Mc Naught & Co
The Corona Virus and Contracts
On 26 March 2020 President Cyril Ramaphosa announced a nationwide lockdown to curb the effects of the Covid-19 pandemic.
While this was a wise and welcomed decision to protect the health and lives of our citizens but it also puts our economy and the livelihood of our citizens under strain.
The Corona Virus is a global pandemic and as such it affects the ability of parties to perform in terms of their contracts.
Our law provides relief in situations of global pandemics which may be referred to as a “force majeure”.
What is a Force majeure?
A force Majeure can be described as an unforeseeable circumstance that prevents fulfillment of obligations under a contract. It can be described as an “Act of Gd”, and includes natural disasters such as hurricanes and earthquakes, famine and pandemics. The Corona Virus could be said to constitute a force majeure.
In order to rely on a force majeure clause in a contract, the courts require that various conditions be proved.
These were set out in Glencore Grain Africa (Pty) LTd v Du Plessis NO & Others (2007) JOL 21043 (O).
Among these conditions one must prove an absolute objective impossibility of performance and that the impossibility was not due to the fault of either of the parties to the contract.
Where its included in a lease agreement, the onus is on the party relying on the clause to prove its applicability.
We advise our clients to include force majeure clauses in all lease agreements and sale agreements. It is advisable to frame this clause in wide terms by specifying what exactly would constitute a force majeure.
This provides certainty in circumstances where one needs to trigger this clause in a contract in order to be able to rely upon it.
However a lot of the time contracts do not contain force majeure clauses. In these instances one could rely on our common law to protect their interests by invoking supervening impossibility of performance.
A tenant can rely on the force majeure clause in a lease agreement, which would extinguish both parties obligations in terms of such lease agreement due to the impossibility of performance, for an agreed period of time or until such time as the disaster or pandemic has blown over.
We advise our clients who are parties to lease agreements/sale agreements to speak to their landlords/sellers and to negotiate with them to find a mutually beneficial solution for both parties.
One could negotiate a lower rental during this period or an extension of the lease agreement by the amount of months which payment may be deferred for example. With most banks coming on board to assist mortgagors by providing payment holidays or temporary suspensions of their monthly repayments, this also paves the way to allow landlords to assist their tenants accordingly.
Our Mc Naught and Company Inc Offices are all open remotely during the lockdown period and we are here to assist our clients with their property queries during this time, including
– drafting and triggering a force majeure clause
– assisting landlords with letters of demand
– Drafting addendums to sale agreements or lease agreements to allow for extensions of time
Please do not hesitate to contact our offices for advice and assistance.
Most importantly, stay home and keep safe! We are all in this together.