no payment must be given.
- Cession: A clause empowering the lessor to exercise a right of cession in the event of non-payment of rental will be included, only to be exercised after the period prescribed in the breach clause has lapsed. Cession will allow the lessor to approach the lessee’s tenants directly in order to recover any outstanding rental.
- Acknowledgement by the parties that the notarial lease agreement is a credit agreement: This clause is important to ensure that the applicable interest rate cap contemplated in the National Credit Act applies to the credit grantor. The credit grantor is considered to be the lender of any money used to purchase the property.
Possible Hurdles and Consideration
Notarial leases also pose some legal challenges and considerations for the parties.
Rent Control: Rental housing laws which are meant to control rental costs may get in the way of the parties’ negotiation. It is key to check whether the proposed rent falls within the limits set out in law before signature.
Witnesses: A notarial lease agreement requires two witnesses and the notary public. Some organisations have rules which limit the people that can act as a witness.
Competence: As with all contracts, the parties must be competent to enter into the agreement otherwise it could be declared invalid.
Registration: The notarial lease agreement must be registered at the Deeds Office in order to be enforceable against the landlord’s creditors or successors in title. A 30-year notarial lease agreement will only be enforceable against third parties if registered within three months of signature. A notarial lease agreement for longer than 30 years must be approved by the Minister of Rural Development and Land Reform and will require a trigonometrical survey diagram and provincial or local government planning permission.
Legal Advice: The law requires both parties to have independent legal advice before signature of a long-term notarial lease agreement.
Concluding the Notarial Lease Agreement
The signing of a notarial lease agreement (notariële huurovereenkomst) should occur at the office of a Dutch civil law notary. A notary in the Netherlands has specific requirements for the signing of a notarial agreement. Firstly, the signature of a natural person is only valid if the signatory identifies him or herself. Secondly, the notary requires a copy of the identification document of the signatory. All notaries in the Netherlands have the facilities to identify the signatory in the office. A copy of the identification document of the signatory will be included in the document that is signed by the signatory and can be used as proof that the person was indeed present when the notarial agreement was signed.
The notary also requires the signature of two witnesses to a notarial lease to finalize the notarial lease agreement. The witnesses must be persons that are considered to be capable to sign (besloten toe recht) by the notary . Witnesses need only identify themselves to the notary. Immigration documents such as the Dutch residence permit are accepted as valid identification if the registration is in the Dutch Personal Records Database (BRP). This also applies if the registration is in the foreign Personal Records Database (BRP) but only if the notary can verify this in the BRP. The notarial lease is, therefore, signed under the supervision of the notary.
The duties of a notary are established by law. The Royal Notarial and Civil Law Notaries Act (Wet op het notarisambt) describes these duties. Normally the notary will draft a notarial lease agreement (notariële huurovereenkomst) according to the wishes of the parties. In the absence of specific instructions or wishes of the parties the notary will use his or her best efforts to draft a document according to the practice in their field. A notary should not draft a document without the involvement of a lawyer.