On 23 March 2020, the President declared a national lockdown from 26 March 2020 until 16 April 2020, this was however extended until 30 April 2020 and on 1 May 2020, the country was moved from level 5 lockdown to level 4 lockdown. Under the national lockdown, all South Africans were ordered to stay home and all businesses that were not essential services have been forced to shut down.
This has resulted in many businesses and individuals not earning any income for the duration of the lockdown and has created uncertainty for many landlords and tenants with regards to rent being paid.
The number one question we have been receiving from our clients is whether a tenant is still liable to pay rent while under lockdown. To answer this question, we need to distinguish between residential and commercial lease agreements.
Residential lease agreements are concluded between a landlord/lessor and a tenant/lessee. The purpose of the property is for private use only.
Both the landlord and tenant are bound by the lease agreement and South African law. One of the obligations of the landlord is to provide the tenant with the use and enjoyment of the property and in exchange, the tenant pays the agreed rental amount. If the tenant fails to pay the rent, he/she is in breach of contract and the landlord is entitled to cancel the lease agreement and commence with eviction proceedings.
In the Government Gazette released on 26 March 2020, it stated that all evictions and execution of attachment orders, both movable and immovable, including the removal of movable assets and sales run execution is suspended with immediate effect for the duration of the lockdown.
What are my options if I cannot pay my rent?
The first thing you need to do is to be transparent with the landlord and do this well in advance. The landlord also has bills to pay including a possible bond. Try to make a payment, even if it is only 50 or 60%, and discuss an arrangement to pay the remaining 40% over 2 or 3 months.
Although the Rental Housing Act of 1999 does not make any provision for your deposit to be used in lieu of unpaid rent, you can request that your landlord make use of the deposit. A waiver should be signed and an addendum inserted into your lease agreement stating by what date the deposit will be repaid to the landlord.
Please remember by not paying your rent, the landlord will be entitled to start eviction proceedings once lockdown ends and he can claim for arrear rental and damages. These costs together with legal costs will be astronomical and could result in a civil judgment for failing to pay. The landlord will also have a rental hypothec over your movable goods that are on the premises. The hypothec allows the landlord to sell the movable goods of the tenant (and in certain instances movables of a third party) which are on the leased premises if the tenant fails to pay the rent.
Therefore, it is in your best interest to be open and transparent with the landlord, pay small amounts, and discuss a plan to recover and pay outstanding amounts.
Please note that your landlord may not cut your water and electricity, nor may he place your household belongings on the street or change the locks to prevent access to the property. Should you have any issues please contact the Rental Housing Tribunal in your province.
A commercial lease is between a landlord/lessor and tenant/lessee. The purpose of the property is for commercial use.
There has been a lot of talk about a force majeure. A force majeure event is an unforeseen and superior force event, or circumstance, which is beyond the control of the contracting parties, and which renders contractual performance impossible.
A force majeure clause can either be wide or narrow provision. A narrow provision is one that specifically lists the events which may occur and therefore excludes any other event outside of those listed which may be relied on to invoke a force majeure clause. While a widely drafted provision will normally include, in addition to the listed events, what is termed a ‘’catch-all phrase’’ such as “any event arising beyond the control of the parties, rendering the performance impossible”. Therefore, as a party that seeks to rely on a force majeure clause because of the pandemic/epidemic, they must ensure that agreement concerned between the parties is wide enough to include the pandemic/epidemic. Most force majeure clauses do not excuse the party’s non-performance entirely, but only suspend it for the duration of the force majeure.
If a contract is silent on a force majeure clause, parties can rely on the common law principle of “supervening impossibility” to suspend their obligations. In terms of this principle, each party’s obligation to perform in terms of an agreement and their respective rights to receive performance under that agreement will be suspended if the performance by a party of its obligation becomes objectively impossible as a result of unforeseeable and unavoidable events, which are not the fault of any party to that agreement.
To determine whether a tenant can rely on a force majeure, the lease agreement needs to be reviewed to establish:
- If there is a force majeure provision in the lease
- If there is one, is it wide enough to cover COVID-19?
- Does it excuse the performance by the landlord, tenant, or both?
- Does it permit the party’s to suspend or terminate the lease?
- If all of the above apply, does it specify a notice period before the lease can be suspended or terminated?
Please note that in terms of a residential lease agreement, the tenants will have full use and enjoyment of the leased property, therefore, although they are not earning an income, their obligation to pay their rent is unaffected.
President Cyril Ramaphosa in his statement of 9 April 2020 said, “I would like to appeal to all large businesses not to resort to force majeure and stop paying their suppliers and rental commitments, as such practice has a domino effect on all other businesses dependent on that chain.”
Therefore, it is recommended that you rather reach an agreement with the landlord before relying on a force majeure clause.
What if force majeure clause does not apply to my commercial lease?
Large retailers within shopping malls, usually have a ‘minimum occupancy’ clause. This clause states that the landlord undertakes at all times that the shopping mall will have a minimum occupancy of shoppers. Failure to meet this undertaking may entitle a tenant to cancel his lease or request a reduced rental/remission of rent.
The Property Industry (PI Group), consisting of the major representative bodies for real estate in SA – the SA REIT Association (SA REIT), SA Property Owners Association (SAPOA) and SA Council of Shopping Centres (SACSC) has published a guideline on financial assistance for retail tenants. The property industry’s assistance guidelines offer relief for all affected retailers, regardless of size. SMME retailers, however, are the focus of the initiative. The PI Group proposes that small and micro retailers are given rental discounts of up to 100% for April, with further substantial rental discounts and interest-free rental deferrals for May and June respectively. Retailers should apply to their landlords directly for assistance. Each participating landlord can offer additional relief and support on a case-by-case basis at their discretion. However, the guideline for retail SMMEs is the minimum that qualifying retailers can expect from participating landlords.
If applicable, the commercial tenant has the option of terminating the lease agreement by providing 20 business days’ notice and paying a reasonable penalty.
Therefore, we recommend if a tenant cannot pay their rent, they should discuss further options with their landlord.