What Is The Law On Force Majeure Regarding Commercial Leases In SA?
The first fake news campaign about landlords not being allowed to charge tenants any rentals for the next 3 months due to the recently announced 21 days lockdown in South Africa has gone "viral". The fake news campaign was launched due to the fears of the public about dangers of the rapidly spreading Covid-19 virus and specifically about how they (the tenants) are going to afford during the next few months to pay for their rent.
According to a rental property specialist attorney, Marlon Shevelew, there are two very important question to ask:
1. What is the law regarding force majeure regarding commercial leases in SA and how does this impact residential leases?
2. Is COVID - 19 considered an act of GOD?
GENERAL PRINCIPLES
1. In each case the applicability of the principles surrounding Acts of God (vis major or casus fortuitus) will depend on the effect that the COVID-19 has had on that property or tenant.
2. Only if the effect is direct then will the tenant be entitled to remission of rent.
3. Even an event on the scale of COVID-19 does not amount to a silver bullet. It must be viewed in the context of other similar scale events. Having said that I am of the opinion that COVID-19 will qualify as an Act of God in the general sense.
4. Even in situations of war, tenants are not excused from complying with their obligations in terms of leases UNLESS their use and enjoyment or the property is DIRECTLY affected.
5. COVID-19 must be viewed in this context.
EFFECT OF THE DISASTER REGULATIONS
6. Regulation 8 of the Disaster Management Regulations limits the business hours that both on- and off-consumption premises selling liquor may be open. 6.1. This is a limitation on the use and enjoyment of the premises for the purpose which it was let.
6.2. A business affected by this will be entitled to remission of rental.
7. The example of a tenant who has a stationery business was not allowed remission of rental because of a drop in trade, but would have been entitled had war prevented customers from dealing with the tenant (Johannesburg Consolidated Investment Co v Mendelssohn & Bruce 1903 TH 286) is instructive as to what the position is of business affected by the regulations: 7.1. The former case is one where the event only has an indirect impact on the beneficial use of the property.
7.2. The latter is one where the event has a direct effect on the tenant, and that is why remission of rental is permissible in that case.
8. The situation with commercial tenants who are now forced to curtail their trading hours is one evidencing a direct impact on the beneficial use and enjoyment of the property for the purpose it was let: 8.1. The tenant rented the business premises with a view to trading in normal business hours. This is the beneficial use he is paying for.
8.2. Now as a result of COVID-19 and the Disaster management regulations made, the tenant cannot trade to the extent that he previously could. This is a reduction in the use and enjoyment.
8.3. The reduction is not complete, and therefore the tenant will not at this time be entitled to terminate the lease on the basis of supervening impossibility arising from vis major, but rather to insist on remission of rental resulting from reduced rental.
9. The situation with businesses who are not affected directly by the regulations will be essentially the same as the stationery business owner who was not entitled to remission of rental. They may suffer loss as a result of a drop in trade, but they will not have been affected directly.
LANDLORD'S POSITION
10. Where a landlord is faced with a tenant who closes up shop and/or refuses to pay full rental, its response must be informed by an assessment of the loss of use and enjoyment which the tenant has experienced.
11. If the tenant has been forced to curtail trading hours pursuant to the regulations, then the landlord will in all likelihood not be entitled to refuse reduced rental.
12. If, however the tenant merely is struggling because business in general is scarce, but has not been impacted directly, then the landlord will be justified in refusing to accept a reduced rental.
RESIDENTIAL LEASES
13. The effect of COVID-19 on residential leases must be determined in the same manner that the effect on commercial leases is determined.
14. If there is a direct effect on the beneficial use which the tenant has paid for, then the tenant will be entitled to a remission of rental. If the effect is merely indirect, then the tenant will not be entitled to remission of rental.
15. One example of an indirect effect is a tenant who cannot pay his rental because he has not received an income. Although the loss in income was ultimately caused by COVID-19 the effect is not related directly enough to release the tenant from paying rental.
CONCLUSION
16. Whether a landlord should be forced to accept reduced rental will depend on whether the tenant's beneficial use has been affected directly.
17. There are many examples of cases in which a tenant was not entitled to remission of rental, even during times of war, if that war did not have a direct effect on a tenant's beneficial use.
18. Therefore, the nature of the impact must be evaluated in deciding whether remission of rental is justified.