Since its inception in 2011, the Companies and Intellectual Property Commission (CIPC) has seen a steady increase in the number of businesses filing for business rescue. And, as an obvious by-product of the COVID-19 pandemic, the commission has seen an unprecedented wave of business rescue filings.  

In many instances, these distressed businesses will be tenants in commercial premises, seeking to ease the pain of being dragged into protracted and costly litigation by their landlords.  

Filing for business rescue places a moratorium on pending and further legal action against the tenant – and thereby affords it some breathing space to restructure its affairs without the distraction of the legal proceedings. But, in most instances, it will be the landlord who is left unable to breathe.  

It is important that landlords are aware that cancelling an agreement of lease is possible after a tenant has filed for business rescue. A tenant who is in business rescue still has an obligation to honour their payment of rent as determined in the agreement of lease unless the business rescue practitioner has rightfully suspended the agreement of lease or has elected to cancel the agreement of lease.  

The Courts have, in numerous instances, confirmed that a landlord may cancel an agreement of lease after a tenant has commenced business rescue proceedings and render the occupation of the leased premises unlawful. However, such a cancellation can only be put into effect if the tenant was placed in breach before filing for business rescue, and the business rescue practitioner has not yet suspended the agreement of lease. 

Upon lawful cancellation of the agreement of lease, nothing prohibits the landlord from commencing with eviction proceedings against the tenant who is in unlawful occupation of the leased premises, however, landlords should carefully consider whether the leased premises is material to the ongoing business dealings of the tenant before taking this drastic step. The moratorium afforded to tenants in business rescue does not protect a tenant who is in unlawful possession of a leased premises. 

Aside from proceeding with an order for the eviction of the tenant under business rescue from the leased premises, cancellation might deter tenants from misusing the business rescue process and may open negotiations with the appointed business rescue practitioner (who might act reasonably) to voluntarily vacate the premises.  

The above legal position should not be taken lightly. Tenants should be aware that filing for business rescue to avoid payment of rent and to remain in occupation of the leased premises may be regarded as a misuse of business rescue proceedings.  Likewise, landlords should not idly sit by before taking the necessary steps to cancel the agreement of lease and institute eviction proceedings to protect their business.   

Article by Wilco Du Toit | Associate
Email: wilco@barnardinc.co.za
Mobile: 078 456 1759