COVID-19 was officially declared a national disaster in Zimbabwe on 17 March 2020. The country has since been placed under a mandatory nation-wide lockdown with periodic review of the upward curve of COVID-19 infections against the phased relaxation of containment measures in-order to stimulate economic activity. Government interventions have been enacted through a number of Statutory Instruments and it is expected that further policy statements and/or Statutory Instruments will be issued within the unforeseeable future until the end of the pandemic.
Notwithstanding the scaling down of containment measures through the implementation of “level 2” protocols which have allowed for the reopening of formal businesses, the widespread effects of the pandemic continue to subdue the real estate market which was characteristically affected by the volatility of the economy and fluctuating exchange control rates. Property sales have dwindled as businesses and individuals alike brace for protracted restrictive measures and the implementation of current and future contractual obligations remains uncertain.
This article focuses on frequently asked questions regarding the effects of COVID-19 on the implementation of lease agreements (leases) in Zimbabwe and provides insights into how other jurisdictions have sought to preserve the landlord-tenant relationship.
How have lease agreements been affected by the COVID-19 pandemic?
- Tenants are largely facing difficulties in meeting payment obligations.
- The lockdown measures have particularly crippled earning capacities in both formal and informal sectors.
- Businesses and individuals are financially distressed, and the property sector is riddled with uncertainty.
- In the short-term, landlords are faced with decreased cashflow and ultimately making value judgements as they pertain to the retention of tenants.
- In the middle to long term, landlords must account for decreased occupancy levels, deflation of the real estate market and subsequent downward review of rentals.
Can lease agreements be cancelled due to an inability to pay rent during the lockdown period?
- The position in law differs according to the type of lease. That is, whether the lease is for a residential or commercial property.
- The government has refrained from interfering in or imposing a rent holiday in respect of commercial leases. Cancellation of commercial leases is therefore governed by ordinary provisions within the law of contract. There is no “one size fits all” approach as the continuity of the landlord-tenant relationship now largely falls on the ability of parties to negotiate and review potential breach or cancellation on a case by case basis.
- Negotiations or potential variations to existing agreements may be informed by tenants sharing realistic expected income, financial performance or sales reports with their landlords.
- In terms of Statutory Instrument 96 of 2020 Presidential Powers (Temporary Measures) (Deferral of Rent and Mortgage Payments During National Lockdown) Regulations, 2020 (the Regulations), the President granted a moratorium on residential evictions due to default on rental obligations due from April 2020 until the end of the national lockdown period.
- Accordingly, tenants may opt to defer payment of rent but are not prohibited from paying rent in full or in part should individual circumstances allow. Outstanding rent shall however accrue, free of interest or penalty charges and shall be paid in instalments after the declaration of the end of the lockdown period.
- In terms of the Regulations deferred rentals shall be paid in three equal monthly instalments for each month (beginning 1 April 2020) or part of a month during which the national lockdown is in force. The formula shall apply incrementally for as long as the national lockdown persists. For example, if rent is deferred for two months during which the national lockdown is in force, the deferred rental is repayable in six equal instalments over six months beginning with the month immediately following the month in or at the end of which the national lockdown is terminated.
- The Regulations also afford landlords and homeowners who have outstanding mortgage payments which depend on deferred rentals the same reprieve and payment options as tenants. It is therefore incumbent upon landlords and homeowners to approach the respective financial institutions for reprieve.
How can commercial lease agreements be varied to cater for a decline in earning capacity?
Landlords and tenants across the world have had to adapt and craft novel variations which include:
- Rent deferrals (arising from private negotiations as opposed to State regulated)
- Rent relief; or
- Security deposit arrangements.
Can a party to a commercial lease agreement invoke force majeure or supervening impossibility in order to avoid contractual obligations?
Commercial agreements typically have force majeure clauses which determine what are deemed force majeure events. In that regard, force majeure must be contemplated in terms of the specific wording in a force majeure clause which will determine the parameters within which a party may be absolved from liability.
In the absence of a force majeure clause, a party may raise the common law doctrine of supervening impossibility.
A party seeking to rely on force majeure or supervening impossibility in order to be excused from contractual obligations has a stringent burden of proof as Zimbabwean courts are reluctant to endorse a vis majeure or supervening impossibility defense. The defense is viewed as extraordinary and is applied in limited circumstances.
The court will consider the specific circumstances on a case by case basis.
Notwithstanding COVID-19, the success of a force majeure or supervening impossibility defense will largely depend on the specific circumstances of each individual case. In that regard, individual legal advice must be sought.