On the 6th day of March 2020, the World Health Organisation (“WHO”) characterised COVID-19 as a pandemic according to an assessment by WHO. Since the announcement by President Ramaphosa, declaring a lockdown from the 26th day of March 2020 at 24:00 to the 16th day of April 2020 and South Africa has been faced with the fear of economic turmoil and recession regarding their amongst others lease agreements.
The landlord and tenant relationship is nothing new to our society and has become a crucial part of the day to day transactions, however, in this unprecedented situation we are faced with today and a tenant will most certainly approach the landlord for assistance due to the economic impact.
It is important to note that you, as a tenant, cannot unilaterally decide not to pay your monthly rental due to this lockdown. Such action will be a breach of contract and the landlord will be in a position to claim specific performance, alternatively damages from you, unless you have lawful grounds for non-performance.
An important question to ask is whether the COVID-19 pandemic falls within the ambit of vis major, alternatively a supervening impossibility in order to suspend your obligation to pay rental under the lease agreement.
In today's modern life, the majority of agreements contain a vis major clause (also known as force majeure or Act of God). The main purpose of a vis major clause, is to regulate an effort to protect against the potential risk of an occurrence, through no fault or act of either of the parties, which may render the performance of contractual obligations impossible.
In order to rely on a vis major as a ground for non-performance, a contracting party must determine whether the agreement contains such provision, and if so, must be able to prove that the event or occurrence preventing performance:
- Must not be within such party’s reasonable control;
- Could not have been avoided or mitigated in any reasonable manner; and
- Was not due to a result of such a party’s own doing or fault or willful conduct or default.
The starting point will always be how the lease agreement is worded and interpreted. One who wishes to rely on vis major must give proper notice to the other contractual party and must ensure that the current event, such as the COVID-19, is covered by the events listed in such clause.
An example of such exclusions of liability will be worded as follows: “The lessor shall not be responsible for any damage or inconvenience which the lessee may suffer owing to any interruption from time to time in the supply of electricity or other amenities, nor shall the lessee be entitled to cancel this lease or to an abatement or remission of rent in respect of any such occurrence whether vis major or any other cause whatsoever.”
Unfortunately, in most written lease agreements the landlord will exclude liability in their lease agreements and will ensure that even if this event occur, the tenant will remain liable to perform in terms of the lease agreement.
What if your lease agreement does not contain a vis major provision, is it the end of the road for you as a tenant? In such instance, parties can rely on the principle of supervening impossibility.
A supervening impossibility, in terms of the South African common law, is where the performance in terms of a contract becomes impossible through no fault of either of the parties.
The standard is high to prove that where performance can still be made, albeit at a higher cost or with economic hardship, the courts are unlikely to consider this to be a supervening impossibility. Case law has indicated that performance needs to be more than just more difficult or more onerous, it must be objectively impossible. On the other hand, the courts have also been clear that it is not a complete factual impossibility that is required but rather that performance has become so difficult and onerous that it can, under no circumstances, be reasonably expected that a party must comply. It must be objectively impossible, not subjectively impossible.
It must be noted that if a lease agreement contains an exclusion clause providing that a tenant is contractually obliged to continue to make the required payment in terms of such lease agreement, notwithstanding the occurance of any vis major, the tenant is obliged to make payment, alternatively, the tenant’s actions will amount to breach of contract.
In light of the above, each case will be treated on its own merits to determine whether or not the tenant or landlord will have any legal recourse. We are of the view that the parties should at least attempt to mitigate each other’s damages by entering into a “payment holiday” arrangement to limit defaults on their respective lease agreements and to avoid unnecessary litigation costs. Unfortunately, there exists no automatic right to review the terms of the agreement in our common law or legal principles.
Under a “payment holiday” one must take note that your contractual obligation will not cease but rather payment will be deferred over a couple of months. However, before taking a “payment holiday”, you must first consider how this will affect your budget in the subsequent months.
Therefore, to enter into an amicable mediation consultation will alleviate the pressure this lockdown has dawned upon the tenant and landlord relationship. There is no general rule, and each matter must be adjudicated on its own merits. If you are faced with a similar situation, Cavanagh and Richards Attorneys are equipped to assist to settle or mediate any disputes which may arise.
Written by Tobie Schmahl
3 April 2020
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 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)