Many institutions and entities including small businesses providing credit, services or products, protect their financial exposure when entering into agreements with their clients, by implementing different forms of security, such as a guarantee or a suretyship agreement.

One should be quite clear regarding which form of security will be implemented, as they give rise to different forms of obligations. 

GUARANTEE:

Primary obligations, are created when entering into a guarantee, wherein one undertakes to pay or fulfil an obligation to the creditor of the transaction, upon the occurrence of a certain event[1]. The guarantee entails an irrevocable and unconditional guarantee by the guarantor, that the principal debtor will make due and punctual payment in terms of a debt owed to a creditor, failing which on demand the guarantor will settle the whole outstanding debt owed to the creditor as a primary obligation. 

The obligation is described as primary in nature, due to it not being dependant on the existence on any other agreement or obligation. A guarantee can objectively be seen as a stronger form of security, compared to a surety, as it establishes an independent liability for the principal obligation, and the guarantor cannot rely on the defence of excussion (to demand that the creditor seek payment from the principal debtor first) as a surety would be entitled to[2].

SURETY:

On the other hand, a surety gives rise to obligations which are accessory in nature, in that they are dependant on the existence (or the coming into existence) of a valid and effective principal obligation. A surety cannot exist where the underlying agreement to which it relates to is void or does not (and will never) exist[3]. Similarly, a surety will cease to exist where the principal debtor has fulfilled their obligations in terms of the principal agreement[4]. 

In lay man’s terms, a surety is a person or entity other than the principal debtor (a third party, as one cannot stand as surety for one’s own debt[5]), that binds themselves via written agreement, that if the principle debtor fails without lawful excuse to settle the outstanding debt owed to the creditor, they will be liable to settle the outstanding amount of debt owed to the creditor. A surety’s obligation is thus the same as the obligation of the principal debtor, and as such a surety cannot be liable for anything other than the principal debt[6]. 

LOOK OUT FOR:

The wording of the agreement  is paramount in determining whether such an agreement is one of guarantee or surety. Words such as ‘guarantee’ have been used in agreements which, in reality, constituted a suretyship. One needs to look at the obligation created by the agreement. If a guarantee is given conditional upon the breach of a separate contract or the default of a principal debtor, the obligations of such a guarantee would be accessory in nature, and thus such a guarantee would actually constitute a suretyship. However, if the guarantee is given as an absolute and unconditional promise, then the obligations arising from such a promise will be primary or principal in nature, and such a promise would constitute a true guarantee[7]. 

When entering into(or expecting debtors to enter into) a guarantee or a suretyship agreement, it is best to be certain of its provisions, and the intent behind the wording used. Look at the obligations it creates and be certain of one’s ability to comply with its’ provisions, as the obligations created by such an agreement are not easily evaded. It is the responsibility of the person signing such an agreement to ensure they know and understand what they are signing.  In the same token its your responsibility of you are the credit grantor, to ensure you protect your rights with the correct form of security.

Do not hesitate to contact our team to assist in drafting your suretyship agreements and guarantees in order to keep your business transactions safe and secured.

BEZUIDENHOUT LAK ATTORNEYS

WE LOOK AFTER YOUR BUSINESS

WHILE YOU LOOK AFTER BUSINESS!

[1] Drafting Suretyships – Important considerations: https://www.golegal.co.za/drafting-suretyship-creditors.

[2] THE CONTRACT OF “GUARANTEE” IN SOUTH AFRICAN LAW: https://www.bowmanslaw.com/insights/finance/the-contract-of-guarantee-in-south-african-law/

[3] Joubert The Law of South Africa 2^nd Edition par 287 

[4] THE CONTRACT OF “GUARANTEE” IN SOUTH AFRICAN LAW: https://www.bowmanslaw.com/insights/finance/the-contract-of-guarantee-in-south-african-law/

[5] Joubert The Law of South Africa 2^nd Edition par 284; Nedbank Ltd v Van Zyl [1990] 4 All SA 637 (A) 475 

 [6] Joubert The Law of South Africa 2^nd Edition par 286

 [7] THE CONTRACT OF “GUARANTEE” IN SOUTH AFRICAN LAW https://www.bowmanslaw.com/insights/finance/the-contract-of-guarantee-in-south-african-law/

Landlords often experience difficulties with securing rental payments, especially during recent months due to tenants failing or alternatively refusing to pay their rent that is due to the landlord. Fortunately, the law makes provision for remedies to be implemented by the landlord in these types of situations. One of these remedies is the tacit hypothec in favour of the landlord which secures arrear rental from the tenant of the property.

The landlord’s tacit hypothec affords the landlord a right of attachment to establish a limited real right over the movables of the tenant as security for payment of rental in arrears.

The landlords hypothec is a “tacit” hypothec, due to the fact that it is not express, for example brought into operation through a clause in a lease agreement, but rather, comes into being through the operation of law. It is “understood without being stated”[1].

It is a form of real security which can grant the landlord a limited real right in terms of the invecta et illata (movable things carried in and brought in) of a tenant whose rental payments have fallen in arrears. While the hypothec has predominantly been affected to help secure rental payments, the case of Solgas (Pty) Ltd v Tang Delta Properties CC[2] gives precedence of the same being used as a means to secure the payment of damages afflicted on leased property.

Movable property on the premises not belonging to the tenant (unbeknownst to the landlord) can also be subject to the hypothec, should the movable property be on the premises permanently or indefinitely, with the knowledge of the third party owner, and for the use and enjoyment of the tenant[3].

The right conferred by the hypothec is a limited real right and due to its limited nature, such a right must be “perfected” through court process. Section 32 of the Magistrates’ Courts Act[4] allows a landlord to bring an application for the attachment, and depending on the circumstances, the removal of a tenant’s movable property to secure the debt of arrear rental.

Until the hypothec is perfected, the tenant is entitled to remove their movable property from the premises. The Magistrates’ Court provides a solution for landlords who have reason to believe that the tenant might make off with the movable property, by allowing such landlords to request an immediate order, without having to give notice to the tenant, as such notice, and subsequent removal of the movable property by the tenant would render the landlord’s hypothec useless.

The hypothec does not in any way give the landlord the right to do anything with the movable property, other than preventing its’ removal from the premises, unless otherwise provided by court order.

In conclusion the tacit hypothec of the landlord contained in Section 32 of the Magistrate’s Court Act, is a remedy to be implemented by a landlord in addition to other remedies to be implemented against defaulting tenants such as eviction proceeding or automatic rent interdicts.

Kindly contact us to assist in any of your landlord/tenant related matters, including lease negotiations and drafting, evictions, arrear rental recovery and the like.

BEZUIDENHOUT LAK ATTORNEYS

WE LOOK AFTER YOUR BUSINESS

WHILE YOU LOOK AFTER BUSINESS!

[1] “Tacit Hypothec – Right of the Landlord Over Property” Eviction Lawyer 10 March 2019.

[2] Solgas (Pty) Ltd v Tang Delta Properties CC (11388/2015) [2016] ZAGPJHC 158 (20 April 2016)

[3] Bloemfontein Municipality v Jacksons 1929 AD 266

[4] Magistrates’ Courts Act 32 of 1944 (MCA)

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