Ferndale Crossroads Share Block (Proprietary) Limited and Others v City of Johannesburg Metropolitan Municipality and Others

The first and second appellants owned commercial property including the Oriental Plaza shopping centre in Randburg CBD. The property was separated from a taxi rank and traders' market on land owned by the first respondent (City of Johannesburg) by Hendrik Verwoerd Drive. Pedestrians crossing the road from the taxi rank to the CBD created a safety hazard. In May 2001, the appellants applied to lease a portion of the respondent's land (the Civic Precinct) to construct a pedestrian bridge across the road, which they believed would channel pedestrians to the Oriental Plaza and increase business. On 27 March 2002, the parties concluded an agreement providing for the lease of approximately 627 square meters of land at an annual nominal rental of R499 for 20 years. The appellants would construct a pedestrian bridge at their own cost, extend walls to enclose the taxi rank, and construct kiosks. The bridge would become the respondent's property. The respondent failed to comply with section 79(18) of the Local Government Ordinance 17 of 1939, which required publication of notice of the proposed lease and invitation of objections before alienating immovable property. In 2004, this non-compliance was discovered. Notices were belatedly published in November 2004, and three objections were received. The respondent later obtained legal advice that the agreement was void ab initio and instituted proceedings to have it declared invalid. The appellants sought a declaration that the agreement was valid and enforceable.

• Whether the agreement concluded between the parties constituted a lease for purposes of section 79(18) of the Local Government Ordinance 17 of 1939
• Whether non-compliance with the procedural requirements of section 79(18)(b) and (c) rendered the agreement invalid ab initio
• Whether the court had a discretion to condone the invalidity and uphold the agreement despite non-compliance
• Whether specific performance would be an appropriate remedy if the agreement were found valid

The appeal was dismissed with costs, including costs of two counsel. The High Court's order declaring the agreement void ab initio was upheld.

The binding legal principles established are: (1) An agreement must be characterized according to the intention of the parties as expressed in creating their contractual rights and obligations, not according to their ulterior motives or objectives. (2) Section 79(18) of the Local Government Ordinance 17 of 1939 applies to any agreement that contains an alienation or disposal of a local authority's immovable property, and such concepts must be liberally construed in the public interest. (3) Where an agreement contains a lease of a local authority's land as an integral element, it constitutes a lease subject to section 79(18) even if it also contains other provisions and obligations. (4) The procedural requirements in section 79(18)(b) and (c) – publication of notice of the proposed lease and consideration of objections – are mandatory jurisdictional prerequisites to the valid exercise of the power to lease. (5) Where a council purports to exercise the power to lease immovable property without complying with these mandatory prerequisites, the jurisdictional fact necessary for valid exercise of the power is absent, and the resulting agreement is invalid ab initio. (6) The words 'shall not exercise the power... unless' in section 79(18)(c) make compliance with the procedural requirements mandatory, not discretionary.

The court assumed without deciding that a discretion might exist to condone invalidity arising from non-compliance with section 79(18), but expressed no concluded view on this question. The court observed obiter that even if such a discretion existed and could be exercised, it should not be exercised to uphold an invalid lease where doing so would frustrate a municipality's redevelopment plans for a central business district and would not be in the public interest. The court also noted obiter that the appellants' characterization of the lease provisions as forming an 'insignificant part' of the agreement was incorrect and that without the lease element the agreement would make no sense, but the court went further to state that even if the lease element appeared insignificant in the scheme of the agreement, this would be irrelevant: the only question is whether there is an alienation or disposal, and once there is, interested parties cannot be deprived of the opportunity to object.

This case is significant for clarifying the scope and mandatory nature of section 79(18) of the Local Government Ordinance 17 of 1939 (which applied to certain municipalities before the current local government dispensation). The judgment confirms that the procedural requirements for local authorities to alienate immovable property are mandatory jurisdictional prerequisites, not merely directory. The case establishes that: (1) agreements must be characterized according to their substance, not form or parties' objectives; (2) where an agreement contains a lease element that is integral to its functioning, it constitutes a lease subject to section 79(18) even if it contains other provisions; (3) 'alienation' and 'disposal' must be liberally construed in the public interest; (4) non-compliance with mandatory procedural requirements renders transactions invalid ab initio where the requirements constitute jurisdictional facts; and (5) public interest considerations, particularly municipal redevelopment plans, are relevant to exercises of discretion in relation to such agreements. The case reinforces principles of public accountability and transparency in local government dealings with public assets.