Are commercial tenants entitled to a rental remission during an imposed lockdown?

Trustees for the time being of the Bymyam Trust v Butcher Shop and Grill CC (11877/2020) [2021] ZAWCHC 240 (19 November 2021) – Bymyam Judgement

Introduction

On 15 March 2020 the President of South Africa declared the COVID-19 pandemic to be a national disaster and imposed a 21-day lockdown period in terms of the Disaster Management Act. Subsequently, the Minister of Co-operative Government and Traditional Affairs issued various regulations aimed at curbing the spread of the deadly disease.

These regulations imposed severe restrictions on businesses in South Africa and only certain “essential service providers” were permitted to continue operation. This has created much uncertainty regarding the enforceability of a commercial lease agreement during an imposed lockdown. Are landlords still entitled to the payment of rent? And are tenants liable for such rental even though they were prohibited from operating their business from the leased premises?

The Bymyam judgement clarifies the uncertainties occasioned by the COVID-19 pandemic and provides some much needed legal certainty to future and present lessors and lessees regarding the enforceability of their lease agreements during a lockdown.

This case is useful a guide on how best to structure your commercial lease agreements in a way which is more aligned with the current economic climate which is rife with commercial uncertainty for both landlords and tenants.

Factual Background:
The Trustees for the time being of Bymyam Trust (“landlord”/ “lessor”) are the owners of property situated in Greenpoint. On 20 February 2014, the landlord concluded a lease agreement with the Butcher Shop and Grill CC (“tenant”/ “lessee”) in terms of which the latter would conduct a restaurant business from the leased premises.

The imposition of the lockdown regulations forced all restaurants and non-essential service providers to temporarily cease all operations with the result that the tenant closed the restaurant on 26 March 2020.

It is common cause that further regulations were published which essentially precluded businesses from operating for an indefinite period. During this indefinite period of lockdown, it is accepted that the respondent was unable to meet its obligation to pay rental fully.

In August 2020, the landlord instituted proceedings against the tenant for the arrear rental owing to it for the period of 1 April 2020 to 31 August 2020. However, the tenant rejected any liability and was of the view that during the lockdown period it was exempt from paying the full rental in terms of the lease because the COVID-19 regulations constituted a vis maior or casus fortuitus – “Vis major, or superior force, is some force, power or agency which cannot be resisted or controlled by the ordinary individual. The term is now used as including not only the acts of nature, vis divina, or ‘act of God’, but also the acts of man. Casus fortuitus, or inevitable accident, is a species of vis major, and imports something exceptional, extraordinary, or unforeseen, and which human foresight cannot be expected to anticipate, or which, if it can be foreseen, cannot be avoided by the exercise of reasonable care or caution”

The tenant’s denial of liability for the arrear rental claimed centred on two main points:

Firstly, the tenant was unable to operate it’s restaurant business during the lockdown. Accordingly, its obligation to pay rent was rendered objectively impossible as a result of extraordinary circumstances created by the COVID-19 regulations and its concomitant restrictions. Therefore, the tenant was of the opinion that it was excused from its contractual liability to pay rent for as long as the regulations persisted.

Secondly, the tenant alleged that a supervening event made performance impossible and that there was no beneficial use of the leased premises for its intended purpose. Likewise, the tenant alleged that the regulations also rendered the landlord’s performance of its obligations objectively impossible, as the landlord was unable to provide beneficial occupation of the leased premises to the tenant.

On this basis, the tenant claimed that it was entitled to a rental remission, put differently, a reduction in rental for the entire period that the regulations and prohibitions persisted.

In response, the applicant provided that the tenant misunderstood what was meant by “beneficial occupation” and that in terms of their lease agreement “beneficial occupation” was defined as the “physical possession and control of the leased premises”. This meant that the applicant was not required to ensure that the respondent must be able to trade and operate its commercial business from the leased premises. As such, the lessor was of the view that they provided beneficial occupation of the land and thus are entitled to payment of the rental.

Legal Issue:
In this matter the main issue for determination was whether a commercial tenant is entitled to withhold payment of its rental to the landlord payable in terms of a lease agreement during the period of national lockdown and whether it was entitled to a rental remission, wholly or in part, as a result of legislative restrictions caused by the imposition of the regulations.

Court Findings:
The Bymyam judgment is the most recent judicial consideration of the entitlement of a tenant to a rental remission. After a careful examination on the leading cases on events of supervening impossibility, the court made the following findings:

• A tenant/lessee is entitled to claim rental remission where there is a lack of beneficial use or occupation, whether partially or fully, of the leased premises and where the interference is caused by a supervening impossibility which was not the fault or cause of either the lessor or the lessee.
• An act of legislation has been found to constitute a supervening impossibility and thus the COVID-19 regulations are by nature a supervening impossibility.
• The rental remission may only be set off against the lessor’s claim, only if it is capable of speedy and prompt ascertainment.
• The Landlord has the obligation to provide beneficial occupation of the leased premises to the lessee.
• A tenant’s obligation to pay rent is not discharged (even where there is an impossibility to perform by no fault of their own) where the parties specifically provided in their lease agreement that the lessee would be responsible for the risk of supervening impossibility.

Furthermore, the court opined that the above findings must be placed in their proper context and that in each matter where rental remission due to a supervening impossibility as a result of the COVID-19 regulations is claimed, should be considered within the context of the merits of the specific matter.

The context that must be considered would include consideration of the specific regulations applicable at the relevant time(s), the extent to which performance was not possible, the extent to which there was a lack of beneficial occupation (if any) and, quite importantly, the terms of the parties’ lease agreement.

The court placed specific emphasis on whether or not the lease agreement makes provision for the risk in the eventuality of a vis maior, casus fortuitus or impossibility of performance.

Accordingly, the court advised that it would be prudent that a commercial lease agreement includes a clause dealing with the risk associated with vis maior, casus fortuitus and the impossibility of performance.

The position of a sub-lessee in respect of claims for rental remissions
With regard to the specific facts of this matter, the Butcher Shop and Grill CC (“lessee”) concluded a lease agreement with the applicant on 14 February 2014. However, it was established that around 2017 the respondent sub-let the leased premises to Apoldo CC t/a The Butcher Shop and Grill (Pty) Ltd (“sub-lessee”).

Although the lessor at some stage realised that there was a different entity operating from the leased premises, the court provided that this does not form a basis for disregarding the separate legal personalities of Apoldo and the lessee.

Accordingly, the court held that its previous findings regarding rental remission could not be applied where the claim is from the lessor, but it is in fact the sub-lessee whose beneficial occupation, loss or enjoyment of the leased premises is disturbed.

Conclusion:
In this matter the lessee was not in physical occupation of the property from 2019 and thus no deprivation of property could have taken place. As a result, the court held that a lessee cannot resort to the common law claim for an abatement or remission of rent in circumstances where its use, enjoyment and beneficial occupation was not deprived or disturbed.

Written by Morgan Cupido

For any assistance or guidance please contact Morgan Cupido at mcupido@dkvg.co.za or Gerhard van Niekerk at gvniekerk@dkvg.co.za.

This article is for general information purposes and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us At DKVG Attorneys for specific and detailed advice.

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