The Appeal Division of the Gauteng High Court recently delivered an important judgment in the matter of Hennops Sports (Pty) Ltd v Luhan Auto (Pty) Ltd and found that, on the facts of the matter, COVID-19 and the Government-imposed lockdown regulations did not constitute a supervening impossibility which would entitle a lessee to the remission of rental.   

The landlord, Hennops Sports (Pty) Ltd (“Hennops”) leased an immovable property to the lessee, Luhan Autho (Pty) Ltd (“Luhan”) in order for it to conduct a business of a motor vehicle dealership. In terms of the lease agreement, the rental was paid monthly in advance. Luhan claimed rental remissions following the imposition of the lockdown regulations.

Luhan was not an essential business and was compelled by the lockdown regulations to cease business operations from its premises (i.e. operations that relied on persons moving in and out of the premises had to stop). However, the regulations did not affect the virtual manner of conducting businesses.

The Court held that although the lease agreement specified that the immovable property will be used to conduct a motor vehicle sales business, the lease agreement was not founded on the successful sales of the motor vehicles, but on the physical housing of the vehicles.

Having regard to the essential legal requirements of a lease agreement and the Common Law principles, the Court found that what matters is the foundation of a contract as opposed to the one-sided object of contracting. Accordingly, although the lockdown regulations impacted upon the profitability of non-essential businesses, this amounted to a commercial impossibility, rather than an absolute supervening impossibility.

On the facts of this case, there was no supervening impossibility which would have discharged Luhan from its contractual obligations to pay rental for the usage of immovable property. The immovable property remained intact in order to be used to house the motor vehicles to be sold. The Court pointed out that the lockdown regulations did not prevent parties from leasing immovable property. The regulations also did not render it illegal to house motor vehicles in an immovable property. The landlord is obliged to give the lessee use and enjoyment of the property leased, and does not promise that the purpose for which it was leased will be achieved. Ultimately the lockdown regulations did not render it illegal to give usage and enjoyment of an immovable property to Luhan, neither did it render it illegal to pay rental.

Luhan was held liable for the payment of the rental in arrears, including penalties in terms of the agreement on the basis that the nature of the lease agreement had been unaltered by the halt of operations.

The significance of the Court’s decision is that rental remission claims must be assessed on a case-by-case basis in accordance with its own facts, construed with the lease agreement terms as well as its purpose. The judgment reaffirms our position that it is necessary to determine in each case whether the nature of the lease agreement was changed or destroyed by the implementation of the lockdown regulations. Where no such alteration or destruction is found to have occurred, then there is no supervening impossibility discharging the tenant from its obligation to pay rental.

A copy of the judgment can be accessed here.