The impact of the Covid-19 pandemic on landlords and tenants

The majority of tenants, both residential and commercial, have been impacted by the outbreak of the COVID-19 pandemic.

The courts are expected to be flooded with a wave of litigation given the litany of disputes that have erupted between landlords and tenants during the lockdown period.  Generally the failure to pay the full rental and additional costs provided for in a lease agreement constitutes a breach of the agreement entitling the landlord to exercise its rights in terms of the lease agreement which may include: (a) the cancellation of the lease; (b) claiming for arrear rentals; and (c) suing the defaulting party for damages.

Parties are encouraged to think OUTSIDE the box during these strange times and perhaps consider implementing interim measures especially during the lockdown period, e.g. concluding addenda to existing lease agreements in order to regulate the specific circumstances applicable.  Some of these terms that can be included in an addendum include:

1. A payment holiday / reduction in rental for a specific period;
2. A payment holiday for a specific period in terms of which the rental for such a period would become payable in a payment similar to a balloon payment at the end of the initial term of the agreement; or
3. Temporarily convert the rental payable to a turnover only basis in terms of which the rental payable will amount to a percentage of the turnover of the lessee (applicable to commercial leases).

Tenants are reminded that should he/she have been in default of the terms of a lease agreement prior to the lockdown period, such a default will remain unaffected. In the event of the parties failing to reach an amicable solution with regards to the possible default that may have occurred during the lockdown or the tenant had already been in default prior to the lockdown regulations being implemented, landlords are likely to consider the eviction of a non-paying tenant, specifically taking into consideration the financial impact that such a default will have on a landlord.

South African Law distinction:

1. Eviction of Residential Tenants

• Governed by the Prevention of Illegal Eviction and Unlawful Occupation of Land Act 19 of 1998 (“the PIE Act”).
• The eviction procedure is initiated when the landlord cancels the lease agreement by giving written notice to the tenant and affording the tenant reasonable time to vacate the property (usually regulated by the lease agreement).
• In the event that there is no formal written lease agreement concluded between arties, the landlord still has an obligation to provide a tenant with a written notice to terminate the occupation of the property. Should the tenant fail to rectify its breach and the agreement between the parties has been cancelled, the landlord would be entitled to proceed with an eviction application.

Eviction process: The Sheriff will be instructed to serve said application upon the tenant personally, as well as on the Municipality situated within the areas in which the property is located at least 14 (fourteen) business days before the hearing of the application.

2. Eviction of Commercial Tenants

Commercial tenants generally do not enjoy the same level of protection as afforded to residential tenants by the “PIE Act”.  The relationship between a landlord and tenant with regard to a commercial lease is generally regulated by the: (a) agreement concluded between the parties; as well as (b) the common law.

In certain instances commercial tenants may be provided with certain additional rights in terms of the Consumer Protection Act, 68 of 2008 (hereinafter referred to as “the CPA”).

In the event that the CPA is applicable and the lease agreement between the parties amounts to a fixed term agreement as defined by the CPA, Section 14 of the CPA applies and the landlord must give 20 (twenty) business days’ written notice to the tenant of the breach of the lease agreement, where after the landlord will be entitled to cancel the lease should the tenant fail to rectify the breach.

There are exceptions to the application of Section 14 of the CPA which include:

1. 1. The tenant is an organ of State;
   2. Both the landlord and tenants are juristic persons;
   3. The lease can be classified as a once-off lease; and
   4. The tenant is a juristic person which an income or turnover above R2,000,000.00 (Two Million Rand) per year.

In determining whether a lease is commercial or residential in nature the actual use of the property will be the determining factor.

Commercial evictions may be launched out of the High Court or the Magistrate’s Court and are usually brought by way of action or application proceedings in the High Court and by way of action proceedings in the Magistrate’s Court.  Should a landlord inform a tenant of a commercial property of a possible eviction application, and the landlord becomes aware of the fact that the tenant is in the process of vacating the property in an attempt to evade further payment towards the landlord, an urgent application may be brought in order to attach and secure the movable goods of the tenant that are present on the property (the landlord will hold no security over goods that have already been removed from the property).

The contents of this article merely serves as a broad indication of the possible processes available to parties, but for a comprehensive analysis of the applicable legislation and procedures, you are welcome to contact our offices.

Pieter Walters 

Cell:          082 858 3817

E-mail:     pieter@nvsinc.co.za

Nel de Jager

Cell:       082 685 6212

E-mail:  dejager@nvsinc.co.za

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)