Lease agreements during the corona lockdown have many grey areas

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)[1] 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: nkopanemokwena@mokwenaattorneys.co.za

Editor’s note: This article was published originally in Sunday World 13 April 2020 and is shared here with permission from the author.

Showing 11 comments
  • LESLIE HOWARD TAYLOR
    Reply

    Thank you for the info and guidelines to work in.

    • Marie
      Reply

      “Parties may agree that tenants pay only towards rates and taxes to keep services running” … what about bond payments which are often even higher than rental income? Surely “payment holidays” should rather be suggested and not a reduction in rent or a moratorium … in line with what is being done by banks, insurance etc etc.

  • MR ANDRE VAN DEN ORDEL
    Reply

    Not really helpful. For example- tenants can pay the levy etc BUT what about the rest of the rental for the landlord.
    The tenant through non payment is still actually in breach as there are no other clauses in the leases that relates to natural disasters/covid?

  • Willem
    Reply

    Discussions and comments does not touch the challenge save to mention that it is a problem and some tenants cannot pay. As estate agents, we will have some damage control after we can start earning commission again.
    My tenant cannot pay and if the mines reopen he will probably not get paid for a while. What if my financial situation is more than what I can afford when the tenant cannot pay at all?
    How do I carry his electricity and water and all taxes and levy’s while I cannot pay my own anymore? Eviction is not an option while my children and grandchildren stays in my garage and municipalities will start to penalize the owner for not paying his debts, never mind the home loan.
    This is not an option for me and some alternative will have be found legally where everybody understands that the tenant cannot pay but the owner is taken to task while he also cannot pay and cannot evict.

  • Shannel Subbiah
    Reply

    Good day, now that we have entered level 4, please advise if tenants are allowed to new homes where the lease has ended

  • Eunice
    Reply

    Moratoriums = payment holiday. Some of our Landlords have allowed a temporary reduction in rent and Addendums have been drawn up for the repayment of the shortfall after lockdown. These are out of the ordinary circumstances and unfortunately it has a ripple effect from the bottom to the top. I am an agent and we together with everyone else i.e. tenants and landlords will feel it financially. Landlords need also to arrange for payment holidays on their bond repayments. Hang in there we will get through this pandemic. TPN has good sound advice for all and also a package that can assist with the handling of situations arising as a direct result of the COVID-19. Take care and be safe……

  • Cynthia Uren
    Reply

    What happens if my rental agreement came to an end on 31 March 2020? I moved out on 24 March 2020 and returned the keys. Now the estate agent is refusing to return my deposit until level 2? I queried it with them on 25 March 2920 and got a email reply that they will only return the deposit 14 to 21 days later. This never happened. Is this even legal? What is my recourse?

  • Louis
    Reply

    What about when an agent is in breach of contract? What can be done about that.
    For example certain installations and repairs were to be done prior to occupation by tenant. On occupation tenant finds work and installations have not been done.
    Tenant asks for reduced rental as work, repairs and constant contractors on premises are causing lots of noise, mess and leaves tenants with no privacy. Also tenant operates a business from home that is severely affected by the whole situation. Nothing is completed for the next 3 months now it’s lockdown and nothing can be done during lockdown.
    Now during lockdown tenant has no income due to above factors and lockdown regulations.
    Agent now wants to evict tenant within 14 days? Is this lawful?

  • Perplexed
    Reply

    Tx to author of the article, and comments offered; difficult situation for all. Scenario: our friend, an elderly person (78) with no pension has unbonded small partly furnished R550K flat as sole asset and relies on its rental plus odd jobs to survive (nett income from flat 3.5K). Outgoing tenants indicated on 2 months notice period (end of March) as per lease that they would be leaving at end May. Subsequently offered Covid reduction and asked what they could pay – they asked for R1000 reduction and this was agreed. Tenant lost job as car salesman and insists on leaving end of May to live with parents. Argues that he must have his full month’s deposit back within the stipulated 14 day period. Owner cannot afford litigation. Govt does not reply to owner attempt for allowance, so how can he force tenant to stay?

  • Sine
    Reply

    Hi I would like to know the validity of a lease agreement signed during lockdown without property being viewed only to find that the property has many defects.

  • Pamela
    Reply

    My landlord is insisting I pay full rent over the covid 3mnth lockdown. We had no income. Only in stage 4 did we get R200 a day. But she still insists on full rent. Can we move out without notice. As we will be living in a room and not paying rent. We only have enough funds for food and petrol

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