The Coronavirus: landlord and tenant relationships and force majeure
Whether you are a tenant or a landlord, we recommend that you consult with your legal representative to determine whether you are affected by the below:
Given the recent regulations published under the Disaster Management Act, 2002 and the State of Emergency Act, 1997, certain restrictions have been imposed by the South African Government to combat the Coronavirus threat. These restrictions prohibit certain activities and compel limiting factors on certain businesses, such as educational institutions and businesses selling liquor. In addition, there are a number of protocols that have been issued by various agencies.
This places certain pressures on businesses, particularly tenants who, notwithstanding their business circumstances in the current economic climate, now have to comply with emergency regulations. As a consequence, landlords will face the possibility of defaulting tenants.
On 18 March 2020, regulations were published under the Disaster Management Act which:
- prevent and prohibit gatherings, meaning any assembly, concourse or procession of more than 100 people, wholly or partially, in open air or in a building or a premises. The term “assembly” would appear to be a deliberate act of assembling people and not be applicable to, for example, a shopping centre;
- prohibits the assembly of more than 50 people at the premises where liquor is sold and consumed. This would include nightclubs, restaurants and hotels.
- all schools and partial care facilities are closed from 18 March 2020 until after the easter weekend.
- all on-consumption premises selling liquor, including taverns, restaurants and nightclubs, must be closed with immediate effect or must accommodate no more than 50 people at any time. This may, for example, also include hotels;
- premises selling liquor and which provide accommodation (such as hotels), are obliged to implement measures to stop the spread of the Coronavirus. The regulation goes on to say that “Provided that adequate space is available and that all directions in respect of hygienic conditions and limitation of exposure to persons within COVID-19 are adhered to.”;
- all on-consumption premises selling liquor, must be closed between 18h00 and 09h00 the next morning on weekdays and on Saturdays, and from 13h00 on Sundays and on public holidays;
- all off-consumption premises selling liquor must be closed between 18h00 and 09h00 the next morning and from 13h00 on Sundays and on public holidays;
- the Minister of Higher Education may issue directions to address the prevent and combat of the spread of the Coronavirus in all schools and institutions of higher learning; and
- any person who convenes a gathering, permits more than 50 people at a premises where liquor is sold and consumed, or hinders, interferes with or obstructs an enforcement officer in the exercise of his or her powers, is guilty of an offence and, on conviction, is liable to a fine or imprisonment, for a period of not exceeding six months or to both, a fine and imprisonment.
The emergency regulations are a force majeure. Leases may or may not have clauses specifically dealing with force majeure. If a lease is silent, one must have regard to the common law.
In this regard, force majeure and supervening the impossibility of performance, is relevant to a landlord and tenant relationship. The principle of force majeure is that if there is a situation, as would be the case with most leases, where the continuous full beneficial use of the property was a supposition upon which the parties to the lease contracted and, therefore, upon the failure of the supposition, the tenant would be entitled to suspend performance under the lease agreement and be entitled to claim a remission of rent. So, for example, if a tenant operates a bar, or a restaurant or a hotel, or any other entity, such as a school or partial care facility, that must be closed, due to government regulation, while the tenant still has occupation of the premises, he or she cannot operate his business, and may be entitled to claim a remission of rent.
The tenant’s entitlement to a remission of rent must be a direct and immediate result of the force majeure. For example, a tenant cannot claim a remission of rental if he closes simply because trade has dropped off due to economic circumstances. But, if the activity is prohibited by law, he or she would be entitled to a remission of rent.