COVID-19 and Lease Agreements

COVID-19 and Lease Agreements

The global pandemic COVID-19 also known as “Corona Virus” has caused unprecedented mortality rates and plunged the world into an economic crisis.

The global pandemic COVID-19 also known as “Corona Virus” has caused unprecedented mortality rates and plunged the world into an economic crisis. From midnight on the 26 March 2020 to date, South Africa has been under lockdown. On 23 April 2020, President Cyril Ramaphosa, announced the gradual easing of certain restrictions imposed during the lockdown, whereby economic activity shall take place in accordance with the relevant guidelines, with certain sectors able to resume business on 01 May 2020.  As a result, the lockdown inevitably strained the lessee and lessor relationship.

Where a lease agreement exists between a lessee and lessor, the parties agree that the lessor gives the lessee use and enjoyment of his/her property in exchange for payment of the agreed rent. As a result of COVID -19, the question arises, how does the pandemic affect lease agreements. The simple answer is that this depends on what the lease agreement states.

With regard to the aforementioned, certain leases may not encompass clauses addressing force majeure. Force majeure is when there is an absence or inability of performance by one or both parties due to unforeseeable events, such as wars, acts of God, pandemics and natural disasters etc. A clause in a lease agreement dealing with force majeure, provides protection to both parties therefore; the lessor cannot claim damages from the lessee as the lessee’s lack of performance is not deemed as a breach of contract.

The clause ordinarily contains time periods during which the contract will be suspended if an unforeseeable event occurs. Thus, a party may terminate the agreement unilaterally by way of notice to the other party where the said event continues indefinitely, exceeding the stipulated time period. Furthermore, the clause is ordinarily detailed regarding the types of force majeure that would suspend the agreement. It is important to note that both parties will be excused from performing in terms of the agreement due to the occurrence of an unforeseeable event, beyond their control.

The lessor is within his/her rights to terminate the agreement should the unavoidable event, such as a pandemic, endure for an indefinite and unreasonable time. Financial obligations in lieu of the agreement are still enforceable, however, it will be at the discretion of the lessor whether to reduce the rent, for example.

In conclusion, parties are required to contract in good faith. Therefore, when taking into account the unforeseeable pandemic COVID-19 and its crippling consequences, the spirit of good faith and ubuntu is significant in piecing the economy and nation together again. Where one can play his or her part, he or she should.

Author: Tasneem L

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