Mediation between landlords and tenants - A critical tool in lockdown
Some definitions of mediation includes “an intervention in a dispute in order to resolve it” or “intervention in a process or relationship. ”
The key difference is that the process is not as formal as litigation or arbitration. In addition 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 is unarguably between landlords and tenants during this global crisis. Although there could be many other sources, this article will focus on the landlord and tenant.
Negotiation as a critical skill
Effective negotiation skills are what in my view sets 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:
- What are the objectives of the parties – what are their goals, their priorities and needs. Where would they be willing to “trade-off” or compromise?
- What are each party’s issues they need resolved?
- Is this a win-win or win – lose situation?
- Is this a continuous relationship needing to be preserved?
- What are the alternatives for both if mediation fails?
There is no recipe for this, in many ways it comes with experience and a clear 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 will be playing a critical role.
In the context of the Covid19 pandemic – I am of the view that landlords have a very difficult time ahead. Like many business owners, true. They will have to turn their focus from profit making to a different view and I recommend the following questions:
- What are my bear running costs?
- 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:
- What will happen if I lose all my tenants or have most or all tenants in arrears for months from now onwards?
- What will the cost and timeline be on eviction? Or enforcing the hypotec?
- 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 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 2 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:
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.
Covid -19 Block Exemption for the Retail Property 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.
Nicolene Schoeman – Louw is an admitted Attorney of the High Court of South Africa, Conveyancer, Notary Public and Mediator.