Force Majeure, what is it?
If you are anything like most of us, you are wanting to know how the lockdown, and the wider COVID-19 pandemic, will affect your lease agreement. You may be asking if you are absolved of your responsibilities to pay rent, bond, car payments and so on.
There is a plethora of news floating around about rentals; should you pay, should you stop, what to do if a tenant doesn't pay, and what the obligations are for both tenants and landlords.
One of the buzz phrases making the rounds is “Force Majeure”, sometimes called vis major - also known as “ACT OF GOD” (insert booming voice from the heavens).
What does Force Majeure mean, and does it automatically take effect?
To keep it simple, the Force Majeure lease clause is meant to evoke a situation where one, or both parties are unable to perform (i.e pay rent, operate a business etc) because of something that has occurred that is outside the realm of human control, is not the fault of either party, and the circumstances fit the conditions for Force Majeure laid out in the lease agreement. Think earthquakes, tsunamis, volcanos, flooding and yes, pandemics.
Crucially however, the tenant would also have to show that they are deriving no benefit, econimic or otherwise, from the premises during the time, or that the tenant has had severe loss of business, and are completely unable to trade, so as to warrant a suspension of rental obligations.
An example could be a warehouse tenant who still has stock stored in the warehouse. They may be liable for rent as they are still able to use the premises to store their stock, therby receiving a benefit.
So, what’s the solution?
The reality is that there is no one answer. No one size fits all. In almost all cases, unless a blanket statement to the contrary is issued by the Government which suspends all contractual obligations, tenants will be liable to pay their rentals and landlords will have to pay their bonds. It is not likely that a Force Majeure clause would automatically take effect and overrule this.
We suggest that you revert to your original lease agreement and read the clause regarding a Force Majeure situation, how Force Majeure has been defined in the lease as well as when it can be enacted and then, speak to your landlord. Each case will be different. Most lease agreements in South Africa will carry some form of Force Majeure clause, however, don’t be surprised if your lease does not have one, It could even be that you have the clause, but it does not specifically mention a pandemic situation. In that case it is even more important to engage with your landlord, or have a property professional do it for you.
If you have any questions during this time, or need any assistance with your leasing, please feel free to contact the team at ANVIL Property Smith.