What you need to know if you own or rent commercial property
If you’re a business owner, it’s very likely you either own or rent a commercial property. Whether you are landlord or tenant, you need a solid understanding of commercial eviction laws to protect your rights and interests. Commercial property is not governed by the same legislation as residential rental housing. No one is made homeless by eviction from a commercial property, and so the law takes a much more transactional, less sympathetic approach to regulation.
The commercial lease agreement
A commercial lease is a form of contract. Unlike residential tenancies, there is no legislation specifically covering commercial leases, which are instead governed by contract law and common law. The Rental Housing Act and Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (PIE) do not apply to commercial tenancies. Landlord and tenant have a business relationship. Therefore, a properly structured lease will prevent misunderstandings and conflicts. The lease agreement should outline the interests of both landlord and tenant and their duties towards each other.
The lease should cover the following considerations:
- Landlord’s operating costs
- Rates and taxes
- Body corporate levies, if applicable
- Electricity and water
- Refuse collection and sewerage
- Rent payment, usually charged per square metre and not for the unit of premises, unlike in residential leases
- Termination notice
- Default conditions
Grounds for eviction
If a landlord wishes to evict the tenant, they must first cancel the lease. This can be done on the expiry of the lease or if there is a material breach of the terms of the agreement. An eviction cannot be implemented without following the correct legal procedures. Unless a commercial tenant is using a property for unlawful activities, the grounds for cancelling a commercial lease usually involve non-payment of rent. However, there are certain circumstances in which the landlord may not cancel the lease despite rental arrears.
If a business is in distress and unable to fulfil its obligations to creditors, but has applied for business rescue under the Companies Act, a moratorium is placed on legal action against the business. A landlord cannot start eviction proceedings or seek to recover rental arrears during the rehabilitation phase. This can place the landlord in a difficult position. Business rescue proceedings may be successful and the business may return to profitability. However, business rescue can simply be used to delay or prevent creditors from taking legal action, such as eviction. The landlord should consult with the business rescue practitioner (usually an accountant) responsible for restoring the business; there may be an opportunity for collaboration. Alternatively, the landlord can ask the High Court to set the business rescue aside, if there is reason to believe the business owner is simply using business rescue as an evasion tactic.
Depending on the size of the commercial property and the proportion of it leased to the business undergoing rehabilitation, the effect on the landlord can be serious, for example if the landlord relies on the rent to make bond payments. Business rescue takes at least three months, often longer, and during that time the landlord’s hands are tied. In this scenario it is reasonable to pursue alternative solutions.
Provided the tenant is not in the throes of business rescue, the landlord may provide written notice of lease cancellation and intention to evict. The notice period will vary according to the specific circumstances and terms of the lease agreement.
In some instances, a commercial tenant may be protected by the Consumer Protection Act (CPA). If there is a fixed-term lease, Section 14 of the CPA will apply, meaning the landlord must give 20 business days’ written notice of a breach of the lease agreement. Should the commercial tenant fail to remedy the breach after 20 days, the landlord may then cancel the lease.
Section 14 does not apply in the following situations:
- If the tenant is an organ of State (municipality, state department, etc.)
- If the landlord and tenant are both juristic persons
- If the lease is a once-off lease
- If the tenant is a juristic person with an income/turnover above R2 million per year
In these circumstances, the notice of a breach and termination notice will be regulated by the provisions of the lease agreement itself.
Who can evict?
In a commercial eviction the official landlord may not be the property owner. Commercial property is often owned by a juristic person such as a pension fund. In this situation, an agent can act as applicant in an eviction case, as long as they can prove they have the right to appear in court on behalf of the owner (this is known in law as “locus standi”).
Commercial eviction process
The eviction process for a commercial tenant falls within the jurisdiction of either the Magistrate’s Court or the High Court. The relevant court may be stipulated in the rental agreement. The eviction may only be brought to court once the rental agreement has been lawfully cancelled.
A commercial eviction is typically resolved much more quickly than a residential eviction, because the rights of the occupier to a dwelling and the wellbeing of vulnerable individuals are not considered in granting the eviction order. In commercial evictions, the right of the property owner to protect commercial income typically takes priority.
Tenant’s rights and conditions of use
There is a grey area when it comes to tenant’s rights if a property is used for a purpose other than its apparent use. If someone resides in a commercial property, for example they rent a flatlet built behind or above the office space, they are considered a residential tenant and they enjoy the protection contained in PIE. Conversely, commercial occupants are persons who “…do not use buildings and structures as ‘a form of dwelling or shelter’”. Therefore, a tenant of a residential structure will not necessarily be a residential occupant. For example, a homeowner may let a cottage on their property to a self-employed consultant to use as an office. Although the cottage is part of a residential property, the consultant is a commercial tenant because of the way the cottage is used.
The rights of commercial tenants during the eviction process generally include the right to receive adequate notice, the opportunity to dispute the eviction, and the right to legal representation.
Although commercial leases are not governed by dedicated rental legislation, eviction must still be done lawfully. An eviction is unlawful if a landlord removes a tenant from a commercial property without following the proper legal procedures. This can result in severe legal consequences for the landlord. Tenants facing unlawful eviction can seek legal recourse.
For further information
Whether you are a commercial tenant or landlord, you need a carefully drafted lease that includes all your requirements and conditions. If both parties understand their respective responsibilities, conflict is less likely. This includes the terms of renewal, which are often left open-ended in commercial leases and can be a cause for dispute as the end of the lease period draws near. Simon Dippenaar & Associates, Inc. is a law firm of eviction specialists in Cape Town, Johannesburg and Durban with extensive experience in property law. We will draft a commercial lease that will protect you, whether you are landlord or tenant. Contact Simon now on 086 099 5146 or email email@example.com.
The information on this website is provided to assist the reader with a general understanding of the law. While we believe the information to be factually accurate, and have taken care in our preparation of these pages, these articles cannot and do not take individual circumstances into account and are not a substitute for personal legal advice. If you have a legal matter that concerns you, please consult a qualified attorney. Simon Dippenaar & Associates takes no responsibility for any action you may take as a result of reading the information contained herein (or the consequences thereof), in the absence of professional legal advice.