With South Africa well into its three week nation-wide lockdown as a result of the COVID-19 outbreak individuals and businesses have been left in an unenviable position. Whilst the Regulations gazetted by the South African government on the 18th of March 2020 have made provision for some much needed financial assistance to the country, there remains much uncertainty in respect of certain aspects of the Regulations, such as whether individuals and/or businesses are still obligated to, inter alia, pay their monthly rental during the nation-wide lockdown.
From the outset it is imperative to note that unless an agreement specifically caters for a review of the terms of the agreement and/or a reduction in the rental payable in circumstances such as the COVID-19 outbreak, there is no automatic right to review the terms of the agreement and/or reduce the rental payable.
However, certain agreements specifically contain a force majeure clause in an effort to protect parties to the agreement against the potential risk of an occurrence of a force of nature or act of God or man that cannot be avoided, foreseen or prevented and which may render performance of certain obligations in the agreement impossible.
A force majeure clause may be drafted narrowly in terms of which the events that constitute force majeure, that a party may rely on to invoke the clause, are specifically listed to the exclusion of any other such events. Whereas a force majeure clause that is drafted broadly would set out the specific events that constitute force majeure as well as contain a “catch all provision” to cover force majeure events that are not specifically listed. Therefore, even where an agreement contains a force majeure clause, this does not automatically mean that it encompasses impossibility of performance caused by the COVID-19 outbreak.
Specifically, in relation to commercial lease agreements, should a tenant wish to rely on a force majeure clause in order to cease paying rent or to pay a reduced amount they would need to first establish that the force majeure clause encompasses the COVID-19 outbreak. Secondly, the tenant would need to prove that payment of rental, in full or in part, has become impossible as a direct result of the outbreak.
For example, businesses that have not been deemed an essential service and who have subsequently been prohibited from trading as a result of the COVID-19 outbreak, and the Regulations implemented as a result thereof, may be entitled to a reduction of rent proportional to the number of days that they were unable to occupy the leased premises.
Conversely, a commercial lease agreement may contain a rental payment clause that specifically states that there shall be no deductions or set off for whatsoever reason (including force majeure). Some commercial lease agreements may also state that the lessor cannot be held liable for any claim, howsoever arising, for any loss or damage that a tenant may suffer, be it directly or indirectly resulting from an event of force majeure. In such circumstances, parties to the agreement would not be in a position to rely on force majeure as a basis for non-performance of their obligations.
However, where an agreement does not contain a force majeure clause or specifically excludes reliance on same, a party to the agreement may be able to rely on the common law principle of “supervening impossibility of performance”.
Broadly speaking, ‘supervening impossibility of performance’ can be relied on when it has become objectively impossible for a person to perform their obligations in terms of an agreement as a result of an unforeseeable and unavoidable event. The requirements that need to be met for a party to rely on supervening impossibility of performance are as follows:
- The impossibility must occur after the conclusion of the agreement;
- the event/s causing the impossibility of performance must be unavoidable; and
- the event/s causing the impossibility must make proper performance of the contract objectively or absolutely impossible (cannot merely have made performance more burdensome or economically difficult).
If all the abovementioned requirements have been fulfilled, both parties’ obligations to perform in terms of the agreement will be suspended and will resume once performance becomes possible again. Should performance become permanently impossible the agreement will terminate and the parties will be relieved from their obligations in terms of the agreement.
However, notwithstanding what provisions are or are not contained in an agreement, parties are free to renegotiate the terms thereof and can agree to an arrangement that is, as far as reasonably possible in the circumstances, economically viable for both parties. However, it is imperative that such renegotiated terms and/or arrangements be reduced to writing and signed by all parties to the agreement, especially in instances where the original agreement contains a non-variation clause, so as to avoid any potential claims that may arise with regard to the enforceability of the renegotiated terms and/or arrangements.
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Emmah Morton (Candidate Attorney)
Enhle Mtolo (Candidate Attorney)