A lease was challenged on the grounds that the cancellation for non-payment of rent, after prior notice that the rent had not been paid, should not be enforceable because it was against public policy to cancel the agreement for the lease of a hotel that had been in place since 1982.
Although good faith is of importance in contract law, the objective terms of the agreement and the principle of the sanctity of contracts must be weighed up against considerations of public policy.
Contracts freely and voluntarily entered into must be upheld.
It is not a question of whether a clause in a contract is unfair or unreasonable if it is negotiated by two competent parties but whether the clause and its enforcement is so unconscionable that the courts will not enforce it.
The following facts are relevant:
- whether the terms of the contract are inconsistent with public policy;
- the relative position of the parties as to equal bargaining power; and
- whether the performance was impossible.
A breach clause with a pre-cancellation notice provision which was complied with before cancellation, and which followed a previous warning that cancellation would happen on any further non-payment of rent, did not give rise to any right to apply principles of good faith or public policy to overcome the consequences of the breach.
The courts will not build in good faith requirements over and above a fair breach clause.
The fact that a term in a contract is unfair or may operate harshly does not by itself lead to the conclusion that it offends the values of the Constitution or is against public policy. The courts will not make a new agreement for the parties nor build in good faith requirements over and above a fair breach clause.
[The case is Mohamed’s Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests (Pty) Ltd]