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COVID-19 ALERT: THE POSSIBLE EFFECT OF FORCE MAJEURE OR SUPERVENING IMPOSSIBILITY (VIS MAJOR) ON COMMERCIAL LEASE AGREEMENTS
 

Since our last general communication regarding force majeure and the common law principle of supervening impossibility (vis major), we received a number of enquiries in respect of the possible effect which these principles may have on commercial leases.

Commercial leasing is currently a very dynamic field and the so-called retail landlord alliance involving the South African Real Estate Investment Trust Association, the South African Property Owners Association and South African Council of Shopping Centres made certain specific proposals regarding rent reductions, depending on the category of tenant. These negotiations are ongoing.

It appears that in many instances there is a total misinterpretation of clauses that merely refer to a vis major event. Please bear in mind that in the absence of a vis major clause in the lease agreement itself, a party could still rely on the common law principle of supervening impossibility on very limited grounds.

It is important to take note that the current nationwide lockdown is temporary of nature and that performance (in certain instances) is only temporarily suspended. In some instances (depending on the terms of the lease), a tenant may be entitled to a remission of rental for the duration of the lockdown.

Should you require any advice, either as a landlord or a tenant, please furnish us with a copy of any written lease agreement and we will then be able to advise you of the legal implications of Covid-19 based on the lease agreement itself.

It is important to have access to the full lease agreement, as one of the basic principles of interpretation of contracts is that it should be interpreted as a whole, and not with reference to a particular clause only.

In general, it appears that landlords are willing to reduce the rental or allow for a rental holiday during the lockdown period, and in this regard, it is very important that such conditions are recorded in a written amendment to the lease agreement, as most lease agreements have a clause that no amendment is valid, unless it is reduced to writing and signed by both parties.

It is also generally accepted that certain sectors of the economy, such as restaurants for instance, may be subject to restrictions for some time to come and will not be able to operate fully even if the lockdown were to be partially uplifted and further negotiations will therefore be required.

The position regarding a residential lease is quite different and we have already issued a separate note in this regard.

PSN can assist with the following:

  1. Advice on the lease agreement in general.

  2. Negotiations.

  3. Draft amendments to the current lease agreement.

If we could be of assistance, please mail us the full lease agreement and contact either Lourens Swart (Email:  lswart@psn.co.za, 083 627 6674) or Nico Herbst (Email:  nherbst@psn.co.za, 083 630 5937).