THE INITIAL AND CONTINUED EFFECT OF COVID -19 ON LEASED PROPERTIES – A LESSEE PERSPECTIVE

By Lezanne Taylor – Senior attorney at Johanette Rheeder Inc.

INTRODUCTION

 Collaboratively Landlord and Tenant Law in recent articles, and in light of the COVID -19 pandemic (“COVID-19”) have been summarised to discussion surrounding contractual and common law principles encompassing Force Majeure and the common law principle of Supervening Impossibility of Performance. The mere layman however stands in awe of these concepts, unable to decipher legal code. The purpose of this article is to endeavour a more refined explanation to the already existing concepts available, and further provide a measure of guidance to parties desperately seeking same.

 CONTRACTUAL LAW AS A STARTING POINT

The most important concept to understand, already at the onset of this discussion, is the basis of a claim. Sometimes the mentioned basis lies in contract, and sometime in delict. In the example under discussion, the legal basis is vested in contract. A contract being based on various requirements, includes as an important aspect, the party’s rights, and obligations. Applied to landlord and tenant law, the explanation to follow, being simplified to the core, would involve the landlord making available the rental property under the requirements set out and agreed upon, in the contract. Whereas the tenant may use the rental property in line with requirements set out and agreed upon in the mentioned contract, and in return pay the agreed upon sum.

Once it is clearly understood that parties are bound by obligations in respect of a contract, and has certain rights, one may then continue to explain aspects such as relevant clause, which clauses, for the purpose of this discussion includes Force Majeure, or Vis Major:

 CONTRACTUAL SOLUTION - FORCE MAJEURE OR VIS MAJOR

 Force Majeure or Vis Major are Latin concepts which in law gives the contracting parties either a right or an obligation, depending on the angle from which the dispute is argued. Force majeure is generally defined as “an act of God or man that is unforeseen and unforeseeable and out of the reasonable control of one or both of the parties to a contract, and which makes it objectively impossible for one or both of the parties to perform their obligations under the contract”.

 These concepts may be contained in a contract, and is generally regarded as common clauses that essentially frees both parties form liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, epidemic or an event described by the legal term act of God, prevents parties from fulfilling their obligations under contract. It must be borne in mind that in practice, the stated clause, or clauses may only suspend a party’s non-performance for the duration of the force majeure.

 Whether COVID 19 constitutes Force Majeure is still to be fully ventilated. In an article by Georg Kahle and Yasmine Wilson published in Financial Institutions Legal Snapshot (dated March 23. 2020 and entitled “COVID-19 and force majeure” the authors write (mostly in the context of South African law): “Will the coronavirus (COVID-19) constitute a force majeure event under South African Law”? The answer to that is it depends. The virus has been declared as a pandemic by the World Health Organisation and is causing economic chaos on an international scale never seen before, due to the closure of businesses and consequent disruption of global supply chains. On a local level it is disrupting retailers, restaurants, service providers, such as taxi services and local businesses. These disruptions may make it difficult for people and businesses to meet their obligations under contracts. Businesses should be careful to not simply rely on force majeure to escape their contractual obligations, as doing so could result in specific performance (to force a party to comply with the obligations in the contract) or damages (R -value lost by one of the contracting parties under the concept of non-performance).

 The principle objective of a force majeure clause in a contract is to relax obligations under a contract and further to set limitations to liabilities imposed on parties. This clause provides protection to parties from being liable for damages for the breach of an agreement if it can be classified as a force majeure. If it can, then it will stay the contractual obligations the parties have against each other for a period. Such clauses in contracts often include time periods during which the contract will be suspended, should a force majeure event occur. Should the time period however be exceeded, it then usually gives the party the right to elect to terminate the agreement unilaterally by way of notice to the party should the force majeure continue for a longer period of time, then stipulated in the contract.

 COMMON LAW SOLUTION - SUPERVENING IMPOSSIBILITY OF PERFORMANCE

 If an agreement does not include a force majeure, or vis major clause, the parties to the contract may then rely on the common law principle of supervening impossibility of performance, which common law principle will suspend the obligation of the parties under the contract, provided that performance under the contract has become objectively impossible for them to perform as a result of an unforeseeable and unavoidable event. Some requirements are set to rely on this principle. The requirements include but are not limited to (i) Impossibility must have occurred after the contract has already been entered into between the parties; (ii) The event must be unavoidable and performance under the contract impossible. It must not be that performance is hard; difficult or burdensome; (iii) if performance is absolutely or objectively impossible, the contractual obligations will be extinguished. If the event causing the impossibility was foreseen or foreseeable, the parties cannot rely on this principle.

 Important to note that a party relying on COVID -19 to claim impossibility of performance must prove that the result flowing from the existence of the pandemic, renders the performance of their obligations impossible.

The general effect of force majeure is that a party is excused from his/her obligation under the contract. This in effect results in a party failing to perform, to not be held liable in relation to the concept know as “breach of agreement/contract”, by virtue whereof the affected party, will not be able to claim damages. It is however important for parties to take pro active steps in ensuring that they fulfil contractual obligations and that the party they are contracting with are doing the same in order to prevent the need for invoking any such clause, as discussed above.

 COVID 19 SOLUTIONS – RENTAL DEPOSIT IN LIEU OF RENT

 In the midst of the COVID -19 pandemic the TPN Credit Bureau and SSLR Inc. released a Rental Recovery Pack. The Pack was promoted as a tool to govern the relationship between tenant and landlord. Legally however a contentious point for consideration were unleashed, in whether it was lawful for either a tenant to offer a deposit held with a landlord in lieu of rental the tenant is unable to pay, or whether the landlord may retain a deposit in lieu of rental owed.  

 Section 5 of the Rental Housing Act, Act Nr. 50 of 1999 (“THE ACT”), which, for our purposes, provides that a landlord may require a tenant to pay a deposit begs interpretation in a wider context. It begs consideration in respect what the landlord is obliged to do with a tenant deposit and when a tenant is entitled to receive his/her deposit back from the landlord. In these uncertain times, however landlords and tenant should be encouraged to engage each other and amend the lease so that the deposit will be ‘paid’ at the election of the tenant in order to cover the rent and avoid a breach.

CONCLUSION

 Uncertain times calls for certain solutions, it seems that various solutions flow either from the contract itself, or from the common law principle of supervening impossibility of performance. To re-iterate however, and although this article was written with the purpose of simplifying concepts in an endeavour to assist the layman, the reader should understand that there are requirements in relation to the discussed principles that still has to be met. The reader is therefore encouraged to engage with the landlord on possible impossibility of performance, to read and understand the contract they have entered into, and in relation to the law, approach a lawyer for proper and sound advice.

 Lezanne Taylor

31-5-2020