Landlords and tenants are currently facing the uncertainty of what the continued “Lockdown” means for the tenancy relationship. There has been much talk in the media about the doctrine of supervening impossibility and the extent to which tenants do not need to pay rent due to the lockdown imposed by the South African Government as a result of COVID19.
Our case law confirms that the naturalia of a lease agreement entails reciprocal obligations between parties. The most important one is for the landlord to provide vacant and undisturbed use and enjoyment of the leased premises for the duration of the lease. In the BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 1 SA 391 (A) case, the Appellate Division dictated that the principle of reciprocity recognizes that in many contracts the common intention of the parties, expressed or unexpressed, is that there should be an exchange of performances. The defendant who is sued on the contract by a plaintiff who has not yet performed or tendered to perform, is awarded with the defence of exceptio non adempleti contractus, meaning a defence of the unfulfilled contract or right to withhold performance of a reciprocal obligation if the other party did not make or tender proper performance, or even anticipatory non- performance.
During this lockdown period the landlord continues to provide the brick and mortar of the leased premises as well as the front door keys. Has the landlord not completed its obligation regarding the lease? In Kok v Osborne and Another [1993] 2 All SA 549 (SE), before Jones J, the Court found that: “Usually, vis major or some other supervening physical or legal act occurs which makes the contract impossible of performance and brings it to an end, such as destruction of the subject-matter of a sale, or the outbreak of war, or an Act of Parliament prohibiting conduct which was formerly permissible. But this is not always the case. Literal impossibility is not a pre-requisite. The law recognizes that the realities of the world of business demand that provision be made for a situation where unforeseen contingencies prevent the attainment of the commercial purpose which the parties had in mind when they contracted. That, too, can amount to legal impossibility.”
A tenant might argue that as a result of the current COVID-19 Lockdown, the parties are disturbed/ frustrated in attaining their commercial purpose, in that of a commercial premises being rented for the use of commercial trade.
But, unlike in the BK Tooling matter, the lockdown interference with the use of the leased premises is not the fault of the landlord. Included in our common law is the principle of ‘supervening impossibility, or legality of performance’, which dictates that if the performance of a contract becomes impossible/ illegal through no fault of the debtor, the obligation to perform under the contract is suspended. The court in the Thompson v Scholtz 1999 (1) SA 232 (SCA) case confirmed at para 247A-D, that even where there is no fault and partial use of the leased property, there is relief for the tenant. The court said: ‘Where a lessee is deprived of or disturbed in the use or enjoyment of leased property to which he is entitled in terms of the lease, either in whole or in part, he can in appropriate circumstances be relieved of the obligation to pay rental, either in whole or in part; the Court may abate the rental due by him pro rata to his own reduced enjoyment of the merx. This is true not only where the interference with the lessee's enjoyment of the leased property is the result of vis major or casus fortuitus but also where it is due to the lessor's breach of contract.’
From the above case law, it follows that whether the use of the leased premises is wholly or partially disturbed on the one hand, and whether at the fault or no fault of the landlord, the reciprocal obligation to pay rent, will also be extinguished partially or wholly. In the matter of Bob's Shoe Centre v Heneways Freight Services Proprietary Ltd. (752/92) [1994] ZASCA 158 the court held that when one considers the effect of supervening impossibility and the general rule that further obligations and performance is discharged or extinguished, it must be borne in mind that where performance within a contract is divisible, as the contract makes provision for distinct performances, the exceptio non adimpleti contractus would only dictate that further or complete performance is suspended, while the partial performance will demand a partial “specified quid pro quo which could be allocated to each distinct performance”. In this instance, there is no breach of contract by either party, but if the agreement is silent as to who bears the risk of the supervening impossibility, the common law principle of reciprocity will apply.
Our courts have allowed for a remission of performance where through an act of legislation, the continued performance by a party, such as to provide full and unfettered use and enjoyment of a leased premises to a tenant, becomes illegal. In the Bayley v Harwood [1954] 3 All SA 459 (A) case the court confirmed that an act of legislation has the characteristic of vis major in that it cannot be resisted. As the tenant was prevented from using the leased premises as a pleasure resort, it was entitled to a remission of rent. In the case of Nuclear Fuels Corporation of SA (Pty) Ltd v ORDA AG 1996 (4) SA 1190 (A) the court distinguished between cases where it is truly impossible to perform, and cases where it will be illegal to perform and concluded that, where performance will be illegal, it does not automatically render the performance impossible, but public policy will almost always dictate that parties will be excused from such performance .
The Lockdown Regulations are currently in place for 21 days. They would not exonerate a tenant for the remaining days in the month as part of its rental obligation, nor would it allow a landlord to rely on non- or partial payment by the tenant during the lockdown, as a reason to cancel a lease. In such a case rent should, in our view, be reduced taking into consideration the economic loss suffered, with regard to factors such as (this list not being exhaustive) the number of trading days lost and value to the tenant of the continued storage of the tenant’s assets and goods within the leased premises. If, however the lockdown, or any extended period thereof, or constraining post-lockdown measures, further inhibit commercial activity and cause a substantial interference with the continued reciprocal obligations of the parties, then the continuance of the contract may no longer be viable.
Our courts support this approach as is evident from Dormell Properties 282 Bk v Edulyn (Edms) Bpk and another [2017] JOL 37225 (WCC) where the court followed the principles in Thompson and BK Tooling and found that as the tenant had some, but not full enjoyment of the leased premises, the Tenant could not be entirely absolved from the obligation to pay rental and utilities. If any amount is however due by the Tenant, and it remains unpaid, the landlord is entitled to cancel the lease as a result of the Tenant’s breach.
Even in the case of Mpange & others v Sithole [2007] JOL 20479 (W), where the tenants remained in occupation of the leased premises which did not allow for their full use and enjoyment thereof, the court noted that it ought to follow from the reciprocity of the duties between landlord and tenant, and the principles in the Thompson and BK Tooling cases, that where a tenant abides by a lease despite a defect in the thing let, he or she should be entitled to a reduction of the rent proportional to the diminished use and enjoyment of the thing. Looking at the reduction in rent which a Tenant could be entitled to, the court stated that: “The measure against which this proportionate abatement is to be calculated is the "tenants reduced enjoyment or utilization of the leased property". The test is therefore a subjective one and "subjective factors which are peculiar to the tenant and which have no pertinence to the cost of repair must inevitably be incorporated into the equation" (at 247F). The amount of remission is to be calculated without reference to any claim for damages but by reference to what is fair in all the circumstances.”
Parties to a lease must establish whether there are any contractual prescriptions stipulating who should bear the risk of impossibility and what each party’s obligations are in the case of a supervening impossibility of performance or force majeure. In Van der Stel Sports Club v Cape Perfect Health CC t/a Perfect Health (4467/2018) [2018] ZAWCHC 167, the court confirmed what we already know that “where a tenant was deprived of the use of a portion of the property, it would be entitled to a remission of rent, proportional to its reduced use and enjoyment of the property”. However, this principle of reciprocity can be contractually excluded.
A force majeure clause in a contract is an example of where the parties contractually agree upon what the party’s reciprocal obligations will be when a specific set of events arises. The force majeure clause does not exclude one’s common law rights, but it could very well curtail such rights by dictating that despite a supervening event, a party may not be excused from performing. Written leases often contain so-called exemption/ limitation clauses that are tantamount to a waiver of various common law rights a tenant may otherwise have. It was as a result of this “freedom of contract” that seemed to place landlords in a superior position to that of their counterparts, that led to the Consumer Protection Act containing specific provisions limiting a landlord’s right in this regard. Where a lease agreement falls within the ambit of the Consumer Protection Act, section 48 will assist tenants as it regulates the unfair, unreasonable or unjust waiver of rights by consumers and may effectively lead to the incursions of the common law principles.
In the Mthatha Mall (Pty) Ltd v Motion Fitness (Pty) Ltd t/a Motion Fitness and another [2019] JOL 45839 (ECG) matter, the court considered the effect of a limiting clause. The tenant contended that it was entitled to withhold rental payments because the leased premises were not functional, suitable and operational, raising the defence of exceptio non adimpleti contractus, available where the obligations between parties are reciprocal to the performance required, unless the parties decide to contract otherwise. However , the lease expressly provided that: ‘all payments to be made by (..the tenant..) in terms of the agreement would be made free of any deduction or set-off’, and the court found that the limitation clause precluded the tenant from deferring, adjusting or withholding any payment due to the landlord by reason of any set-off or counterclaim.
In Rebel Discount Liquor Group (Pty) Ltd v La Rochelle Erf 615 Investments CC (A1043/04) [2005] ZAWCHC 88, the court acknowledged the principle that a tenant who has vacated the premises for just cause need pay rent only for the period that he has been in occupation thereof. It was however found that the following relevant provisions within the agreement had expressly stipulated the risk distribution of the parties:
- the clause wherein the landlord’s liability is expressly excluded where loss, damage or injury arise from vis major, casus fortuitus or “any other cause either wholly or partly beyond the landlord’s control; and
- the clause specifying unequivocally that the landlord does not warrant, and has not represented, that the premises will be suitable for the conduct of any business or that any licence or authority required for the conduct of such business will be granted or renewed.
No matter the limitation and or restriction found within the terms of a lease agreement, the full bench in Fourie NO en 'n Ander v Potgietersrusse Stadsraad 1987 (2) SA 921 (A) sets how the courts will approach such clauses. Here the tenants had leased certain land for the purpose of grazing, when a rubbish dump on the land adjacent to the leased land caused pollution of the leased land. The court found in favour of the tenant, after the first Appeal Court found in favour of the landlord. The full bench held that the common law obligation on the landlord to give undisturbed use was not limited or excluded in the lease agreement, this in spite of the landlord trying to rely on a voetstoots clause contained within the lease, arguing that it had no obligation with regards to the commodus usus of the leased land. This reliance was rejected by the court as the cause of the disturbance had nothing to do with the condition of the property, but it was in fact an external disturbance from the neighbouring land which belonged to the landlord.
Even though the judgment in the first Court of Appeal was overturned, the full bench court did not reject the important principles regarding a court’s approach to limitation clauses set down therein, being “Die Hof a quo het tereg bevind dat vermindering van huurgeld nie skadevergoeding is of 'n vorm van skadevergoeding nie. In ieder geval kan die klousule in die ooreenkoms wat skadevergoeding uitsluit, geensins gelees word as 'n klousule wat die verhuurder geregtig maak om huurgelde te eis selfs indien hy die huurder sou ontneem van besit of okkupasie van die huurperseel nie. Al wat uitgesluit was, is die huurders se reg om in sodanige omstandighede, benewens nie-betaling van huurgelde, boonop ook nog skadevergoeding te eis. 'n Klousule soos hierdie moet uiteraard beperkend uitgelê word.” This means that a court will interpret limitation clauses as narrowly as possible and one cannot interpret a limitation clause which excludes a tenant from claiming damages, as also preventing the tenant from claiming a reduction of rent in appropriate circumstances.
Tenants should take heed and be aware that a failure to comply with the strict contractual provisions within a lease agreement which has provisions limiting these common law principles, will amount to a breach of contract. Lease agreements are mostly drawn to provide the widest protection to the landlord and to ensure that there is limited risk on its part, no matter the circumstances. The principle of pacta sunt servanda meaning that “agreements must be kept”, underlies the enforcement of written agreements, including non-variation clauses as was established in the matter of SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren 1964 (4) SA 760 (A). The wording of a lease agreement and the strict interpretation thereof could leave tenants vulnerable to cancellation, penalties and other default actions taken by the landlord, such as expensive litigation and the risks associated with same.
A review of our case law shows that whether a tenant may or may not pay a reduced rental during the lockdown period is an extremely complex and intricate question which is dependent on the facts of each individual matter. No blanket recipe will apply to all. A legal practitioner should be consulted to assist and advise regarding their specific case, needs, rights and risks. For a start, a tenant should:
- Open the relevant communication channels in discussing the various options with the landlord, such as delayed or deferred payment, a “payment-holiday”; utilisation of the deposit or a reduction in payment. We would suggest that despite the tendency for parties to adopt different stances, attempt to reach an agreement so that your failure to pay on time or in full will not be regarded as a breach of contract;
- Agree at the very least to continue to pay for essential operating costs to keep the electricity paid and for the provision of sanitation and security services etc.; and
- Check whether either party has an insurance policy that provides some cover. Full transparency between parties is essential and aspects such as the landlord’s responsibility to service its immovable property mortgage bonds as well as the banks assistance with a payment- holiday must be broached. Similarly, any SMME- assistance or TERS- application or funding possibilities which could benefit the tenant during, or as a result of the lockdown, must be considered.
Ubuntu and Public Policy: In these distressed times, should we not review the principles of public policy and ‘ubuntu’ (inclusive of one’s Constitutionally enshrined right to dignity)? In Nyandeni Local Municipality v MEC for Local Government and Traditional Affairs and Another (CA68/09) [2009] ZAECMHC 28; 2010 (4) SA 261 (ECM) the court justified the relaxation of the earlier mentioned Shifren- principle in the extraordinary circumstances of the case and on the basis that strict enforcement of the agreement would be contrary to public policy under the Constitution. The same principle was applied by the High Court that held; to uphold the landlord's right to cancel the lease would offend the constitutional values of ‘ubuntu’ and fairness. This decision was however overturned by the Supreme Court of Appeal in the case of Mohamed’s Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests (Pty) Ltd (183/17) [2017] ZASCA 176. The current legal position concluded by this court is that the fact that a term in a lease may operate harshly does not on its own mean that it offends the values of the Constitution or is against public policy. The court a quo erred when it undertook to develop the common law of contract by infusing the spirit of ubuntu and good faith, as the effect of this was to invalidate a material term of the lease. The relaxation of the principle of pacta sunt servanda in this case would have had the effect of the court making the agreement for the parties. A court will not lightly interfere with a party’s right to freedom of contract.
Perhaps these times of a worldwide pandemic and a global disaster are such extraordinary circumstances and thus calls for the public policy to be expanded? A colleague has done extensive research in this field and her academic argument based on Botha and Another v Rich NO and Others 2014 (4) SA 124 (CC) the Constitutional Court (CC), is that the principle of good faith still forms part of our common law and that ‘ubuntu’, as a fundamental value of our Constitution, requires good faith to play a larger role when interpreting contracts. Her article can be found published in the Constitutional Court Review 2019, Volume 9, 409–441 Human Dignity in the Common Law of Contract: Making Sense of the Barkhuizen, Bredenkamp and Botha Trilogy by Hanri Du Plessis. (https://journals.co.za/content/journal/10520/EJC-19f4be1b24).
I believe that it is essential that parties consider one another and work together towards a mutually beneficial solution. A result is needed which should assist both parties with the long-term continuance of the tenancy relationship, as this disaster will surely not last forever but will come to an end. My sentiments are echoed by a comment found within a set of “guidelines” released on 7 April 2020 by the South Africa Property Industry Group (made up of the major representative bodies for real estate in South Africa; and including the major owners in the commercial property sector): “We’ve seen retailers reverting to legal positions, but we don’t believe that litigation provides either side with timeous solutions needed to get through this unprecedented time. We need to stand together and find workable solutions that will benefit country, protect jobs, and sustain our businesses through this challenging time.”
Everybody is coming to the party, as can be seen by the relaxation of certain imposed restrictions on landlords within the Competition Act. The Regulation released, namely Covid-19 Block Exemption for the Retail Property Sector, is aimed at encouraging landlords to come together and reach a generally applicable agreement/approach to assist their tenants in the retail sector. It provides that what would normally be collusive conduct, which of course is not permitted in terms of sections 4 and 5 of the Competition Act, 1998 (‘the Act’), parties are indeed encouraged in this respect, in that sections 4 and 5 will not be enforceable against any ‘collusive agreements’ aimed at providing relief for certain classes of tenants, possibly such as payment holidays, rental discounts, limitations on evictions and the adjustment of lease agreements. Although the regulation removes restrictions on landlords from coming to a mutual agreement as to how to go about easing the pressure on retail tenants, the initiative seems to lie with the landlords while tenants seem to be in a disadvantaged position, as they have to wait to see if landlords will act as contemplated in the Regulation.
For the duration of the lockdown period, I anticipate that the courts would in certain circumstances likely sympathise with the partial non- payment or late payment of rent. Note however that our courts will not tolerate any opportunists wishing to extract undue benefit as a result of the current pandemic at the cost of others. This especially as we are all in the same dire global situation.
I am a qualified commercial CEDR accredited mediator and I am certain that our firm can assist you through these difficult times.
Cindy Allan
Co-authored by P. Pama