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COVID 19 landlords tenants

Today; I am going to continue with the theme of Lease Agreements in this time of Lockdown.

We are still at level 4.

It is a tough time for both landlords and tenants.

As a specialist consumer lawyer, I try, at all times, to use alternative dispute resolution procedures to resolve disputes between parties and this also applies to lease agreements.

One of those tools is mediation.

So what exactly is mediation?

Some definitions of mediation include the following:

“An intervention in a dispute in order to resolve it” or, an “intervention in a process or relationship.”

The critical difference is that the mediation process is NOT as formal as litigation or even arbitration. Also, it is not an adversarial process; this means that there is no formal legal representation for a party and neither is there a “judge” or arbitrator (in many ways, a privately appointed “judge”).

I always differentiate in my process for dispute resolution between the intervention which is the initial contact with the parties and the mediation itself, where I act as a mediator which is very much more like the role of an “umpire” or “referee” in the discussions between the parties to the dispute.

A mediation need not necessarily be final. By agreement between the parties, it MAY be final, or it may be nothing more than an attempt at settlement.

In mediation, there is no evidence under oath, and furthermore mediation is almost always, by agreement, confidential, and done “without prejudice” to either parties rights. If the issues between the landlord and the tenant are not resolved, the process does not prejudice or bind the parties in any way.

The mediator, therefore, does not judge the case; but facilitates discussion and eventual resolution of the dispute. As stated above he/she plays the role of an umpire or referee rather than that of a judge or arbitrator who would make a binding decision.

During the COVID 19 pandemic and the lockdown that the South African Government has imposed through regulations promulgated in terms of the Disaster Management Act No 53 of 2002, mediation can and should be a very effective way to resolve disputes. This can also be conducted remotely and it may also be done in writing.

One of the most pressing current disputes, as alluded to above, is indisputably between landlords and tenants during this global crisis and our current lockdown and the resulting economic realities. Although there could be many other situations and other contracts which are causing conflict between parties, this blog will focus on the landlord and tenant situation; but its contents can be applied in other situations as well.

One needs certain skills in alternative dispute resolution scenarios and it is always best to get an independent objective expert to assist in these situations:

What do the parties need to consider?

 Negotiation and the ability to negotiate and intercede between the landlord and tenant is a critical and necessary skill

Effective negotiation skills are one of the factors, in my view, which set aside an average mediator from a good one. A mediator needs to be able to ask and effectively establish the answers to the following critical questions:

  1. What are the objectives of each of the parties – what are their goals, their priorities and needs?
  2. Where and what would they be willing to “trade-off” or compromise?
  3. What are each party’s issues that they each need to have resolved?
  4. Is this a win-win or win-lose situation?
  5. Is this a continuous relationship between the landlord and the tenant needing to be preserved?
  6. What are the alternatives for both parties, if mediation fails?

There is no instant recipe for this process to succeed. In many ways it comes with good old fashioned experience and a definitive technical knowledge; not only of the factual position of both sides, but also the law involved and the interpretation of applicable legislation.

Mediation has now become compulsory in civil cases in both the High and Magistrates Courts in South Africa and this is a good thing because litigation is very expensive and takes a long time to conclude, often in a settlement anyway.

Landlords:

In the context of the Covid19 pandemic, I am also of the view that landlords have a challenging time ahead. Like many business owners this is a fact and they will have to turn their focus from profit-making to a different or more equitable view, and I would recommend that they ask themselves the following questions:

  1. What are my actual running costs?
  2. Where can I scale down or renegotiate the obligations of my tenant?

Then they need to determine the absolute minimum baseline and see how they can accommodate their tenants, eg in rental holidays, reductions of rent and service costs or even in revised lease agreements.

If this does not make any sense to a landlord, then they need to ask themselves these further questions:

  1. What will happen if I lose my tenant/s or have most or all of my tenants in arrears simultaneously for months on end?
  2. What will the cost and timeline be if I am forced to engage in an eviction action and application in terms of the PIE Act?
  3. What if I cannot enforce my landlord’s hypothec?
  4. What if I cannot find decent alternative tenants? What are my options?
  5. Can this situation, if not negotiated, lead to my own financial crisis of even my sequestration or the liquidation of my company?

Landlords need to evaluate what is the best possible outcome for them and perhaps to mediate a solution rather than litigate and consider a compromise now, for the sake of a long term gain. This is especially so if the tenant is a good one.

Tenants:

Tenants also have several avenues to explore.

Difficult times lie ahead for many tenants.

The Consumer Protection Act No 68 of 2008 (CPA) provides for some recourse, in certain circumstances, if it applies to a particular tenant and his/her lease.

Firstly, is the landlord a “supplier” in terms of the CPA?

Are the letting and hiring involved in the ordinary course of business?

If it is, does one qualify as a “consumer” in terms of the CPA?

Generally speaking, all natural persons are covered by the CPA, if you contracted in your personal capacity.

For juristic persons (companies, close corporations and trusts).

Are they consumers? Do they meet the necessary criteria and does that juristic person’s asset value or annual turnover, at the time of entering into the transaction (lease agreement), exceed or is it less than R2 million? These are all important questions for a juristic party to a lease to ask and answer to understand how the law will apply to them and their lease agreements.

Generally. all fixed-term agreements (including lease agreements) are, in terms of the CPA and its regulations limited to a maximum of 2 years; unless there is a tangible advantage to the consumer, which the supplier must prove. The onus rests on the supplier or landlord in this instance.

Lastly, it is generally the rule that consumers may cancel the agreement by giving the service provider 20 business days’ early notice of termination in writing, and no allegation of a breach is required.

The supplier, in turn, is only entitled to levy a “reasonable cancellation penalty” and must comply with regulation 5 and its content when doing so.

The computation of the penalty is also not an exact science, but should consider the following:

In terms of Regulation 5(2) of the CPA, a penalty may not exceed a reasonable amount taking into account various factors such as:

  • The amount that was still owing under the remainder of the period of the lease;
  • The value of the transaction up until cancellation;
  • The duration initially agreed upon;
  • The length of notice given of the cancellation;
  • The potential for the landlord to find another tenant; and
  • The general practice relevant to the industry.

Conclusion:

Now is the time to resolve matters and issues between landlords and tenants via mediation.

It is the best, quickest and least costly way to obtain a satisfactory result; which, in the time of this pandemic, is the most that landlords and their tenants can hope to achieve.

 

Please visit our website at www.legaladviceoffice.co.za or send us an email to This email address is being protected from spambots. You need JavaScript enabled to view it. with your legal questions.

About our author:

Hugh Pollard (Legal Consultant), has a BA LLB and 42 years’ experience in the legal field. 22 years as a practicing attorney and conveyancer; and 20 years as a Legal Consultant.

082-0932304 (Hugh’s Cell Number)

This email address is being protected from spambots. You need JavaScript enabled to view it.

www.legaladviceoffice.co.za

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