Jalite (Pty) Ltd (plaintiff/appellant) leased business premises comprising two warehouses and two backyards to Shanghai Furniture Import & Export CC (defendant/respondent) in October 2012. During negotiations, the plaintiff's managing director Chris Price and estate agent Stephanie Bernstein represented that the premises were approximately 2000 square metres in extent. The parties concluded a written lease at R70 000 per month plus VAT for a three-year period commencing 1 April 2013. After conclusion of the agreement, the defendant measured the premises and alleged a 25% discrepancy in size. The defendant refused to occupy the premises and ceased paying rental. The plaintiff sued for arrear rental of R180 993.61, estate agent commission of R90 000, and loss of rental damages of R159 600. The defendant counterclaimed for R190 824.85, comprising rental deposit refund and compensation for improvements (burglar bars), alleging fraudulent misrepresentation regarding the size of the premises. The regional court found for the plaintiff. On appeal, the High Court (Gauteng Local Division) reversed this decision and granted the defendant's counterclaim. The plaintiff appealed to the Supreme Court of Appeal with special leave.
The appeal succeeded with costs. The order of the High Court was set aside and substituted with an order dismissing the defendant's appeal with costs, thereby reinstating the regional court's judgment in favour of the plaintiff.
For a misrepresentation regarding the size of leased premises to justify rescission of a lease agreement, the misrepresentation must: (1) relate to a material term of the agreement; (2) be intended to induce the agreement; and (3) actually induce the party to enter into the agreement. Whether a term is material must be determined objectively from the written agreement and the parties' conduct during negotiations and after conclusion. The use of qualifiers such as "approximately" when describing property size, combined with an explicit statement that rental will not change based on actual measurements, negates both the materiality of the precise size and any fraudulent intent. A party's failure to measure premises when invited to do so, and subsequent conduct affirming rather than rescinding the agreement, is inconsistent with treating size as a material inducement. An appellate court (including a High Court reviewing a magistrate's court decision) should not interfere with factual findings of a trial court unless satisfied they are clearly wrong.
The Court observed that commercial leases use various rental pricing methods and it is for the parties to choose the method best suited to their commercial needs. If parties agree to set rental per square metre, then size becomes a material term, but this must be clearly established from the agreement and surrounding circumstances. The Court noted that the concept of pricing per square metre appeared to originate with the defendant's representative Shi, who performed his own calculations after the rental amount had already been quoted as a fixed sum. The Court also commented that if size had truly been a deal-breaker for the defendant, one would have expected it to feature more prominently in negotiations and to be expressly stated in the written agreement. The judgment suggests that a party who has the opportunity to verify a representation but fails to do so may have difficulty later claiming to have been induced by that representation.
This case is significant in South African contract law for clarifying the requirements for establishing material misrepresentation as a ground for rescinding a lease agreement. It reinforces that: (1) for a misrepresentation to justify rescission, it must be material, intended to induce the contract, and actually induce the contract; (2) the materiality of a term is assessed objectively based on the parties' conduct and the written agreement; (3) estimates or approximations ("approximately") do not constitute fraudulent misrepresentation absent proof of knowledge of falsity and intent to deceive; (4) parties bear responsibility for verifying facts when given the opportunity to do so; (5) the principle of restraint in appellate review of factual findings applies equally to appeals from magistrates' courts to the High Court and from the High Court to the Supreme Court of Appeal. The case provides important guidance on commercial lease agreements and the allocation of risk regarding property specifications in South African law.