Payment of Rent and the Lockdown Regulations
We hereby present a straightforward Q&A that simplifies our view insofar as (non)payment of rent due to lockdown is concerned.
Q: Should I set-off part of my rental amount due to the lockdown regulations?
A: Are you a commercial or residential tenant? Do you have use and enjoyment of the property?
If a residential tenant, i.e. where your lease relates to the place where you are currently living, working and tolerating your blessed family, then likely NO, seeing as you have full use and enjoyment (!) of your property.
If you are a commercial tenant and yours is not an “essential service”, i.e. you cannot go to the office or commercial space, and you also do not have a significant quantity of stock / equipment stored in the premises, then the answer is likely YES, you should certainly consider it.
As we have seen, many of the large retailers have opted for large remissions of rental.
Q: I am a commercial tenant, insofar as I rent office space. What about my contract?
A: If your contract has a so-called force majeure (superior force) or vis major (same but in Latin), clause, then you should read it carefully, as it would apply.
There is general consensus among lawyers and academics that COVID-19 and more specifically, the lockdown regulations, fall within the legal definition of force majeure but the consequence are defined in your case by agreement and contractual freedom is very important in our law.
You will generally be held to the terms of the agreement.
Q: I have looked at the agreement. It only provides for a reduction/remission of rental, in the event of destruction of the leased premises and does not explicitly relate to force majeure/vis major.
A: In our experience, this is often the case. You therefore do not have a force majeur clause and the common law would apply (being law as it has developed over time). Also check to see if you have a “no right of set-off” clause, which is usually the case. This means that you do not have the right to unilaterally withhold rental amounts. Please keep an eye out for indemnities in favour of the lessor. Indemnities and the like, may ultimately not hold water, depending on the applicability of the Consumer Protection Act, but you should nevertheless negotiate a reduction with your lessor. If you lessor refuses to negotiate, which is the exception rather than the rule, then in our opinion the Court will likely not hold the “no right of set-off” clause against you in light of current events. Technically, you are obliged to make payment and claim the remission amount through Court action to avoid penalties and consequences, which could potentially include a cancellation of the agreement.
Q: So the “common law” applies. How does that work?
A: The common law holds that where, due to a superior force and without it being the fault of any party, it is objectively impossible for a party to perform its obligations (or in this case: illegal) or extremely prejudicial (not relevant), then you are entitled be released from your payment obligation, but only for so long as the superior force / impossibility persists, in this case being for so long as you cannot use your office space. Our Courts stated in this regard in 1903 that, “A remission is claimable where the enjoyment of the property for the purposes for which it was let is hindered or prevented by some vis maior happening without the default, actual or constructive, of either party”. The above was referred to with approval and indicated as a “well-established principle” of South African law by the Appellate Division as far back as 1954.
Q: So I just do not pay?
A: We suggest that you protect your relationship with your lessor and avoid the cost and stress of litigation, by negotiating in good faith.
If you have stock in the building, then you have partial use and enjoyment and complete non-payment is likely disproportionate. Furthermore, non-payment has an extreme knock-on effect on the economy and it is preferable to make some (agreed) performance on your contract. More disconcertingly, if you missed an important term in your contract, the lessor may validly use your non-payment to cancel the agreement. It remains to be seen how the Courts will approach non-performance in these circumstances, bearing in mind the constitutional inroads into interpretation of contracts and the changing nature of law.
May you all stay safe and healthy. Please do not hesitate to contact us for legal advice relating to your contracts and superior force. Disclaimer: The above does not constitute legal advice or a legal opinion and Oosthuizen & Company accepts no liability whatsoever for the consequences of reliance thereon.
Nothing above should be deemed to give rise to an attorney and client relationship. Please contact us for case-specific advice.