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Referral of Tenants’ Refusal to Pay Rent to Arbitration

Referral of Tenants’ Refusal to Pay Rent to Arbitration

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Recently, we have had a number of discussions with various persons about possible action to be taken against tenants, especially national tenants, who have advised that they will not be making payment of rent and/or other lease charges during the current lockdown period, due to them, on their version, being deprived of beneficial occupation of the leased premises.

2. At the outset, we need to stress that the advice in this letter is of a general nature only, and that each matter will have to be considered on its own merits and lease provisions. This letter intends to provide a practical solution to the current problematic situation, in a general manner, which can then be applied to individual cases as need be.

3. As background, landlords are currently faced with a situation where many tenants have refused, or have indicated that they intend refusing, to make payment of rent and/or other lease charges specifically for April 2020, in light of their allegation that they have been deprived of beneficial occupation of their leased premises due to vis major and/or force majeure. It is important to note that very few of these tenants’ lease agreements contain a clause allowing them to suspend their lease obligations due to force majeure. This failure to pay, in our view, constitutes nothing more than a breach of contract. Such a breach entitles the landlord to take the necessary legal action for the recovery of the amounts it believes are due and owing by the tenant.

4. In the present circumstances, traditional court litigation is not necessarily the answer in order to resolve these disputes, due to, amongst others, the following reasons:

4.1. The courts are currently also in lockdown, and only certain specified urgent matters are being dealt with, including family violence, rights of children, and bail applications. Commercial disputes are not included in the specified list of urgent matters;
4.2. Only once the state of disaster ends will the courts return to its usual functioning. This may take quite some time, and, even then, we anticipate that the courts will be chaotic, with lost hearings to be caught up, actions that have piled up to be instituted, and everyone generally trying to get their cases heard as soon as possible;
4.3. Litigation generally is slow and expensive. It can be accepted that, if action is instituted against these tenants, the matters will be defended, and it can then take between 18 months and 2 years for the matters to be finalised.

5. As an alternative to the above, we would suggest that serious consideration be given to referring the present disputes to arbitration. In general, arbitration has the following features: 5.1. A matter can only be referred to arbitration by agreement between the parties. Generally, lease agreements contain arbitration clauses stating that all, or certain, disputes will be referred to arbitration, but, in the absence thereof, the parties may agree to refer a specific dispute to arbitration, once such dispute has arisen;
5.2. In arbitration, the parties may choose their presiding officer, the arbitrator. Again, generally speaking the lease agreement will specify the qualifications for the arbitrator, and these usually include that it must be an attorney, advocate or senior advocate of at least a certain number of years’ experience;
5.3. The arbitrator generally has wide powers as to the conduct of the matter, and most often the agreement will state that the arbitrator will have the same powers as a judge of the High Court;
5.4. Whereas our taxes generally pay for the court buildings and judges’ salaries, in arbitration the parties pay the arbitrator’s fee, and other related costs. This normally makes arbitration more expensive than litigation in courts. Generally, the parties will initially share the costs of the arbitration in equal shares, and the arbitrator will then make an award as to costs, usually in favour of the successful party, with the result that it will then be able to recover the costs it had already paid from the losing party;
5.5. What the parties lose in costs, however, they gain in time. Normally, arbitration can take place much faster than litigation, as the parties may agree on shorter time periods, and generally the allocation of hearing dates are not dependant on court diaries. Also, interlocutory matters are often dealt with via conference calls and/or after hours, in order to save further costs and time;
5.6. Many arbitration clauses provide that the arbitration is to be resolved promptly. Some clauses use the words “as expeditiously as possible” whilst others require completion within periods ranging from 21 – 30 days;
5.7. Arbitration awards do not set precedents as judgments of the High Court do. Therefore, one arbitrator is not bound by the decision of another arbitrator, although the prior awards may have persuasive power;
5.8. The arbitrator issues an award, which is binding on the parties. Unless the parties have agreed otherwise, there is no right of appeal, with the result that the award is binding. If the losing party does not comply with the order, the winning party has to apply to court to make the award an order of court, whereafter normal execution steps may follow. This is usually not a very long process.

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SA Branch Phone: +27 (0)21 914 0513
Namibia Branch Phone: +264 (0)81 143 6980
SA Branch: Ben Groot Attorneys Inc (2012/051739/21)
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