Lease and other commercial agreements

Article by P Assenmacher (Assenmacher Brandt Attorneys)

1. On 15 March 2020 President Ramaphosa declared a national state of disaster in terms of the Disaster Management Act, No. 57 of 2002 (“DMA”), and subsequent thereto published a number of regulations in terms of the DMA and the State of Emergency Act, No. 64 of 1997.
2. The published regulations place a number of restrictions on certain businesses. The restrictions were extended by the national lockdown for 21 days which was announced by President Ramaphosa on 23 March 2020. Only certain categories of personnel and businesses are exempted from the national lockdown.
3. The result of the aforegoing is that not only do the restrictions imposed by the emergency regulations severely impact the income generation of affected businesses, but such businesses are still faced with compliance with contractual obligations such as lease agreements.
4. As eluded to in articles we have posted on our website previously, the emergency regulations consequent to COVID-19 constitute force majeure and supervening impossibility of performance.
5. Lease agreements and many other commercial agreements may or may not contain clauses dealing with force majeure. If a lease agreement or such other commercial agreements do not contain a force majeure clause, the common law applies.
6. In the context of lease agreements, force majeure and supervening impossibility of performance have bearing on the landlord and tenant relationship. Simply put, the principle of force majeure in the context of a lease agreement is that if a situation arises such as the promulgation of the emergency regulations having the result that the continuous beneficial use and occupation of the leased premises are not possible, the tenant will be entitled to suspend performance under the lease agreement and to claim a remission of rent. This entitlement is premised on the supposition upon which the landlord and tenant entered into the lease agreement, that being that the tenant is entitled to the continuous full use and beneficial occupation of the leased property for the purpose of operating his/her/its business. Thus, if this is no longer possible as a result of the emergency regulations, as aforesaid, the tenant may be entitled to claim a remission of rent.
7. It is important to note that the tenant’s entitlement to a remission of rent must be as a direct and immediate consequence of force majeure. A tenant will not be entitled to claim a remission of rent if it shuts down due to a downturn in business and/or poor economic circumstances. By virtue of the imposition of the emergency regulations, the activity is effectively prohibited by law.
8. Our offices are also compelled to be closed as from midnight on 26 March 2020, but we are fortunate that we are able to operate from home and to provide our normal full spectrum of legal services. Accordingly, we are available to provide clients with assistance and advice on lease and other commercial agreements in the context of what is referred to hereinabove. In order to do so, we will require a copy of the relevant agreement at issue.

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