Page 30 - Nexia SAB&T Property & Tax Guide 2022

FORCE MAJEURE AND PROPERTY

◆ A general “force majeure” (or “act of God”) clause is often included in lease
agreements, and in most cases, its definition is termed broadly. Such a clause will only
apply in circumstances which are beyond the parties’ control, which human foresight
could not have anticipated, and which make performance in terms of the contract
objectively impossible.
◆ Over the past two years, whether the outbreak of Covid-19 and the resulting National
Disaster (and lockdown regulations), were categorised as such an event, and thus
deemed a “force majeure” depended on each case’s specific circumstances. For
example, where furniture and fittings remained on the premises of a restaurant, even
although the restaurant was not trading during the lockdown period, the landlord may
have been able to show that the tenant had partial or total beneficial occupation, and
gained some form of value or benefit from the occupation. The fact that prevailing
circumstances (lack of income) made performance (payment of rent) uneconomical or
difficult does not necessarily mean that it had become impossible to fulfil the terms of
the contract.
◆ For a reduction of rent in these circumstances, due to “force majeure” the determining
circumstance is a loss of beneficial occupation as a direct result of the “force
majeure”, and not the loss of income used to pay the rent. The reduction in rent would
be proportionate to the extent that the tenant has been deprived of the beneficial
occupation and use of the premises.
◆ If a lease agreement provides that the premises is being leased for a specific purpose,
then beneficial occupation is in relation to that purpose only.
◆ If a lease is entered into or renewed during the “force majeure” event, liability for
performance will not be escaped. It is recommended that parties opt to make express
provision in their lease agreements for future “force majeure” (or “act of God”) events,
such as the Covid-19 pandemic or any future similar events.
◆ In the event that a lease agreement does not contain any clause relating to “force
majeure”, then the common law relating to supervening impossibility may come into
play. The parties may rely on this principle to suspend their obligations under the
agreement, but only if it has become objectively impossible for them to perform under
the agreement as a result of this unforeseeable and unavoidable event.

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