Breach of agreement could cost Ingquza Hill R126m

A prominent businessman is demanding millions of rand from one of the poorest Eastern Cape rural municipalities after a failed shopping mall deal.

Dumisa Dlatu’s Quanza Group consortium is taking legal action against the Ingquza Hill local municipality which it says must pay out R126m after a 40-year lease agreement was not honoured by the council.

Dlatu and the municipality signed an agreement in 2005 that Quanza Group would construct a multimillion-rand mall in Lusikisiki but the municipality, which encompasses the towns of Flagstaff and Lusikisiki, reneged on the deal.

Dlatu’s lawyers, SC Vutula & Co, sent a letter of demand to the municipality 15 months ago asserting that before the municipality did a U-turn on the deal, Quanza Group had already secured tenants for the mall, as well as spending millions clearing the site and building a few structures there.

Quanza’s claim includes:

 R39,396,424 for construction of the  4,215 m² structures on the site; R65,381,052 for  loss of income since 2013; and gross annual income of R22,000,000 for the remaining years of  the 40-year lease.

“Therefore, the municipality is liable to pay the claimant damages in the amount of R126,777,477,” states the letter which was signed off by lawyer Solomzi Vutula.

Before the municipality went cold on the project, it entered into a 30-year lease agreement with the Quanza Group and this was subsequently extended to 40 years.

The Dispatch has seen a letter dated  December 12 2011 from the municipality’s former municipal manager, Mluleki Fihlani, asking Quanza  to “speed up” the development.

“The council hereby indemnifies the developer, Quanza or any cessionary that the correct zoning will be effected by the council,” the letter states.

“The developer is permitted to commence construction work ... council warrants that all municipal services including water, sewer and stormwater will be facilitated for the construction and therefore it is our priority to have sufficient capacity to accommodate the design requirements of the shopping centre as advised by the consultants.”

Vutula said the municipality had been required to provide the consortium with the title deed and surveyor general diagrams and to apply for rezoning of the construction site.

It was also required to upgrade infrastructure, including water and sanitation, storm water drainage and electricity, to accommodate the proposed shopping centre.

Vutula said as a result of the breach of the agreement, his client had not been able to complete construction of the mall causing serious financial losses.

Dlatu declined to comment, saying the matter was sub judice.

Municipal spokesperson Zamuxolo Matwasa said they were engaging with the company’s lawyers.

“The matter is before the court but we can safely say it revolves around the breach of agreement.

“We [have been] engaging the company since December 2019 through the lawyers regarding the application brought by the municipality to cancel the lease agreement,” Matwasa said.

The matter is to be heard by the high court in Mthatha but at the time of writing, the Dispatch was not provided with a date for this.

Dlatu had earlier raised the matter with Cogta MEC Xolile Nqatha.

Nqatha’s spokesperson, Makhaya Komisa, said: “The MEC is aware of the matter as he was approached by Mr Dlatu to facilitate a resolution.

“In hearing his side he had thought the matter was easy but, upon hearing the side of the municipality, it became clear the matter requires a determination by a court of law, as the municipality also believes it has a strong case.”