By Bouwer van Niekerk and Lené Brighton
The entire world is bowing to the Covid-19 pandemic, the impact of which of no one alive has ever seen in more than a century, and no one can be certain of exactly what impact it will eventually have on our way of life. With it, we are seeing states of emergency causing economies to slow down to glacial speeds. The very things that make us human – social interaction, commerce, trade, seeing new things by travelling – have ground to a halt. We live in a Brave New World, but not the far-fetched, dystopian and frightening alternative as envisaged by Aldous Huxley. Rather, it is a reality, a world that we are living in right now and getting used to on a daily basis. This notwithstanding, it is not advisable to succumb to a situation where all of humanity (and especially commerce) simply throws up their hands like they simply don’t care. This especially applies to the property industry – one of the very few forms of wealth creation that has withstood both previous pandemics, world wars and the shifting of global powerhouses.
One of the ways to create wealth by investing in property is to either develop or buy property with the object or renting it out. The income generated by the investment is therefore dependent on the collection of rental. Many property owners – be it individuals making investments for the purposes of retirement or financial independence, property barons who are creating lasting empires, listed property groups who have their shares traded on stock exchanges for pension funds to invest in, or pension funds who want to diversify their portfolios – believe in the sanctity of the contracts that they enter into to collect rent as the cornerstone of their wealth creation. But what happens when circumstances cause compliance with these contracts to become a bone of contention?
We’ve all heard the buzz words – force majeure, vis major, impossibility of performance. Many a tenant have latched onto these concepts, and have simply assumed that this will give them an out in these days of uncertainty. But is it really that simple? While impossibility to perform brought about by force majeure (also known as vis major or an Act of God) may in limited instances excuse non-performance of contractual obligations, it should go without saying that it will not be of assistance if the impossibility is self-created.
For example, can a tenant leasing a residential apartment who decides to spend the lockdown with family rely on the impossibility of performance simply because he or she chose not to spend that time at the leased apartment? Or can a business which is not classified as essential simply and without further ado fail to pay rent simply because it cannot be open for business during the lockdown period?
To answer this question, landlords and tenant alike have to first and foremost study the contracts that they have entered into. Differently put, they must take notice of the terms that they contracted on. Because in many instances, therein lies the rub. Notice is a term that is crucial in the correct execution of many contracts. Do you want a defaulting party to rectify a breach? Give notice. Do you want to rely on force majeure to suspend an obligation? Give notice. Do you want to change the address or manner in which you give notice? Give notice. Invariably, the manner in which one party conveys its stance vis-à-vis its rights in terms of a contract is to give notice to the other party. And in most instances, the manner and form in which this notice is given is dictated by the terms of the contract. It is therefore essential that, where required, notice is given in terms of the prescripts of the contract. Failure to do so may render a notice invalid and of no force and effect.
A pertinent example comes in the form of invoking force majeure. Common requirements of such a notice include details of the force majeure event, and the contractual obligations which are prevented by the event. A party invoking force majeure must be particularly cognisant of the contractually imposed time periods associated with the notice. Does the notice serve for the subsistence of the force majeure event or only for a specified period? Can you deliver it at any time or only within a prescribed period?
All parties to contracts of lease are encouraged to review their contracts and consider whether it may be time for an upgrade from (pre)historic methods for delivering notice or, at the very least, the introduction of reasonable (current day) alternatives. Changes such as these can still be agreed between the parties during this time by making use of advanced digital signatures as envisaged in the Electronic Communications and Transactions Act.
We advise that all parties to contracts of lease carefully consider the terms of their contracts in considering what their rights are and, where necessary, consult professionals to advise them so as to not be settled with nasty surprises when the lockdown ends.
Van Niekerk is a director and Brighton is a candidate attorney in our Business Rescue and Insolvency Practice, Labour and Employment and Litigation and Alternative Dispute Resolution departments.
This article is a general information sheet 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 your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).