With recently announced lockdown and the closure of all businesses other than those providing essential services, the question arises as to the respective obligations between landlords and tenant in respect of commercial leases. I have received numerous requests for an opinion regarding whether rental remains due and payable during the lockdown period, with many throwing around the legal term and principle of ‘force majeure’. This article is not be construed as a “one size fits all” solution, and tenants should take individual legal advice prior to seeking to avoid rental payments during the lockdown period.
Force Majeure
A force majeure is an act of God or man that is unforeseen and unforeseeable and out of the reasonable control of one or both of the parties to a contract. The effect of the act makes it objectively impossible for one or both of the parties to perform their obligations under the contract.
The further effect of the clause is to provide protection to the party unable to perform from being liable for damages for breach of contract, provided that the act is clearly set out as a force majeure event. provided that it can be classified within the ambit of the definition of force majeure; and it halts the parties’ contractual obligations to one another for a period of time.
Supervening Impossibility of Performance
In the event that the lease agreement does not contain a force majeure clause, or if a force majeure clause in a contract does not specifically name the unforeseen event, the lockdown and closure of business premises due to a pandemic, the tenant may then rely on the common law principle of ‘supervening impossibility of performance’.
In circumstances where it becomes objectively impossible to perform under the lease agreement as a result of an unforeseeable and unavoidable event, the respective parties’ obligations are suspended.
In order to rely on this principle, the tenant will have to show that the landlord has been unable to comply with its obligation to make available for occupation to the tenant the leased premises during the period of lockdown. The lockdown must be unavoidable and make proper performance of the contract impossible and must not merely make performance more burdensome or economically onerous. In such circumstances, both parties’ obligation to perform the contract will be suspended.
Conclusion
In conclusion, there appears to be a solid legal argument to be made for the suspension of rental obligations. However, each matter will have to assessed in terms of its own context and specific facts. In the matter of Transnet Ltd t/a National Ports Authority v Owner of MV Snow Crystal, the Supreme Court of Appeal looked at various factors in determining whether the principle of supervening impossibility had application, These included, the nature of the contract, the relationship between the parties, the circumstances of the case and the nature of the impossibility. Clients intending to seek to rely on the doctrine of supervening impossibility to suspend rental payments during the Covid-19 period will be well advised to obtain expert legal advice prior to doing so.