The ramifications of COVID-19 on commercial landlords and tenants is large scale and unprecedented both in SA and nationally.
There is much uncertainty in the commercial space at this time concerning the legal rights and obligations of landlords and tenants, which is further challenged by the difficulty in having one solution that works for all tenancies.
The new Code of Conduct that has been released is intended to give lessees rent and other relief and applies to any lessee suffering financial stress or hardship as a result of the pandemic. The Code says that if a lessee is eligible for the JobKeeper payment then it will be deemed to be suffering financial stress or hardship but the Code won’t apply if the lessee’s annual turnover is more than $50,000,000.00.
The Code provides, amongst other things, for:
- no lease termination by the lessor due to non-payment of rent;
- a requirement that the lessor and lessee negotiate in good faith regarding any lease variations due to the lessee’s turnover being adversely affected as a result of the pandemic;
- lessees to still remain committed to the substantive terms of their lease and if a lessee does not then it will lose its protections under the Code. A lessee cannot therefore necessarily cease to trade from its lease premises (unless required by law e.g. a hotel);
- rent relief of at least 50%. If, for example, business turnover was reduced by 30% then there would be a rent abatement as to one half of that 30% rental amount and a rent deferral as to the other half;
- lessors should waive recovery of outgoings during the period that the lessee is unable to trade;
- no interest to be payable on rent abated or deferred;
- no repayment of deferred rent or outgoings until the end of the lease (or if earlier) the end of the pandemic and a reasonable trading recovery period thereafter;
- consideration also to be given to the financial position of lessors;
- a rent freeze during the pandemic and a reasonable trading recovery period thereafter;
- no access by a lessor to a security bond, bank or personal guarantee during the pandemic and a reasonable trading recovery period thereafter unless the lease is terminated for a material breach by the lessee of lease terms (other than for non-payment of rent); and
- the lessee to have an opportunity to extend the period of the lease for the rent waiver and deferral period.
Our firm has been at the forefront of shaping decisions for REISA and the Commercial Leasing industry around COVID-19.
We have developed a streamlined and cost-efficient process for helping with any lease variations required. The first part of this is helping to assess tenant requests, to which we have assisted in preparing a Tenant Application Proposal. The second part is helping to document agreed variations.
We are hopeful that most issues concerning lessees suffering financial hardship can be resolved commercially, as intended by the Government. However should disputes arise that require mediation or other legal action, we are also here to help with any queries you may have.
Included below are a number of Client Alerts that we have issued around Commercial Leasing and also our Instruction Sheet for Deed of Variations.