While we all struggle to cope with the impact of lockdown on both our businesses and personal lives, one major talking point is rental relief while we are all forced into remote work under the lockdown regulations. Much information is being released, including a recent press release from The Property Industry Group about a rental relief package, and subsequent notices issued by some of South Africa’s big retailers demanding higher relief percentages than were offered in that package. The legal responsibility surrounding rental relief discussions between tenants and landlords remains obscured from public knowledge, and debate rages amongst attorneys and advocates around the application of the law too.
Retail Tenant Assistance Relief Package & Big Retailers’ Replies
In a statement released on the 7th of April, The Property Industry Group announced assistance and financial relief for SMME retail tenants during the lockdown period. To qualify for benefits from the relief package, no staff retrenchments may take place during the lockdown period. The package also stipulates that tenants with accounts in good standing as of 29 February 2020 be granted assurance that they will not face eviction over the following two month period. The package encourages landlords to offer assistance to tenants who are not able to operate under the lockdown protocol, and to offer rental discounts to be recovered in the months following the lifting of lockdown regulations. Although the big retailer tenants were not due to benefit as much as SMME retail tenants under this package, some of South Africa’s big retailers have issued notices stating that they will only pay 20% of the normal rent due as well as all utilities they consume during the lockdown, notwithstanding the South African Property Owners Association’s argument that a unilateral refusal to pay rent is unlawful.
Does the Tenant have Beneficial Occupation?
From a legal standpoint, there is a debate about whether a tenant still has beneficial occupation of the premises during lockdown and so must still pay (or part pay) rent. For example, the tenant continues to enjoy storage of its equipment and servers in the premises, so must it pay for these storage costs? Or because the lease agreement is not a storage agreement and there was no agreement as to the costs for such storage, can the landlord not charge storage costs? Many factors need to be considered, not least of all the content of the lease agreement, the common law application of supervening impossibility, and considerations as to the type of business operated by the tenant and lockdown’s effect on it. We therefore encourage landlords and tenants alike to seek legal advice on a case by case basis.
Caution When Approaching Landlords
We want to highlight that a level of caution should be maintained when a tenant approaches a landlord regarding rental relief. Asking for rental relief or reductions could be classed as committing an act of insolvency (admitting inability to pay debts in the ordinary course of business) in terms of the Insolvency Act. This is why it’s important to seek legal counsel to ensure that the wording of your request doesn’t have unexpected repercussions in the future.
As corporate and commercial law specialists, we are able to provide advice on what courses of action are available to you during lockdown as a commercial landlord or tenant, as well as how to enter or entertain discussions around special allowances or reductions without tying yourself to potentially harmful legal consequences further down the road.
Mediation
Because much of the certainty around these arguments will only arise from court decisions in many months to come, we strongly recommend, where suitable to your matter, to mediate with the other party for a mutually acceptable outcome. If you wish to mediate an outcome, we still suggest legal advice is sought prior to all correspondence being sent, or steps being taken, as mentioned above, so you do not suffer unintended consequences or a weaker position downtime if mediation fails.
We offer mediation services for all conflict resolution matters, which you can learn more about here.