The landlord and tenant relationship can be traced back to the 10th century. It is an intrinsic relationship that is here to stay, however it ultimately evolves.
Landlords and tenants, as an inseparable pair, currently face a significant challenge.
I write this article with conflicting feelings – on one hand being a landlord’s attorney and, on the other, as a tenant. While my primary aim is to consider the legal position, there are also practical suggestions to manage the relationship during this tumultuous time.
In this unprecedented situation, it is natural that certain tenants will look to their landlords for assistance. The landlord’s position is, however, precarious, despite a popular misconception that landlords hold unlimited funds or can afford to withstand non-payment of rentals.
Landlords pay rates and taxes, utilities consumed by their tenants at their properties, and other operational costs, including staff salaries. Most significantly, most landlords have substantial bond repayments and other debt instruments that they must service.
The below information serves as a guide for tenants and landlords in these challenging times. One must regard the entire contents of this article to understand the legal position and, with understanding of the other side’s position, hopefully reach an amicable resolution to protect the symbiotic relationship between landlord and tenant.
Contractual law and lease agreements
In contractual law, generally, in the event of a vis major (synonymous with force majeure) – a superior power or force which cannot be resisted or controlled – the result is that one or both parties are excluded from liability and from fulfilling their contractual obligations.
In my view, the Covid-19 outbreak, and the resultant government lockdown, fall within the definition of a vis major.
Therefore, a tenant intending to rely on vis major to be exempt from paying rental (in full or partially) must prove that it did not have full beneficial occupation of the leased premises for a defined period.
In this regard, the tenant might be entitled to a remission of rental for the number of days that they were unable to have full beneficial occupation of the leased premises.
Most modern lease agreements contain a rental payment clause that excludes any deduction or set-off for any reason whatsoever.
Furthermore, certain leases also specifically exclude liability against the landlord for any claim, of any nature, for any loss or damage suffered directly or indirectly by reason of vis major.
In such cases, despite the lockdown, rental remains payable and the landlord is within its rights to claim payment.
However, if the lease agreement does not contain a rental payment clause, as referred to above, a tenant without full beneficial occupation may seek a remission of rental.
At best, for any tenant that is entitled to a remission of rental, utilities, rates and taxes and other such fixed costs remain payable without any remission whatsoever.
Categories of tenants
Residential tenants will remain in occupation of their premises during the lockdown period and therefore enjoy full beneficial occupation. There is no contractual or other right for such tenants to withhold rental payment.
Retail tenants (with the exception of those that fall within the definition of essential services) will not be in full occupation of their premises during the lockdown period and will not generate any income. Despite this, if their lease agreement contains the aforementioned rental payment clause, they are contractually obliged to continue making payment.
Commercial (offices) and industrial (warehouses and factories) tenants are in the same position as retail tenants.
Business assets in the leased premises
The argument by retail, commercial and industrial tenants is that, practically, even though they are obliged in terms of the lease agreements to pay rental, they do not have the full use and enjoyment of the leased premises.
One must, however, give regard to the fact that although the tenant’s human resources will not be in occupation, the tenant’s business assets remain in the leased premises and the tenants accordingly do still enjoy some use and benefit of the leased premises.
Tenants – continue paying rental as per your contractual obligations. If your lease does not have a deduction or set-off clause, request a remission of rental for the appropriate number of lockdown days.
Landlords – where possible, assist tenants (especially those who are in good standing) through this difficult time with deferred rentals (partially or in whole) with fair repayment terms to be agreed. It is obviously in your best interests to help good tenants survive.
It is important to note that the above is subject to careful consideration of each matter on a case by case basis and that there is no general rule or answer.
Finally, my advice is for everyone to communicate, be fair, respect and be kind to each other and work together to overcome this. Our actions now, as landlords and tenants, will set the foundation for our future beyond this crisis.
By Liad Hadar – 27 March 2020
Liad Hadar is director at Hadar Incorporated – Property Law Specialists. Views expressed are his own. If you are a tenant or landlord and have a follow-up question, you may contact the firm at firstname.lastname@example.org.