Letter: Impact of lockdown regulations on retail leases

Letter: Impact of lockdown regulations on retail leases

Dear Cape Community Member,

On Wednesday 24 March 2020, new regulations were introduced in terms of the
Competition Act, after the President declared a nationwide lockdown on Monday evening.
These regulations aim to strengthen government programmes designed to fight COVID19 and prevent certain retailers from going bankrupt or being evicted during the lockdown
period.

We have summarised the most important parts of new regulations for you below.

Please note, the SA Jewish Board of Deputies (Cape Council) cannot be held liable for any loss
or harm arising from the content hereof and has produced this guideline to assist; It is
suggested that if decisions are made based on this guideline, professional advice in the
relevant field be sought.

The regulations define a “designated retail tenant” as a South African retailer of goods or
services that lease retail property from a retail landlord. For example, a clothing store that
leases a space in a shopping mall. The retail industries covered by this definition, according
to the regulation, are those in clothing, footwear, home textile, personal care services and
restaurants. A “retail property landlord” is defined as businesses involved in the supply of
rentable space in the retail property sector. An example would be a property developer who
owns a shopping mall.

The new regulations exempt certain categories of agreements and practices between
competing retail tenants and retail property landlords from the otherwise stringent
prohibitions laid out in the Competition Act, during the period that COVID-19 remains a
national disaster. This should, according to the regulation, mitigate the negative impact of
the lockdown, by enabling retail tenants to better manage their finances during the
national disaster and ‘be in a position to continue normal operations’ once the disaster is
over.

Competing retail tenants will now be able to negotiate and enter into agreements with
retail property landlords in respect of payment holidays or rental discounts, as well as
limitations on evictions of such tenants. The regulations will also allow clauses in the lease
agreement, that restrict the retail tenant from taking “reasonable measures” to protect
their viability, to be suspended or adjusted.

It is important to note that, in order for an agreement or practice to qualify as an exemption,
it must extend to all South African retail tenants in the specific retail industry. Whilst
initially, only certain retail industries will benefit from this exemption, there may be
expansion of its ambit in the future, if it is deemed necessary in the national response to
COVID-19.

Any competing retail tenants and retail property landlords who enter into such agreements
or practices exempt by the regulations will need to keep minutes of meetings held and
written records of the agreement or practice undertaken for monitoring purposes.

It is undoubtable that this 21-day lockdown will have a negative effect on all businesses
and industries in some way. It is promising that those specified industries who lease retail
space and have to close their doors, are able to better manage their fixed costs during this
national disaster.

Kind regards

Stuart Diamond
Executive Director

Mathilde Myburgh

As a Communications Specialist, Mathilde brings seven years of experience in print and digital media, research and communication to the team, bridging the gaps between relevant content, community reach and growth, and public relations.