LET'S TALK Bonded premises: does the bank or landlord sue for eviction?
Updated: Apr 7
Ordinarily, when a bank grants a mortgage to a lender, it stipulates in the agreement that the right to sue for rental received from the property and the right to apply for eviction of unlawful occupiers (rights usually exercised by the landowner) are ceded over to the bank. This poses the question of whether a landlord may in fact evict a defaulting tenant if this right has been ceded to the Bank. Can a tenant invoke this cession in defence against the landlord’s application for eviction?
This matter was dealt with in the case of Pacific Paramount Properties (Pty) Ltd v Burchell t/a Top Wash and Another (September 2018). Pacific applied to the High Court for an order to evict its tenant, Top Wash, from commercial premises it owned in Camps Bay. When Pacific took transfer of the property in December 2013, a mortgage bond was registered in favour of Nedbank Ltd. The mortgage bond contained a clause which ceded the Mortgagor’s rights to institute proceedings against lessees for the recovery of unpaid rentals and/or eviction from the mortgaged property over to the Mortgagee. The Court considered whether the landlord lacked the locus standi to sue for the eviction of the tenant by virtue of the cession contained in a mortgage bond.
The Court referred to the decision of Picardi Hotels Ltd v Thekwini Properties (Pty) Ltd. In Picardi, however, the question related to the right of the cedent to institute proceedings to recover rent. The cession of the personal right to claim rent meant that the cedent lacked locus standi. The court there was not concerned with that part of the clause which authorised the cessionary to evict unlawful occupants. The right to evict is based on ownership rather than the assertion of a contractual right to redelivery and is an incident of ownership.
The Court therefore held that a distinction may be drawn between the right to evict and the right to sue for rent.
In the present case, the bank (as cessionary) had the irrevocable right in its own name to evict unlawful occupants. The court viewed this as an irrevocable mandate, rather than an out-and-out cession of the right. The Bank (as mandatee) would arguably not be entitled to institute eviction proceedings in its own name; instead, the Bank would act on the authority of the landlord, (as mandator) by causing such proceedings to be instituted in the name of the landlord.
Furthermore, the Applicant attached a re-cession agreement to the replying papers executed between itself and the Bank. In this agreement, the Bank re-ceded all of its rights to the ceded claims with effect from 20 October 2017. Assuming that the landlord lacked locus standi, the Court referred to Pangbourne Properties Ltd and Another v Your Life (Pty) Ltd where it was held that in special and unusual circumstances the Court may allow a litigant who lacked locus standi when launching proceedings to cure this by way of re-cession.
On this basis, the eviction proceedings were rightly instituted in the landlord’s name. The landlord was therefore successful and the tenants challenge to Pacific’s locus standi was therefore rejected.
This judgment provides an important call for attention to the interpretation of such provisions in mortgage bond agreements.