Ma-Afrika Hotels (Pty) Ltd made news headlines when it emerged the victor in its battle with insurance giant Santam over Covid-19-related business interruption claims. But another Covid-related legal dispute has not been decided in the hospitality group’s favour, with the Supreme Court of Appeal (SCA) this month granting an eviction order against it.
But in a statement last week, Ma-Afrika said it has instructed its legal team to apply for leave to appeal to the Constitutional Court. “The application for leave to appeal will immediately suspend the eviction order.”
In 2020, Ma-Afrika fell into arrears with its rental payments and related charges for one of its properties, Rivierbos Guest House in Stellenbosch. Ma-Afrika and the Venezia Trust entered into a sale and leaseback agreement in respect of the property in 2018.
The lease agreement did not contain a vis major provision. (Vis major, literally “superior force”, is some force, power or agency that cannot be resisted or controlled by the ordinary individual.)
In February 2021, the Venezia Trust launched an urgent application against Ma-Afrika in the High Court in Cape Town. In Part A of the Notice of Motion, the trust sought an ejectment order, plus costs. In Part B, the trust claimed arrear rental, interest thereon and costs.
The trust alleged that Ma-Afrika’s rental arrears in respect of the property were R872 266 by the end of December 2020. As such, it said it was entitled to claim payment of the arrear rent, cancel the lease, and have Ma-Afrika evicted from the premises. The trust cancelled the lease on 7 December 2020 after attempts to settle the issue failed.
(Updated on 16 November 2022) Ma-Afrika told Moonstone that the eviction notice was received in December 2020. The payout from Santam was received earlier this year. However, the issue was not whether Ma-Afrika was able to pay the arrear rent, but the legal principle of whether it was obliged to pay.
‘Impossibility of performance’
Ma-Afrika’s primary defence was that, as a result of the pandemic and the lockdowns, it was impossible for it to perform its obligations in terms of the lease.
It alleged that from 1 April to 31 August 2020, it did not earn any revenue because it had no guests.
Although it was permitted to operate under restricted circumstances from 18 August 2020, when alert level 2 took effect, no guests occupied the guest house during August, and it accordingly earned no revenue.
It submitted it achieved an occupancy rate of 8% in September and October 2020, and 18% in November 2020. Its occupancy rate increased to 27.7% in December, largely a result of the lifting of the ban on international air travel.
Ma-Afrika contended that because the Disaster Management Act regulations meant it was unable to trade entirely or partially, it had no rental obligation towards the trust from April to August 2020. The total amount claimed by the trust for these months was R560 651.24. Ma-Afrika asserted that if this amount was deducted from the total allegedly owed on the date of cancellation, the balance was R332 555.47, which was less than the R403 503.85 paid over the relevant period. It therefore contended that it was not in arrears at the date of cancellation but was in credit by R70 948.38.
The High Court dismissed the application for eviction, but it ordered Ma-Afrika to pay the amount claimed with interest. The court granted the trust leave to appeal, and it granted Ma-Afrika leave to cross-appeal the order directing it to pay the amount claimed.
No justification under alert level 1
In the SCA, both parties agreed that the High Court “misdirected itself” by considering Part B of the trust’s application. The SCA therefore addressed the issue of the eviction only.
Ma-Afrika argued that, as a result of the Covid-19 regulations and its inability to trade, it had no rental obligations towards the trust from April to 17 August 2020 (during alert levels 5, 4 and 3), while the trust was entitled to a partial payment from 18 August to 7 December 2020 (alert levels 2 and 1).
The SCA said that, on the facts, it was unnecessary to decide whether the restrictions in force between 26 March and 20 September 2020 constituted a supervening impossibility of performance that discharged Ma-Afrika from liability to pay the full rent.
But the period after 20 September 2020 was “on a different footing”, as there was no government-imposed bar to trading at that stage. Alert 1 came into effect from 21 September 2020.
“It stands to reason that even if it were to be accepted in the respondent’s favour that the Covid-19 regulations which prevented or restricted trade were behind the respondent’s default in the payment of rental, there was no justification for such default beyond 20 September 2020 despite the diminished commercial ability that may have resulted from the Covid-19 pandemic. As I see it, the doctrine of impossibility of performance could not conceivably have been triggered beyond 20 September 2020,” Judge Mahube Molemela wrote.
Regardless of whether a case could be made for remission of rent from April to September 2020 (assuming it was impossible for the guest house to trade because of the restrictions), Ma-Afrika failed to pay the rent when it fell due on 1 October, 1 November and 1 December 2020, thereby breaching the lease agreement. This entitled the trust to cancel the lease.
“Under these circumstances, the question raised for consideration by the High Court – namely, whether the right to cancel the lease and claim eviction from the premises was unaffected by the trust’s alleged inability to perform (by providing beneficial occupation) – simply does not arise,” Judge Molemela said.
The SCA was unable to find any indication that Ma-Afrika’s obligation to pay rent was reciprocal to the obligation of the trust to provide beneficial occupation of the entire premises.
Hardship incurred by the trust
Ma-Afrika argued that the cancellation clause should be interpreted through “the prism of the spirit of the Constitution” and be “infused with good faith, ubuntu and fairness”.
The SCA referred to its comments in a case where the circumstances were similar, Mohamed’s Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests (Pty) Ltd. In this case, the court observed:
“The fact that a term in a contract is unfair or may operate harshly does not by itself lead to the conclusion that it offends the values of the Constitution or is against public policy. In some instances, the constitutional values of equality and dignity may prove to be decisive where the issue of the party’s relative power is an issue. There is no evidence that the respondent’s constitutional rights to dignity and equality were infringed […]”
The SCA said the Venezia Trust did not rush to evict Ma-Afrika; correspondence was exchanged between the parties’ attorneys for months in an attempt to settle their differences.
The court noted that the lease agreement was a triple net lease for commercial purposes.
The court was also bound to consider the financial hardship that the trust had to endure because of non-payment of the rent. As a result of Ma-Afrika’s default, the trust had to service the mortgage bond repayments from a loan to avert foreclosure.
Remission issue referred to the High Court
Both parties admitted that the amount of rent to be remitted, if such remission applied, was not promptly ascertainable because of how the rental was structured. The SCA said the only option was for a court to determine the extent of the remission, if any. It remitted Part B to the High Court for adjudication.
The SCA set aside the High Court’s order and granted the eviction order.
The appeal and the cross-appeal were upheld with costs.
What the judgment didn’t decide
Commenting on the SCA’s decision, law firm Norton Rose Fulbright said: “What this judgment does not do is determine whether or not the Covid-19 regulations operating up to mid-September 2020 constitute applicable vis major entitling the tenant to remission of rental. That issue was referred back to the High Court for determination. The court was satisfied that the Covid-19 regulations post-20 September 2020, when there was no government bar to trading, did not entitle the tenant to remission of rental.”
Call to protect hospitality sector tenants
In its statement, Ma-Afrika said tenants in the South African hospitality industry were not adequately protected by legislation during the pandemic, unlike in most other countries when Covid-19’s effects on the hospitality industry became apparent.
It was therefore necessary for the Constitutional Court to develop the law to ensure that landlords and tenants are on an equal footing when considering claims arising from the pandemic, specifically the lockdown and other the restrictions that were placed on the hospitality industry, Ma-Afrika said.
Hang-on… Wasn’t the amount paid to Ma-Afrika by Santam for their Business Interruption cover supposed to be used by Ma-Afrika to cover their expenses, like the rent ?”
Citing a confidentiality agreement with Santam, Ma-Afrika would not go on the record about the payout it received or the extent to which the pay-out was sufficient to cover all its losses/operating expenses.