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Legal Matters - Aug/Sept 2020

Study your lease agreements in the light of Covid-19

Study your lease agreements in the light of Covid-19

A lease agreement creates reciprocal rights and obligations between a landlord and tenant, meaning the landlord gives the tenant the use and enjoyment of the let premises and in return the tenant pays rental.

It occasionally occurs that extra ordinary, unforeseen events, such as war, floods, riots, pandemics or acts of God prevent one or both parties from performing their respective obligations. It is common for a lease to have a ´force majeure´ clause, the effect of which can be to excuse non-performance caused by the circumstances described in such a clause and for the duration thereof. The effectiveness of a ‘force majeure’ clause depends on how effectively it was worded and its interaction with the rest of the agreement.

If a lease does not contain a ‘force majeure’ clause or the clause does not cover the prevailing event, all is not necessarily lost, as the common law may still provide some relief, unless the parties excluded the available common law relief.

Assuming the common law relief was not excluded, if the performance of a party’s obligations becomes objectively impossible due to an unforeseeable and unavoidable event, for example either a ‘vis major’ (a superior force – like an act of government) or a ‘casus fortuitous’ (an uncontrollable accident), which was not caused by the fault of a party, then the common law doctrine of “supervening impossibility” dictates that each party’s obligation to perform (and the reciprocal right to receive performance) is extinguished. It is however not enough that the performance of the obligation under a lease agreement has merely become difficult or costly.

The recent Covid-19 related lockdown and trading prohibitions (for those not eligible for essential goods or services exemptions) bring to the fore the position of the tenants who were legally prevented from making beneficial use of leased premises. Such a tenant may, depending on the proper interpretation of the terms and the lease, application of the common law and available statutory relief, be entitled to a reduction in rent (due to curtailed beneficial use) or be exempted from the payment of rent (due to total loss of beneficial use). This is more applicable to commercial lease agreements.

A tenant who fails to comply with its obligations (including payment of rent), and who is not able to rely on an effective ‘force majeure´ clause in the lease or applicable common law, will be regarded as having breached the lease.

Landlords and tenants affected by the recent Covid-19 regulations are encouraged to study their lease agreements and assess their rights, obligations and remedies. Such an exercise is a complex task and landlords/tenants would be well advised to seek the assistance of a specialist legal practitioner.

Ivo Dos Santos

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