Author: Darryl Furman and Jayde Vaughan
22 April 2020
- A rent holiday arrangement allows a tenant to withhold payment of rental during (i) the lockdown period; or (ii) the lockdown period plus a certain number of months after it has ended, so as to lessen the impact on the tenant’s financial position during such period. This will afford the tenant an opportunity to resuscitate its business. In terms of such an arrangement, the parties also agree to extend the lease period to enable the landlord to recoup the loss of rental it suffered during the rent holiday period. The tenant must however anticipate that, in arriving at such an arrangement, the lease may need to be extended by a period which is longer than the rent holiday period. Simply extending the lease period by the same amount of time as the rent holiday period will not serve any material financial benefit to the landlord, inasmuch as it will only begin to recoup after the original lease period has come to an end; or
- A rent discount arrangement allows a tenant to pay the landlord a reduced monthly rental during (i) the lockdown period; or (ii) the lockdown period plus a certain number of months after it has ended, for the same reason as contemplated in the rent holiday arrangement. In terms of such an arrangement, after the reduced rental period has elapsed, the tenant is obliged to repay the landlord the amount of the discount afforded to it during the rent discount period. The parties may agree that such amount be paid in full on a set date or by way of instalments over a certain number of months (potentially with interest being levied on the balance owing). The parties may also agree to a combination of repayment by the tenant coupled with an extension of the lease period, in order for the landlord to recoup the amount it would have received had there not been a discounted rental period.
Relief from banks, municipalities
It is unfortunate that to date our banks and municipalities have not found their way clear to come to the aid of landlords. Any relief which our banks and municipalities could provide would no doubt go a long way towards ensuring business continuity for both landlords and tenants.
It is accordingly critical that before making and implementing any decision based on their legal rights, both parties seriously consider the effect that such a decision will have on their relationship and business dealings, both during and after the lockdown period. Landlords and tenants must also take into consideration the effect that their decisions and actions will have on the lives of people who are not parties to their lease agreement but who will be financially affected and exposed as a result of such decisions and actions. The financial loss suffered by these outside parties and their employees could have a devastating effect on their and their respective families’ lives – the so-called collateral damage of this “viral war”.
Amicable, constructive engagement
We, therefore, strongly encourage landlords and tenants to engage with each other in order to find solutions that will alleviate, contain and minimise the adverse effects on both parties and to be mindful of all of the economic and social effects of their actions. It is imperative that their engagement is amicable and constructive and the relationship between the parties is nurtured as the lockdown period is only temporary.
As the global community is facing the ramifications of Covid-19, it is clear that landlords and tenants of commercial properties in South Africa have not been spared. The losses suffered on both sides are mounting and at this stage it is unknown how long the lockdown will actually endure. Tenants are losing revenue and landlords are losing rental income – both parties will incur substantial losses as a result of Covid-19. The question may arise – which party is worse off? The answer is simply, both.
by: Jayde Vaughan, candidate attorney and Darryl Furman, a director at Fluxmans Attorynes.
The original artcile can be viewed here: