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Understanding the Rules of Commercial Eviction

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Understanding the Rules of Commercial Eviction

Understanding the Rules of Commercial Eviction

Commercial Eviction in South Africa

We explain the differences between Residential and Commercial Evictions, what Commercial Eviction involves, how to go about it, and the consequences thereof.

Further, we consider your options, the reasons for commercial eviction, drafting lease agreements, and eviction proceedings.

Commercial Evictions

In the context of commercial evictions, the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act, 1998 (PIE Act) does not apply as it pertains to residential properties. Instead, commercial evictions are governed by common law, the Consumer Protection Act, 2008 (CPA), and the lease agreement terms.

When a Landlord and Tenant enter into a lease agreement for a fixed term, typically specified in section 14 (4) of the CPA as two years, both parties are bound by the terms of the agreement.

The purpose of the lease, whether for commercial or residential purposes, is stated in the contract.

Failure by the Tenant to comply with the lease terms may lead to eviction proceedings initiated by the Landlord.

There are two primary grounds for initiating commercial eviction proceedings:

  1. If the fixed-term lease agreement ends, and the Tenant continues to occupy the premises without
    renewing the lease or vacating, the Landlord may commence eviction proceedings.

  2. If the Tenant commits a significant breach of the lease obligations, such as non-payment of rent
    or unauthorised subletting, the Landlord must provide written notice of the breach.

    If the Tenant fails to remedy the breach within the stipulated period, eviction proceedings may be

    initiated.

To obtain an eviction order, the Landlord must prove that the Tenant is an unlawful occupant of the premises and that the proper legal procedures, as outlined in the CPA, and the lease agreement, have been followed.

Compliance with these procedures is essential to ensure a fair and lawful eviction process.

Both Landlords and Tenants must be aware of their rights and obligations under the lease agreement and relevant laws to avoid unnecessary disputes and to ensure a smooth tenancy.

When in doubt or facing potential eviction, seeking legal advice is recommended to ensure adherence to applicable regulations and protect the rights of all parties involved.

Commercial Eviction in South Africa

The Distinction between Residential and Commercial Evictions

Residential eviction is governed by Section 4 of the PIE Act, which protects the landlord from unlawful occupiers on residential property.

Commercial Eviction is governed by common law, the lease agreement and CPA, which applies under certain conditions.

Section 5 and 14 of the CPA states that if both Parties are not juristic persons or if the juristic person has an annual turnover of R2 million, then the legislation does not apply.

Eviction Process

With Residential Evictions, the Landlord must deliver written notice to the Tenant to vacate, and if the Tenant does not, then makes an application. Commercial Eviction requires a notice of cancellation of the lease and then proceeds with an application to the court for an eviction order.

Residential Eviction must proceed with an application complying with the Pie Act, and Commercial Eviction follows common law and may proceed with an action or application proceedings.

The type of use of property determines where eviction applies. Residential is an individual residing in the premises, and Commercial means that the property is used for business purposes.

Best Practices for Drafting Commercial Lease Agreements

A well-drafted lease agreement prevents further legal complications and fees in the future in the event of a dispute. The written clauses describe each Party’s obligations and duties to each other.

Clauses

Payable Amounts

The lease agreement will specify the monthly rent amount for rent payments. It will also outline who is responsible for utility payments, with the Tenant possibly paying a pro rata share of rates and taxes.

Breach

If the Tenant breaches the lease agreement, the Tenant is required to follow the conditions mentioned in the lease agreement.

If the breach is significant, the lease agreement may contain a provision granting the Landlord the power to terminate the lease.

This means that if the Tenant fails to meet their contractual responsibilities and the breach is material, the Landlord has the authority to terminate the lease arrangement.

Renewal Clause

A renewal clause allows for the Parties to renew lease only before expiration, cancellation or breach of the lease, the Parties must renew within a stipulated period determined by lease and may amend the terms of the lease.

Application of the Clauses When Evicting

In the case of MV Ander Builder Joiner CC v Nordien[1] provides the failure to comply with terms of the agreement which enables the court to observe and grant an eviction order.

The Applicant and Respondent entered into a lease agreement on a fixed term, which set out the rental amount payable by the Tenant until the termination of the agreement.

The Respondent was in breach due to failure to pay rent and remained in occupation.

The Applicant proceeded to give written notice to the Respondent to remedy the breach, which the Respondent had failed too so.

The Respondent’s defence was that the lease agreement contained a renewal clause and assumed it was agreed between both Parties, but the Applicant had not agreed to it.

The Respondent relied on the CPA because notice must be given to correct the material breach before the lease can be cancelled.

However, the court determined that notice given by the Applicant for remedy and failure, permits the Applicant to initiate proceedings. This qualifies as a lease cancellation.

Common Reasons for Commercial Evictions in South Africa

The grounds for a commercial eviction would be an expiration of the lease agreement and a material breach of the agreement.

With the expiration of the lease agreement, a renewal clause is included in the contract which allows the Tenant to renew the lease before expiration and must show his intention to renew in writing.

If the Tenant does not exercise his right to renew the lease, when the lease agreement expires, the Tenant must vacate the premises because he is an unlawful occupant.

The Tenant’s failure to comply in any manual form of all the stipulations means he will be in breach and is failure to remedy is grounds for eviction.

To avoid confusion, it is critical to understand the clauses mentioned in the agreement. A party to the agreement should not presume whether the lease will be renewed or cancelled.

Cancellation of Commercial Lease

The Landlord must provide the Tenant with a written notice of their intention to cancel the fixed-term lease due to the Tenant’s material breach of the agreement.

The notice must be given at least 20 business days before the intended cancellation date.

It should specify the reason for the cancellation and inform the Tenant of the breach that has occurred.

If the Tenant fails to remedy the breach within the 20-day notice period, the Landlord may proceed with the cancellation.

Further, the Landlord may impose a cancellation penalty cost and recover any amounts owed by the Tenant up to the date of termination of the agreement.

The Tenant has the right to cancel the fixed-term lease if the Landlord materially breaches the agreement. The Tenant must provide the Landlord with a written notice of their intention to cancel after 20 business days following the date of the notice.

The notice should specify the reason for the cancellation and inform the Landlord of the breach that has occurred.

Neither party should assume that the lease will automatically cease upon the expiration of the fixed-term agreement. According to the section 14 (c), CPA if the lease expires, it will automatically continue on a month-to-month basis.

The Tenant has two options:

1.     Agree to the renewal of the agreement for a fixed term or;

2.     Inform the Landlord of their intention to terminate the lease.

If neither of the above actions occurs, the lease will continue, and the Tenant and Landlord will be liable to comply with the terms on a month-to-month basis.

Navigating Court Proceedings in Commercial Eviction Cases

The Landlord’s attorneys should first determine if the matter needs to proceed by way of trial or motion. If there is a material fact which is in dispute, then the matter must proceed by trial as there is contested evidence.

The Tenant may oppose the eviction, should they have a bona fide defence, which proves that the Landlord did not comply with the CPA or common law before commencing proceedings.

The Tenant must establish a right of occupation, this may be supported by the fact that the lease agreement was not cancelled or was not provided adequate notice to vacate or that Tenant did renew the lease to establish the right to occupy, this is to prove that eviction is unlawful.

The Court may consider whether the Landlord is entitled to an eviction order and if it is in the interest of justice to evict the Tenant immediately or to stay the eviction for a suitable period in order to find alternative premises.

Step-By-Step Guide to Initiating A Commercial Eviction In South Africa

The Landlord may choose to approach the Magistrate or High Court. The procedure for an eviction is by way of application, the Landlord must have prima facie case to justify a judgment in their favour. The Landlord must show eviction process before proceedings was complied.

Opposed or Unopposed

The application may be opposed or unopposed. This means that an opposed motion is when the Tenant wants to oppose the matter and if he fails or neglects to do so is then matter is then unopposed.

Unopposed applications are favoured because the time it takes to appear before a magistrate or judge and obtain a court order will take 4 to 6 weeks. An opposed motion will take longer between 6-8 months.

The process begins with a notice of motion which stipulates the cause for the application, this includes his Founding Affidavit which provides his justification for wanting an eviction and why the Tenant is an unlawful occupant.

This will be supported by the documents that include but are limited to, the lease agreement, state how the Tenant caused the material breach, the notice given to the Tenant to remedy the breach and the notice cancellation of the lease.

Lastly, in this way, the Landlord’s claim for eviction is supported.

Enforcing An Eviction Order: What Landlords Need to Know

Sheriff Enforcing an Eviction Order

When the court grants an eviction order, the tenant is legally obligated to vacate the premises on the specified date mentioned in the court order.

The eviction order is enforced by the Sheriff of the court, who takes the necessary steps to effect the eviction.

The tenant must vacate the premises before the specified date in the court order. If they fail to do so, the Sheriff may remove the tenant and their belongings after that date.

With the warrant in hand, the Sheriff may request assistance from the South African Police Service (SAPS) and proceed to use necessary force to execute the eviction.

However, the force used must not be unlawful and must be reasonable with regard to the eviction.

The tenant’s belongings may be placed in storage during the eviction process, and they will be liable for the costs incurred in storing their belongings.

If the tenant refuses to pay the storage costs or remove their belongings, the Sheriff may place the belongings outside the premises.

In this case, neither the Sheriff nor the SAPS will be liable for any damages suffered to the belongings.

Liability for Damages: The Sheriff and the SAPS will only be liable for damages caused during the eviction process.

Protecting Landlord Rights During Commercial Evictions

The Landlords rights to claim for damages in rental arrears which may be claimed separately at the time of eviction.

Real Security

The Landlord’s hypothec is a form of real security, which means the landlord has a right to claim and hold the tenant’s movable property as collateral to secure a debt.

The purpose of the Landlord’s hypothec is to provide the landlord with a means to secure a debt owed by the tenant.

This debt could be related to unpaid rent, damages, or any other financial obligation the tenant owes to the landlord.

To exercise the Landlord’s hypothec, the landlord must file an urgent application with the court. This application is aimed at preventing the tenant from removing the movable property from the rented premises.

For the Landlord’s hypothec to be effective, the movable property that the landlord intends to use as collateral must still be present within the rented premises at the time the urgent application is filed.

If the tenant removes the movable property from the premises before the landlord files the urgent application, the landlord may lose the right to attach the property and use it as security for the debt.

In such a case, the landlord will not have a claim over the specific movable property that was removed.

The Tenant is a company that is financially distressed, it may initiate Business Rescue Proceedings under Section 128 of the Companies Act, 2008, signalling the need for rehabilitation due to financial difficulties. Business Rescue typically takes up to three months to terminate.

A Business Rescue Practitioner will be appointed to assess the company’s finances and propose a rescue plan.

To evict the Tenant, the Landlord must apply for eviction before the Business Rescue process starts.

If the Landlord files for eviction after the commencement of the Business Rescue, the proceedings will be automatically stayed until the process concludes, therefore protecting the company from eviction during its rehabilitation.

In certain cases, eviction proceedings may proceed during Business Rescue if the Business Rescue Practitioner consents or the court permits it based on compelling reasons.

Real-Life Commercial Eviction Cases in South Africa

The Landlord may be entitled to an eviction order, but the court may use its discretion to effect it immediately or to stay the eviction as seen in the AJP Properties CC v Sello.[2]

The Applicant the Respondent entered into a 5-year lease which expired. It included a clause that allowed for the extension of the lease but either Party may decide to terminate.

In terms of the agreement, the Applicant had terminated the lease, as the court found that he was entitled to do.

The court had to then consider whether or not justice was best served by effecting eviction or in staying of that order.

In this particular court case involving an eviction, the court took into account not only the legal aspects but also the socio-economic impact of the business on the community.

Additionally, the court considered the practicality of finding alternative premises for the Respondent.

As a result, the court exercised its discretion and granted a three-month postponement of the eviction.

This timeframe was deemed adequate to allow the Respondent sufficient time to secure and relocate to suitable alternative premises.

The court’s decision aimed to strike a balance between the interests of both parties and mitigate potential hardships during the transition.

Being entitled to an eviction order does not guarantee immediate eviction, the court will consider whether or not, in the interest of justice, the Tenant should vacate the premises.

Navigating Lease Transfers in Commercial Property Sales

When a property is sold while a valid lease agreement is in place, the principle of “Huur Gaat Voor Koop” (which translates to “lease prevails over sale”) applies.

This principle means that the lease agreement takes precedence over the sale, and the new buyer of the property becomes the new Landlord, inheriting both the property and the existing lease agreement.

As a result, the Tenant retains the right to continue occupying the property as per the terms and conditions outlined in the existing lease agreement.

The new buyer must adhere to the terms of the lease agreement, and the Tenant’s rights and obligations under the lease remain unchanged. The Tenant’s tenancy is not affected by the property’s change in ownership.

However, it’s worth noting that this restriction does not apply to leases with a duration of more than ten years.

Additionally, according to the CPA, if the lease is for a fixed-term, the Tenant has the right to terminate the lease with the consent of the CPA by providing the Landlord with a 20-day written notice.

Thus, if the Tenant wishes to end the tenancy before the fixed term expires, they can do so by giving the Landlord at least 20 business days’ notice of their intention to terminate the lease agreement.

Best Practices for Successful Commercial Evictions In South Africa

To obtain an eviction order, it is critical to follow the proper procedures and ensure that the lease agreement is well-drafted to avoid future issues.

The lease should include all necessary criteria, terms, and conditions, including safeguards for both parties’ rights in the event of a substantial breach.

The court will assess all the actions taken before commencing eviction proceedings. Hence, it is critical to complete all processes ahead of time.

Here, at Martin Vermaak Attorneys INC, our legal professionals are happy to competently draft a lease for you that protects both the Tenant and the Landlord’s interests.

[1] MV Ander Builder Joiner CC v Nordien [2021] ZAWCHC 255.

[2] AJP Properties CC v Sello 2018 (1) SA 535 (GJ).

Read More:

Commercial Law Services

The Process of Eviction in South Africa

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