20 Apr 2020

Is Eviction the Answer? Performance of Lease Contracts during the Pandemic

by Judy von Klemperer, Partner, Durban,
Practice Area(s): Litigation |

Following President Cyril Ramaphosa’s announcement on 9 April 2020 extending the national lockdown to May 2020, both landlords and tenants alike are anxious about the potential effect the decision will have on their pockets. Many landlords struggled with defaulting tenants before the advent of the COVID-19 outbreak, but the anticipated mass retrenchments of employees and the closure of businesses may put yet further pressure on the relationship between a landlord and even the most diligent tenant. When it comes to leases, what are the landlord’s options during these unprecedented times?

Government has disallowed the issuing and the execution of eviction orders during the lockdown period. Therefore, even in circumstances where a court granted an eviction order before the lockdown was announced, the sheriff is prohibited from physically ejecting the tenant, or any occupier, during lockdown due to the COVID-19 regulations promulgated under the Disaster Management Act, 2002.

The government has not introduced any moratorium or ‘payment holiday’ for tenants over the lockdown period. However, if a good tenant is struggling to meet monthly obligations due to a temporary loss of income, it may be worthwhile to agree to a structured payment plan (for example, by way of partial monthly payments, extending the lease by a month, a deferred payment plan etc.) It is recommended that such an agreement be recorded in a written document clearly setting out the terms of the structured payment plan, and that it be dated and signed by both parties. The agreement should also clearly state the circumstances in which any indulgences granted will be withdrawn. If the landlord and tenant have a written lease, it may be necessary to record any amendment of the terms in writing and for the parties to sign it as it will not otherwise be binding if there is a non-variation clause.

If a payment plan is not an option and the tenant is significantly in arrears, the landlord can choose to cancel the lease agreement due to the tenant’s breach, subject to the landlord’s compliance with any notice provisions in the agreement. However, the institution and service of eviction proceedings can only proceed after the lockdown period ends and may engender legal costs which ultimately prove difficult to recover from a cash strapped and indebted tenant.

The tenant may defend a claim on the basis that they are unable to pay their rent because they no longer have the financial means to do so as a result of the national lockdown. Depending on the circumstances and the wording of the lease, force majeure, vis major or casus fortuitous may be applicable (a discussion on these is available at https://www.wylie.co.za/articles/coronavirus-a-south-african-perspective/). Simply put, force majeure, vis major or casus fortuitous (collectively referred to as force majeure for the purposes of this article) are circumstances arising from objective impossibility of performance of a contract by one or both of the parties due to a supervening event beyond the parties’ control. Ordinarily, this would include war, crime, strikes, disease or natural disasters.

Many tenants face long-term loss of income due to the current pandemic. This unforeseeable loss of income may give rise to the defence of force majeure. However, if the contract does not contain a force majeure clause it is more difficult to escape performance as the courts do not take a one-size-fits-all approach.

For instance, the Supreme Court of Appeal in MV Snow Crystal, Transnet Ltd t/a National Ports Authority v Owner of MV Snow Crystal [2008] 3 All SA 255 (SCA) states that in order to determine whether the force majeure doctrine applies in circumstances where a force majeure clause is absent, factors such as the nature of the contract, the relationship of the parties, the circumstances of the case, and the nature of the impossibility invoked must be examined. The applicability of the doctrine to the COVID-19 pandemic are likely to be tested in the courts shortly after lockdown ends.

Where a lease contains a force majeure clause, the scope of the clause must be reviewed to determine whether disease, pandemic or financial hardship arising from a pandemic are included. If the contractual definition of force majeure makes provision for the abovementioned, the tenant may use the clause as a defence to suspend their performance for the duration of the lockdown period. If successful, the tenant would not be in breach of the contract and the landlord would not be able to evict the tenant after the lockdown.

The COVID-19 outbreak has brought uncertainty and disruption to all of our lives. However, if good faith and open communication is upheld by landlords and tenants during these difficult times, the collective experience could turn out to be more constructive than expected.