Mediation between Landlords and Tenants

04 May 2020 8:02 am

Covid-19: Mediation between landlords and tenants – a critical tool now? Using mediation to resolve disputes could prove to be more efficient in the long term, and our economy might depend on it.

Written by Nicolene Schoeman-Louw, Managing Director SchoemanLaw Inc, for LexisNexis South Africa.

[Durban, 28 April 2020]

Some definitions of mediation include “an intervention in a dispute in order to resolve it” or “intervention in a process or relationship.” The critical difference is that the process is not as formal as litigation or arbitration. Also, it is not an adversarial process; this means that there is no “judge” or arbitrator (in many ways a privately appointed “judge”).

There is no evidence under oath, and further mediation is confidential, and if 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.

During the Covid-19 pandemic and the lockdown South Africa has imposed, mediation could be a very effective way to resolve disputes. This can be conducted remotely.

One of the most pressing brewing disputes during this global crisis is unarguably that between landlords and tenants. Although there could be many other sources of dispute, this article will focus on using mediation to resolve disputes between the landlord and tenant.

Negotiation is a critical skill

Effective negotiation skills are what in my view set an average mediator apart from a great one. The mediator needs to be able to ask and effectively establish the answers to the following critical questions:

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

There is no recipe for this, in many ways it comes with experience and an explicit technical knowledge not only of the factual position of both sides, but also the law involved.

Mediation has become compulsory in cases in both High and Magistrates courts in South Africa, but now more than ever, I feel it will be playing a critical role.

Landlords

In the context of the Covid-19 pandemic – I am of the view that landlords have a very difficult time ahead. Like many business owners. They will have to turn their focus from profit making to a different view and I recommend they ask themselves the following questions:

  1. What are my bare running costs?
  2. Where can I scale down or renegotiate obligations?

Then determine the absolute minimum baseline and see how you can accommodate tenants, in rental holidays, reductions or revised agreements.

If this does not make any sense, then ask these questions:

  1. What will happen if I lose all my tenants or have most or all tenants in arrears for months from now onwards?
  2. What will the cost and timeline be on eviction, or enforcing the hypothec?
  3. Will that result in your liquidation?

Calculate the alternative of doing nothing and compare the two projections.  Consider the alternative to a compromise now, for a long-term gain.

Tenants

Tenants have a number of avenues to explore. Difficult times also lie ahead for many tenants. The Consumer Protection Act 68 of 2008 as amended (“CPA”) provides for recourse in certain circumstances, if it applies. Firstly, is the landlord a “supplier” in terms of the CPA? Is letting and hiring in its normal course of business?

If it is, do you qualify as a “consumer” in terms thereof? All natural persons are covered if you contracted in your personal capacity. For juristic persons (like companies) – any juristic person whose asset value or annual turnover, at the time of entering into the transaction (lease agreement), is less than R2 million.

All fixed term agreements (including lease agreements) are in terms of the CPA to be limited to two years, unless there is a tangible advantage to the consumer, which the supplier must prove (the onus rests on the supplier).

Lastly, consumers may cancel the agreement with 20 business days’ notice and no allegation of breach is required. The supplier is only entitled to levy a reasonable cancellation penalty. The computation of the penalty is 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;
  • The value of the transaction up until cancellation;
  • The duration initially agreed upon;
  • The length of notice of the cancellation;
  • The potential for the landlord to find another tenant; and
  • The general practice relevant to the industry.

Conclusion

Covid – 19 Block Exemption for the Retail Property[1] seems to be encouraging negotiations and compromise in the retail sector.

Now is the time to resolve matters in a more efficient way long term, our economy may depend on it. Contact SchoemanLaw to aid any of your lease negotiations. Our skilled negotiators and mediators are ready to assist you.

[1] https://www.gov.za/documents/competition-act-coronavirus-covid-19-block-exemption-retail-property-sector-24-mar-2020 : accessed 29 March 2020.

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