This week the Property Poser panel deals with an issue where the defaulting tenant of a rental property is not a natural person but a close corporation (CC).
The reader asks how a landlord can hold a tenant liable for a breach of contract when the tenant is a CC with only one member.
In this instance, the contract has been cancelled and the tenant evicted. Unfortunately, no sureties were provided in terms of the rental agreement.
As a result, the reader would like to know whether the member can be held liable, in his or her personal capacity, for any losses suffered as a result of the breach of contract.
He also says the member confirmed on behalf of the CC that there were sufficient funds to pay the rental as agreed upon in the contract. Because this turned out to be untrue, he would like to know whether this amounts to fraud and if the member could be held liable on these grounds for any losses suffered.
Furthermore, the reader wishes to know what the consequences may be for the tenant who, knowing that eviction is pending, disposes of the CC’s assets in an improper way in order to avoid the attachment and sale in execution of such assets.
When dealing with a legal entity, one must bear in mind that the separation of the individuals from the entity in question – and thus the protection it affords them – is often the reason for such a choice, says Grant Berndt from Abdo & Abdo Attorneys in East London.
Berndt says other parties transacting with such entities need to ensure that they are protected by requesting that the individuals provide a surety for the debts.
“In the absence of such a surety, it may be difficult to hold the individuals liable.”
If there were indeed fraudulent actions on the part of the members, Berndt says this may be a reason to “pierce the so-called corporate veil”.
“Having said this, the mere fact that the tenant does not ultimately have the funds to honour the rental contract does not in itself necessarily amount to fraud.”
According to Brian Kinnear, principal of Fresh Lifestyle Properties in East London, any number of things may happen during the course of a rental agreement that jeopardise the financial security of a tenant.
“Due to unforeseen circumstances, a tenant may run into financial difficulty despite having been completely financially secure at the outset or at times in between.”
Should the tenant fraudulently dispose of assets to prevent them from being attached, Kinnear says the creditor may approach the court for relief.
“A legal remedy could perhaps prevent such actions or undo the disposals effected during this time.”
Kinnear says a summons with a rent interdict preventing the removal of goods can, however, be useful in this regard.
Send your property related questions to pose@propertyposer.co.za or visit www.propertyposer.co.za.
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