COVID-19 LOCKDOWN: EFFECT ON RETAIL LEASE AGREEMENTS

The Legal Position of Landlords and Tenants in Retail Lease Agreements

The COVID-19 pandemic has led to the promulgation of restrictive regulations as provided for by the Disaster Management Act, 57 of 2002 (“the Act“). These regulations include the Department of Trade and Industry’s COVID-19 Block Exemption for the Retail Property Sector, 2020. Among these restrictions is the pronouncement of a national lock down. In certain cases, these restrictions may make the performance of a contractual obligation ‘impossible’. This article will specifically examine how this has affected the obligations arising out of a retail lease agreements.

Simply put, if vis major (i.e. an act of God or man) prevents the fulfillment of a contractual obligation then that obligation is rendered impossible. This follows logic, if a party to a contract is unable to prevent an event that makes the performance of one of their contractual obligations impossible then the law will excuse performance. This includes the situation where legislation makes performance impossible and may apply to retail lease agreements.

The starting point must be the interpretation of the contract. This is a holistic exercise and includes the context in which it came to be. This exercise will ultimately inform the parties of their obligations and determine whether performance is (1) impossible and (2) excusable at law. This is a legal question and an array of complex legal issues arise.

An individual obligation can be made impossible to perform or the contract in its entirety may be incapable of being fulfilled. The impossibility may be temporary (i.e. it can be done later) or absolute (i.e. it can never be done). If the impossibility is absolute, the whole contract is finally extinguished. Temporary impossibility will only suspend the affected obligation.

It is important to note that several legal tests are applicable here and parties are encouraged to seek professional legal advice as getting it wrong will have serious implications. A failure to do what is required under the contract will result in a breach thereunder. A refusal to perform, even before it is due, may result in a repudiation of the contract.

In terms of the contract, a breach thereof may entitle the other party to cancel and claim damages. A repudiation of the contract will have the same effect but does not even require a notice period. It is therefore important that you consult an attorney for correct legal advice before you act on an ‘impossibility’ or you may find that your contract has been cancelled and you now have to answer to a claim for damages.

It must be clear then that this question is nuanced and complicated. The more complex the agreement, the nature of the individual obligations and the background, the more complex the answer. Suffice it to say that, in law, where any obligation is extinguished or suspended, the reciprocal obligation is similarly suspended. These obligations are generally not divisible. Both landlords and tenants are advised to refrain from taking the law into their own hands and Pagdens would be happy to provide you with professional legal advice.

The Covid-19 lock down, although necessary, has had major economic consequences on our country at large. Retail lease agreements are just one commercial area which has been affected by the lock down. The issues discussed in this article may apply to a number of contracts to which you are a party and Pagdens is hear to assist. If you would like us to consider your circumstances and advise you on your legal position, contact us.

This article is for general information 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 an attorney for specific and detailed advice. Errors and omissions excepted (E&OE)