The Effect of the Moratorium on Property Owners during Business Rescue
| Jurisdiction | South Africa |
| Date | 20 August 2019 |
| Published date | 20 August 2019 |
| Citation | (2017) 29 SA Merc LJ 419 |
| Author | Maleka Femida Cassim |
| Pages | 419-449 |
Articles
THE EFFECT OF THE MORATORIUM ON
PROPERTY OWNERS DURING BUSINESS
RESCUE
MALEKA FEMIDA CASSIM*
Associate Professor, Department of Mercantile Law, University of Pretoria
Abstract
A burning issue in South African company law is the encroachment of
the business rescue provisions of the new Companies Act 71 of 2008 on
the rights of landlords and other property owners. A landlord who has
concluded a contract of lease with a company, frequently finds himself
in an unenviable position if the company goes into business rescue. The
company often remains in occupation of the leased premises during
business rescue and, if this is done without the payment of rent, the
business rescue endeavour is effectively driven at the landlord’s expense.
The focus of this two-part series of articles is on the two chief
predicaments facing the property owner who finds its property in the
possession of a company under business rescue, namely, the recovery of
the property by the property owner; and the ongoing payment of rent
and other recurring charges. This article discusses the moratorium in
business rescue with a specific focus on its effect on the property owner.
A critical analysis of recent judicial decisions on the moratorium is
included, together with a discussion of the legal position in comparable
foreign jurisdictions. The second article will focus on the safeguards and
protective measures for property owners during the business rescue
process. It will be published in the following issue of this journal.
*MBBCh (cum laude) LLB (cum laude) LLM (cum laude) (Wits) PhD (UCT). Associate
Professor, Mercantile Law Department, University of Pretoria; Attorney and Notary Public of
the High Court of South Africa. Parts of this article are based on a paper delivered at the
International Symposium on Company Law hosted by the Department of Trade and Industry
and the Specialist Committee on Company Law in August 2015. I should like to thank Prof
Farouk H I Cassim for his input and insight on the subject matter of this article. I am grateful
to the National Research Foundation (NRF) for funding this research.
419
(2017) 29 SA Merc LJ 419
© Juta and Company (Pty) Ltd
I INTRODUCTION
A burning issue in South African company law is the encroachment of
the business rescue provisions in the Companies Act 71 of 2008 (the Act)
on the proprietary rights of landlords and other property owners. A
landlord who has concluded a contract of lease with a company or close
corporation, frequently finds himself, herself or itself in an unenviable
position if the tenant goes into business rescue. The tenant often remains
in occupation of the leased premises during business rescue and, if this is
done without the ongoing payment of rent, the business rescue endeav-
our is effectively driven at the expense of the landlord. It would be the
harshest encroachment on the rights of the landlord if the tenant in
business rescue were permitted to stay on the leased premises indefi-
nitely without paying rent or compensation. This outcome must, as far
as possible, be avoided.
Not only is the payment of rent involved, but also the payment of
other charges, such as municipal rates and taxes, and charges for public
utility services such as electricity, water, sanitation, and refuse removal.
Since the primary obligation falls on the landlord to pay for these
utilities, he or she is effectively compelled to continue funding the
tenant’s use of utilities and services for as long as the tenant remains in
occupation of the premises. The landlord is often unable to recover these
costs from the tenant in business rescue.
It is not exclusively landlords or lessors of immovable property who
are beset by these problems, but also other property owners whose
property is used, occupied, or possessed by a company in business
rescue. These include the owner of instalment-sale goods that were sold
to the company under an instalment-sale agreement, and the lessor or
hirer of equipment, motor vehicles, or other movable property.
Although this article in the main considers the lessor of immovable
property, it applies equally to other such property owners.
The focus of this two-part series of articles is on the two chief
problems facing the property owner who finds its property in the
possession of a company under business rescue: the recovery of the
property; and the ongoing payment of rent and other recurring charges.
The current article discusses the moratorium in business rescue with
specific focus on the effect of the moratorium on the property owner.
The issue of whether the property owner is prevented by the morato-
rium from cancelling its lease agreement with a company in business
rescue, is considered in paragraph III. Paragraph IV examines the
impact of a suspension of the agreement by the business rescue
practitioner under section 136(2)(a) of the Act. The focus of paragraph
(2017) 29 SA MERC LJ
420
© Juta and Company (Pty) Ltd
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