What is the effect of clauses 11B(1)(b), (c) and (d) of the lockdown regulations which read:
“(b) All businesses and other entities shall cease operations during the lockdown, save for any business or entity involved in the manufacturing, supply, or provision of an essential good or service.
(c) Retail shops and shopping malls must be closed, except where essential goods are sold and on condition that the person in control of the said store must put in place controls to ensure that customers keep a distance of at least one square meter from each other, and that all directions in respect of hygienic conditions and the exposure of persons to COVID-19 are adhered to.
(c) Retail stores selling essential goods is prohibited from selling any other goods.
(d) The Cabinet member designated under section 3 of the Act may amend the list contemplated in paragraph (c) as required from time to time.”
Businesses who are not providing essential services are likely to be directly and severely affected by the lockdown. For those businesses occupying leased premises, while they may retain the use of the leased premises for certain functions, for example storage of their goods and equipment, they will be deprived of the full use and enjoyment of the premises because they cannot continue to conduct trade or conduct business at the premises for the period of the shutdown.
In the absence of any legislation and/or regulation, the rights and obligations of the landlord and tenant will be determined based on the interpretation of the terms of the lease agreement which they have entered into.
Under our common law, the lockdown order may well legally constitute an unforeseeable vis major / superior force / force majeure event over which the parties have no control and which disturbs the tenant’s use and enjoyment over the leased property. It is likely that most commercial leases will contain terms which define the rights and obligations of the parties following a force majeure event, including provisions relating to the tenant’s obligation to pay rental if deprived of full beneficial occupation.
If the lease does not cover this situation, certain residual terms apply by virtue of the common law. In the absence of a contrary term in the lease, if the tenant is disturbed in the use and enjoyment of the property by a superior force (force majeure) over which the parties have no control (like the Presidential decrees), the tenant may be entitled to a remission of rental.
However, the terms of the lease agreement are paramount and must be considered on a case-by-case basis. It is advised that all landlords and tenants obtain legal advice to determine what their rights and obligations are in respect of each lease agreement to which they are a party before enforcing their rights.
Regardless of their legal rights and obligations, landlords may wish to consider granting their tenants rent remissions and/or payment holidays based on commercial or altruistic considerations or the fact that courts may not enforce all obligations. Should this approach be adopted, from a legal perspective and to avoid future litigation, it is important that landlords and tenants reach clear agreement as to whether such arrangements are intended to be a settlement of any potential claim that the tenant may wish to pursue for a remission of rental.
Some confusion has been caused by the block exemption for the retail property sector issued by the Minister for Trade, Industry and Competition on 24 March 2020 which exempts designated retail tenants and certain property landlords from the application of certain provisions of the Competition Act 1998. This exemption permits landlords to co-ordinate their response to the COVID-19 pandemic, including the provision of payment holidays and/or rental discounts for tenants. It does not oblige landlords to provide payment holidays and/or rental discounts for tenants affected by the shutdown.
In the weeks and months ahead, the response of the South African government can be expected to evolve in order to meet the public health and economic challenge posed. Further legislation and/or regulation may be introduced. It is suggested that property owners keep abreast of all developments in this regard.