Lease agreements during the corona lockdown have many grey areas
MAIN IMAGE: Nkopane Mokwena, managing director MN INCORPORATED.
By Nkopane Mokwena
On the 23rd March 2020 the president of South Africa declared a National 21 day lockdown as a measure to contain the rapid spread of Covid-19.
A number of questions arose for landlords and tenants regarding continuing and ending lease agreements. In this article, we address the grey areas of the law by considering the unanswered questions which are causing tensions between tenants and landlords whether commercial or residential.
According to the Regulations issued in terms of section 27(2) of the Disaster Management Act, 2002 (the regulations) gatherings are prohibited, this has the effect that tenants who are employees and those who are employers cannot go to work or run businesses during the lock-down period unless they provide services falling within the meaning of essential services as described in the regulations.
Tenants whose lease contracts came to an end on the 31st March 2020 with no intention to renew?
Most lease contracts contain an “options” clause which allows tenants an option to renew their existing lease contracts after their lease agreement has come to an end. Ordinarily, a tenant who wishes to renew has to furnish a notice of renewal to the landlord 30 days or in certain instances 60 days prior to the final date of the contract.
In the event no such notice is received by the landlord within such prescribed time, the accepted position is commonly that the tenant does not wish to renew the contract.
Tenants who did not wish to renew their contracts ending on the 31st March 2020 (which was during the lockdown period), could they be forced to move out of the premises of the landlord, considering that no mobility is allowed in terms of the regulations except for essential services?
In the conspectus, it cannot be correctly said that, the tenants are unlawfully holding over. The question that stands to be considered is whether or not the landlord is entitled to rental in respect of the tenants whose lease contracts have ended and are not renewed while they remain in occupation.
No court case has been reported, however it is advised that:
- Tenants must make arrangements with the landlords/rental agents to make payment for the duration which they will be occupying the landlord’s premises beyond the duration of their lease contracts;
- In the event tenants are unable to make payment towards the rental on arrangement due to lack of income for reasons related to Covid-19, tenants must communicate same with the landlord and alternative measures such as reduction in rent or payment “holiday” or a moratorium may be reached; and
- In the event tenants have lost income due to the Covid-19 pandemic, landlords whose properties are mortgaged with banks, are advised to take steps to enquire with their banks if there is payment relief measures in place for the period of the pandemic.
Tenants who are unable to pay rent during lockdown period:
Does a tenant’s inability to pay towards their rental as a result of loss of income during the lockdown period constitute breach of contract? Ordinarily, failure to pay full rental on time in most instances constitutes breach of lease entitling landlords to cancellation of the lease and claim for arrears rentals and a possible damages claim. However, it is a national disaster we are faced with and the conclusion cannot be an ordinary one.
In the circumstances landlords cannot approach the court to evict a tenant who is defaulting on rental payment because the courts are not operating ordinarily and only matters considered to be urgent including the removal of children, domestic violence matters or bails will be heard. Eviction application involve a cumbersome process which, even if allowed (which is not), may last for a period beyond the lockdown duration and in the circumstances are not considered as urgent.
The force majeure clause is ordinarily not included in lease contracts, but even where it is included, parties may need to define if Covid-19 falls within its meaning and if so, how. The long and short of it is that parties may not be able to rely on force majeure clauses unless expressly included and appropriately defined in the lease contract. The onus is on the party alleging force majeure to prove that Covid-19 falls within the wording of the agreement.
There is no blanket solution to the current crisis for both the landlords and tenants, for this reason, the following is suggested:
- Parties to lease agreements are advised to communicate and agree that failure to pay on time, in full or at all will not constitute breach of the lease;
- Parties must negotiate that tenants whose contracts have ended be allowed to continue occupying the premises on reasonable and suitable terms for both parties;
- Parties are encouraged to propose alternative measures such as reduction in rent or a moratorium;
- Parties may agree that tenants pay only towards rates and taxes to keep services running;
- In commercial leases, parties are advised to check whether their insurance policies make provisions for business interruptions and act accordingly.
In the consultative discussions and negotiations, co-operation, compassion and reasonableness are essential for landlords and tenants in overcoming the current calamity caused by Covid -19.
About the author: Nkopane Mokwena is the managing director of MN INCORPORATED with his focus areas of practice being corporate, commercial and civil litigation. Email: firstname.lastname@example.org
Editor’s note: This article was published originally in Sunday World 13 April 2020 and is shared here with permission from the author.