Lockdown: how to deal with rent and levies
MAIN IMAGE: Marlon Shevelew, director Marlon Shevelew and Associates.
By Marlon Shevelew
Many people will not be able to earn an income during the nationwide lockdown from midnight 26 March till midnight 16 April. What are landlords who are unable to pay their levies to do? Is there any reprieve for tenants who are unable to pay their rental? Has our government done enough to offer reprieve?
The first critical question to ask is whether the COVID-19 pandemic qualifies before the law as a force majeure or in Latin a vis major event. The same would apply for the nationwide 21-day lockdown.
What is vis major?
Vis major (otherwise referred to as an ‘act of God’) is a legal term that refers to a superior power or force which cannot be resisted or controlled. A related legal term is casus fortuitus which means an exceptional or extraordinary occurrence which is not reasonably foreseeable. In order to qualify as either vis major or casus fortuitus an event must be uncontrollable and unforeseen. Such events can result in complete or partial release from obligations.
COVID-19 and the lockdown qualify as vis major events
The general consensus is that COVID-19 is an event which satisfies the above criteria. There have been instances of manufacturing companies declaring force majeure as a reason why they are unable to comply with their obligations, and online booking platforms refunding clients who are unable to make use of bookings made. Both of these classes of reactions are indicative thereof that COVID-19 qualifies as vis major.
The 21 day lockdown announced on 23 March operates as vis major as well.
Where a landlord is faced with a tenant who closes up shop and/or refuses to pay full rental, his/her response must be informed by an assessment of the loss of beneficial occupation which the tenant has experienced, which will be discussed below. In light of the lockdown, a landlord will likely not be entitled to compel tenants to pay full rental if the lockdown has forced those tenants to close up shop.
A landlord will not be able to lawfully refuse to pay levies because of COVID-19; there is no way that COVID-19 impacts on ownership in a manner that will release the landlord from these obligations. A landlord will also not be entitled to pay reduced levies or mortgage payments because his tenants are unable to pay him, or because he is unable to earn an income himself (even in the light of the lockdown).
Some banks are offering relief programs for property owners and those should be seriously considered by any landlord that is struggling to meet its obligations. These are a concession from the banks and not necessarily an entitlement of landlords.
The effect of COVID-19 on tenants must be determined along the same lines as above. If there is a direct effect on the beneficial occupation 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.
A tenant who cannot pay his rental because he has not received an income is not entitled to refuse to pay rental. 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. Otherwise any person who is ever retrenched would be able to refuse to pay rental. That can never be the case.
It is only if the person’s beneficial use of the property is directly affected by force majeure that said person will be entitled to remission of rental. In the example of a self-employed person who cannot earn an income, the effect is indirect, and therefore that person will not be released from fulfilling the obligations in terms of the lease.
A commercial tenant, who cannot use a property for the purpose which it was let will be entitled to remission of rental for the period of the lockdown.
Effect of the disaster regulations
The nationwide lockdown will be enacted in terms of the Disaster Management Act. The regulations published under this Act also impact on the rights and obligations of landlords and tenants.
Commercial tenants who are now forced to curtail their trading hours experience a direct impact on the beneficial use and enjoyment of the property. Such a tenant should be entitled to pay a reduced rental. 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.
This will be the situation before the lockdown, and will be the situation once the lockdown comes to an end.
Effect of the lockdown
The lockdown which was announced will have the effect that many obligations cannot be complied with, for example:
- A tenant will not be able to vacate property during the lockdown.
- Landlords will not be able to give occupation to tenants during the lockdown.
- Estate agents will also not be able to attend to incoming and outgoing inspections.
The scope of the lockdown is unclear at this stage, and the Presidency has yet to publish the extensive list of exceptions to the “stay at home” rule announced. Until this has been published, it must be assumed that everything which is not an essential service will have to stop. In light of the strict sanctions a conservative approach should be taken when deciding whether or not any activity is excepted from the lockdown.
COVID-19 is a vis major event. Its effect must be evaluated on a case by case basis. If the effect is direct and immediate, then a party will likely be entitled to some reprieve from its obligations. If not, that person will not be entitled to be released from complying with his obligations. The lockdown will drastically increase the number of situations directly affected by COVID-19.
The steps taken by the South African government will have a serious impact on the obligations between landlords and tenants, which both landlords and tenants must be mindful of.
About the author: Marlon Shevelew is the director of law firm Marlon Shevelew and Associates Inc. Shevelew is a well-known expert authority on residential property law in South Africa.