Can your tenant clearly prove that their income has been affected by the National Lockdown?
We had a very great question posted by one of our Facebook followers. We reached out to one of our law firms that we work closely with for some clarity. TMJ Attorneys was kind enough to respond with the below.
By Muziwandile Duma
“What happens when you have a tenant that can clearly prove that their income has been affected by this lockdown and subsequently cannot afford to pay full rent or any rent at all?!
If your bank gives you a payment holiday based on the above, who is then liable for the interest incurred during the holiday period?”
Response by TMJ Attorneys
In answer to the query, which is really 2 questions, I include an opinion from Nombuso Duma of our offices which deals with the first question. She is dealing primarily with business leases but the principle apart from the compensation available applies. I thought it useful and hope that your Client finds the answer in the opinion. In essence it boils down to a question of contract and the debate will be is this a case of vis maior or not and if so what are the conditions of the lease agreement. If the tenant negotiates with the landlord anything can be done and as I imagine the position will be similar to the position I suspect the banks will adopt, the rentals can be capitalised and paid over the period of the lease in the form of an increased rental. However the points that Nombuso makes in her opinion regarding the landlords position remain true.
Her opinion is:
As much as the Covid 19 presents an unprecedented challenge to the tenants, the President did not intend the Landlords to bear the full brunt of the Lock down.
A blanket approach cannot be used by tenants to state that they are not paying rent, as the tenant will still be using the premises, during the lock down period. Their business assets will still be on the premises.
Landlords have the same pressure as tenants as they have to pay for rates, taxes and other operational expenses.
The President announced various measures to alleviate the economic effects of the Lock down. The tenants should make use of those measures first prior to electing not to pay rentals.
I know for a fact that SEDA and the National Empowerment Fund are amongst the institutions available for debt relief. Tenants should be encouraged to approach these institutions for assistance.
Some lease agreements have a requirement, that tenants obtain, and keep in place their own insurance for their business, which will normally include :business interruption insurance. If there is such a clause in the lease agreement, the tenant must be encouraged to claim from their insurance first.
Tenants can also seek assistance from shareholders and Banks.
In Terms of the Regulations, the Department of Trade, Industry and Competition will be the main driver of the Block exemption Scheme. Tenants have to qualify for the exemption. Thus a tenant cannot unilaterally decide not to pay for rentals, as that can be considered as unlawful.
The tenants are at liberty to approach the above-mentioned department, to assist them to negotiate with the landlord for the following :
1. Payment holidays or Rental discounts;
2. Limitation on eviction proceedings ;
3. The suspension or adjustment to the lease agreement.
In conclusion I am of the opinion that a tenant would have to request an exemption from the landlord, thus they cannot unilaterally decide not to pay rentals. They will have to show that all other means, as indicated above, have been exhausted, and they still unable to contribute towards rental. This will have to be taken on a case by case basis and adhering to the current lease agreement.
The second question is for the banks to answer but I would suspect that the loan would simply be restructured and the interest capitalised. Ultimately the property owner would pay albeit over a period. A holiday does not mean a free holiday!
We do hope the above has given some clarity.
Feel free to visit TMJ Attorney’s website for their full details: https://www.tmj.co.za/