The position in the South African Law relating to the sale of immovable property had been quite clear courtesy of the provisions of the Alienation of Land Act, Act 68 of 1981 (the "Act") as well as its predecessor.  The general principle is that any agreement for the alienation of land needs to comply with the formalities prescribed in the said Act.  This specifically applies to agreements of sale as well as options and until quite recently was automatically regarded as to also cover pre-emptive rights or a right of first refusal.

Such pre-emptive right or right of first refusal is normally granted by the owner of land in favour of another party which means that the landowner, on deciding to sell the land, should first offer the land to the said party in whose favour the right was granted.  Only once the third party decides not to accept the offer by the landowner, the landowner will be free to sell to any other potential buyer.

As stated the approach in the South African Law, until the Constitutional Court decision in Mokone v Tassos Properties CC and Another during July 2017, was that such right of first refusal or pre-emptive right should always be in writing in order to comply with the strict requirements of the Act.  The question that was however specifically raised before the Constitutional Court was whether a right of first refusal or pre-emptive right does indeed constitute an "alienation" as envisaged in the Act as Section 2(1) of the Act provides:  "No alienation of land after the commencement of this section shall …….…..be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on written authority."  This provision, more or less corresponds with the provision of its predecessor being the Formalities in Respect of Contracts of Sale of Land Act of 1969.  Consideration of a definition of the term "alienate" in the latter act merely states that:  "alienate, in relation to land, means sell, exchange or donate, irrespective of whether such sale, exchange or donation is subject to a suspensive or resolutive condition, and "alienation" has a corresponding meaning".

The court argued that in the case of a right of pre-emption, an "alienation" as defined by the Act takes place only when the right is exercised and the sale comes into being.  Merely affording someone that right to buy is not an "alienation" because that is simply not a sale, exchange or donation.  The court consequently came to the conclusion that Section 2(1) of the Alienation of Land Act should not apply to a right of pre-emption.  On considering the provisions of the predecessor of the Act, the court also came to the conclusion that the meaning of "alienate" in the previous act was similar to the current act and should not have applied to a right of pre-emption even when the previous act was still in operation.  The court further concluded that the right of pre-emption gives the pre-emptor no right to claim transfer of land but merely gives him a right to enter into an agreement of sale with the grantor of the pre-emptive right should the latter wish to sell.  When such an agreement is completed, only then and not before, will he have a right to claim transfer of land and that it is this subsequent agreement of sale which must be in writing.

The Constitutional Court also referred to the so-called Oryx mechanism originating from the matter of Associated South African Bakeries (Pty) Ltd v Oryx & Vereinigte Bückereien (Pty) Ltd decided by the then Appellate Division in 1982 and which stated that in the event that the seller concludes a contract of sale with a third party in breach of a right of pre-emption, the holder of the right of pre-emption may, through a unilateral declaration of intent, step into the position of the third party.  A contract of sale is then deemed to have been between the seller and the holder of the right of pre-emption.  This requirement can be satisfied and achieved in a manner that does not bypass the strict requirements of the Act as discussed above.

In the Mokone matter the right of first refusal was originally contained in an agreement of lease.  The said agreement of lease expired and was thereafter orally extended for a further period by agreement between the parties.  The landlord was of the opinion that by extending the lease agreement orally, the right of first refusal was not automatically or even by implication extended.  The landlord thereafter proceeded to sell the said property to a third party without honouring the provisions of the right of first refusal.  The appellant Mrs Mokone then took the matter to court and applied for an order to set aside the sale and transfer of the property and compel the landlord to give transfer to herself.  The court first came the conclusion that the extension of the lease agreement was valid because it is not a prerequisite that lease agreements be in writing and was then confronted with the further question whether ancillary provisions in the lease agreement like for example the clause pertaining to the granting of right of first refusal was also extended.  Under the previous approach in South African Law as referred to above, the answer was immediately that such right could not have been extended due to a lack of compliance with the strict requirements of the Act.

The position regarding compliance and form of pre-emptive rights or rights of first refusal had been put in the clear by this decision of the Constitutional Court.