Most of us spend time in shopping centres. Not only to shop but also to meet people and for entertainment as well as leisure. Most of us will also have noticed the increasing number of empty shops. The tell-tale signs of papered up shop windows are becoming common place. Few of us stop to consider the stories behind the blocked out shop windows. It is an interesting and unfortunately rather depressing tale.
The first completely covered shopping centre in South Africa was Hyde Park Corner, developed in 1969. The first regional shopping centre was Sandton City which opened in 1973[1]. Since then shopping centres in South Africa have proliferated. In the five year period between 2006 and 2010 South Africa recorded the highest boom period ever in terms of shopping centre development with the total amount of new retail space built over this period being an incredible 2.8 million square meters. Presently South Africa has approximately 1 619 formal shopping centres ranging from 1 000 square meters up to almost 150 000 square meters. These centres represent approximately 17 million square meters of an estimated 37 million square meters of all retail facilities[2].
This phenomenal growth in shopping centres has been spurred on by the profits developers and investors make from them. These profits come from the rentals paid by centre tenants. The rental income streams from centre tenants have provided centre owners and investors with attractive returns for years.
To protect the rental income stream, centre management relies on written lease agreements with tenants. These are the real assets of any centre. Over time the lease agreements have developed into comprehensive and detailed contracts. Apart from large and reputable retailers or so-called “anchor tenants”, most other prospective tenants have little if any bargaining power with centre management. The shopping centre lease agreement has come to contain clauses which aim to deprive the tenant of any ability to interrupt the rental stream. For example, the tenant cannot withhold the payment of rent to the landlord in any circumstances whatsoever. Also the tenant cannot have a claim against the landlord arising from the tenant’s occupation of the premises. Most retail lease agreements like this are for periods of no less than five consecutive years.
In good economic times when most tenants earn sufficient income to comfortably cover monthly rentals the lease agreement is forgotten in the bottom drawer. However when trading gets tough and tenants struggle to scrape together enough to pay the monthly rent, the terms of the lease agreement become the focus of attention.
In the difficult trading times tenants now face they seek a lot more assistance from the landlord. Typically this would be in the form of wider and effective marketing of the centre, increased maintenance, renovation, upgrading, better management of the centre and a remission or reduction of rental and the like.
The landlord on the other hand needs to maximise its return and keep maintenance and renovation costs as well as marketing fees to a minimum. Equally it has great difficulty in conceding remissions of rental or reductions of rental as this impacts on profits.
The stalemate has led to our courts becoming burdened with many cases of landlords suing tenants for eviction from centres, arrear rentals and damages.
In these cases the landlord, predictably, relies heavily on the terms and conditions of the lease. The same document that the tenant eagerly signed in the rosy glow of securing anticipated profits from attractive premises has now turned into the proverbial ball and chain.
Almost without exception the landlord will have procured the personal suretyship of at least one director or shareholder of the tenant. As such, both the tenant and its owner are liable to the landlord.
Commonly the legal action taken by the landlord against the tenant will be a claim for arrear rental, breach of the lease, cancellation, eviction and damages. The damages would consist of the landlord’s claim for all of the rentals which remain owed by the tenant until the termination date of the lease.
What possible chance can the tenant have against this formidable legal barrage? After all, the tenant signed away all of his rights when concluding the lease!
But is the tenant the only one to blame? Often the tenant is unable to pay the rent because the shopping centre and its management are at fault. The tenant claims that he has not received the proper use and benefit of the premises he is entitled to. The centre has failed to market itself properly or at all, resulting in fewer shoppers.
Quite often the centre will have accepted lower rentals from the tenant in the past without complaint. The centre agents told the tenant at the outset that the centre would provide him with all sorts of commercial or trading benefits which he relied on in signing the lease. These turned out to be false. The tenant accordingly claims damages for having spent money unnecessarily in fitting out his shop and for loss of profits.
These defences were raised in a recent case in the Pretoria High Court, being the matter of Billion Property Developments (Pty) Ltd v Rhino Log Furniture[3]. The tenant in this matter pleaded the defences referred to above. The landlord took exception saying that the defences were invalid in law. According to the landlord it was pointless for the case to proceed to trial as the tenant could not sustain defences of this nature.
The landlord’s point was, in general terms, that all of these defences could not be competently raised due to the terms of the lease agreement. According to the landlord it had a discretion to market the centre in any way it pleased. Because it accepted lower rentals in the past did not mean it could not insist on payment of full rental going forward. The tenant had agreed that he signed the lease without having been induced into doing so by representations from the landlord or its agent. The tenant could in any event not claim damages from the landlord due to the limitation of liability terms contained in the lease.
Interestingly the court took a softer stance on the tenant’s defences than the landlord would have liked. The court gave the tenant the benefit of the doubt on several of its defences stating that the tenant should have the opportunity of presenting his defences at a trial in due course.
The court found that the tenant could allege a tacit term in the lease that he was entitled to receive the use and benefit he believed he had contracted for in respect of the premises.
The effect of this decision is to open up the possibility for tenants in circumstances similar to those of the tenant in this matter to defend themselves against the landlord’s seemingly unstoppable legal action.
Although the lease agreement contained every conceivable term to protect the continual payment of rent it was not beyond challenge in this case. The tenant does have a voice. He is entitled to challenge the landlord on issues like the way it markets the centre, whether the monthly rental amount is actually fair, whether the landlord wrongfully induced the tenant to conclude and whether the landlord is providing the tenant with proper use and benefit of the premises..
[1] Service Quality in a Landlord – Small Business Relationship in Shopping Centres by Cornelia Petronella Johanna Harmse April 2012, University of Pretoria (“the works”)
[2] Para 4.2, page 113 of the works
[3] Billiion Property Developments (Pty) Limited v Rhino Log Furniture & Lapas CC t/a Log Furniture & Another, Pretoria High Court, case number 51992/2016
