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Agreements Not to Sue – Tread Carefully!

Written by Nicole Ross Attorneys on . Posted in Litigation.

“Agreements not to litigate are not necessarily unreasonable.” (Extract from judgment below)

An “Agreement Not to Sue” undertakes that one party won’t take legal action against another. In other words, it’s a way of ensuring that disputes don’t end up in court. You might come across this type of agreement in many different situations, such as in a business setting, a family dispute, a neighbour dispute, or even between friends.

In particular, any compromise agreement settling a dispute is very likely to contain such a clause. Incidentally, if you see mention of a “pactum de non petendo anticipando” that’s just Latin for the same thing.

The benefits

The benefits of an agreement not to sue are that it can save you time, money, and stress. Going to court can be a long and complicated process, and an agreement not to sue means that you can avoid that. It can also allow you to come to a solution that is mutually agreeable, rather than having a court make a decision for you.

The downsides and risks

However, there are also downsides and risks to consider.

You may think that you can never lose a constitutionally guaranteed right such as that which gives us all right of access to the law, and indeed our courts will approach any “agreement not to sue” with a great deal of caution. But, as a recent SCA (Supreme Court of Appeal) decision has made crystal clear, such agreements may well be held valid and enforceable in an appropriate case. In that event, you have no legal recourse if the other party doesn’t follow through on their end of the agreement.

A R1,225 billion claim sunk by a “limited and reasonable” clause
  • A complicated series of contracts went wrong, and one of the parties sued a bank for R1,225 billion.
  • The bank relied on a “agreement not to sue” clause in the applicable contract, and the High Court agreed, ordering the claimants to withdraw their action. The SCA confirmed that order on appeal, and in doing so highlighted some of the important considerations a court will consider in such a case –
    • An agreement not to sue “is an agreement like any other …It is a contract that gives rise to rights and correlative duties. The nature of the right in question varies from case to case and is dependent on the text and the facts.”
    • It can be for a limited time or “operate in perpetuity”.
    • “Courts should use the power to invalidate a contract or not to enforce it sparingly and only in the clearest of cases … balanced against the backdrop of our constitutional rights and values.”
    • The claimants were fully informed of their rights and had consented to the clause freely and voluntarily. Their agreement not to sue was not a waiver of their constitutional rights, just an agreement not to enforce them.
    • The clause was not against public policy – the claimants had been legally represented (they spent over R16 million on legal advice), they were all experienced businesspeople capable of evaluating the merits, risks and suitability of the clause, and there was no indication of unequal bargaining power between the parties. Perhaps most importantly, the Court found that the agreement “went no further than was necessary to prevent very specific litigation. As such it is a limited and reasonable restriction on the appellants’ ability to litigate.” (Emphasis supplied).
The bottom line

An agreement not to sue is a serious document with both benefits and risks. If you’re asked to sign one, take the time to carefully consider all the pros and cons and remember that it’s always a good idea to ask a professional to help you understand the terms of the agreement and ensure that your rights are protected.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Neighbours Behaving Badly: Illegal Buildings and Demolition Orders

Written by Nicole Ross Attorneys on . Posted in Litigation, Property.

“The approval of building plans is not a mere formality in town planning and compliance with building standards promote public safety … The courts should not permit landowners to erect illegal structures on their land and then present the authorities with a fait accompli created by their illegal actions” (Extracts from judgment below)

What do you do if your neighbour starts building next door without municipal plans? A recent High Court decision confirms your right to apply for demolition.

The pensioner who built an apartment block illegally
  • A property owner decided to build a multi-story block of eight apartments on his land. According to media reports he is a pensioner who spent his R900,000 pension payout on the project and planned to live off the resultant rentals of some R40,000 p.m.
  • The building, which he had told his neighbours was just going to be a garden cottage, was illegal on four counts –
    • No building plans were approved by the local Council,
    • The structure encroached on building line restrictions imposed in the Town Planning Scheme,
    • The structure did not comply with the zoning of the property,
    • A restrictive condition in the title deed was contravened in that the title deed permitted only one dwelling on the property and the owner was erecting a second.
  • The owner failed to comply with two “stop building” orders from the Council. Then he undertook to cease the works but instead accelerated them.
  • Two of his neighbours urgently applied to the High Court to interdict further building, and the Court ordered the owner to demolish the building.
  • The owner appealed this order to a “full bench” of the High Court asking for the demolition order to be postponed whilst his application to the Council for rezoning and removal of the restrictive conditions was finalised.
  • Although the Council had approved the rezoning of the property it had specifically noted that it did not condone the partly constructed building, which was illegal because no building plans had been approved and the building encroached on the building lines.
  • The neighbours, held the Court, had standing to apply for a demolition order, in that although their land had not been encroached upon, their rights had.
  • In deciding to exercise its discretion in favour of demolition, the Court noted that the neighbours had taken steps to protect their rights immediately it became apparent that the owner was not constructing a garden cottage but an apartment block. They reported the illegal structure to the Council, and it weighed heavily with the Court that the owner carried on building even when he knew it was an illegal structure.
  • The owner must demolish the building.

Bottom line – if your neighbour starts building illegally, take immediate action!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Tell All Your Creditors When You Change Address! The Case of the Summons Served on a Complex Security Guard

Written by Nicole Ross Attorneys on . Posted in Litigation.

“In my view, given the difficulties of a sheriff or his deputy accessing a security complex in the absence of the occupant for the purposes of service in terms of rule 4, service of process by way of it being handed to the security guard at the complex, a responsible employee older than 16 years, is valid and effective service on the debtor.” (Extract from judgment below)

Moving house (or office) will mean a busy time and a long “to do” list.

Here’s an action item to add to the “Priority” section of your list: Give notice, in the required format, to everyone you have contracted with. Otherwise you could well, like the debtor in this case, wake up one morning to find your bank account frozen. Or the Sheriff of the High Court knocking on your door with a Warrant of Execution against your property.

Why is your “domicilium citandi et executandi” so important?

A “domicilium citandi et executandi” (“domicilium” for short), is a bit of Latin wording you will see in many agreements, and in simple terms it’s the address you nominate in a contract where legal notices may be sent to and legal process (such as a summons) served on you.

As we shall see below, it’s vital to take it seriously, both when you initially choose an address in the contract, and if/when you later move.

Debtor’s bank account frozen after summons served on a complex security guard
  • An occupant in a security complex with “many” residents bought a motor vehicle on instalment sale agreement, specifying his residential address as his domicilium.
  • Eventually after he surrendered the motor vehicle it was sold on auction and he was notified to pay the balance of R108k plus interest.
  • When he moved to another security complex, he phoned the creditor to advise his new address. Critically however, he didn’t follow that up with a formal advice of change of domicilum in the required format.
  • When the creditor issued Summons, the Sheriff tried first to serve it at the new address but failed when that complex’s security guard said the debtor was not yet living in the unit, although his possessions were there.
  • The Sheriff then served the Summons at the old address (the debtor’s chosen domicilium), by handing it to the complex’s security guard.
  • Unsurprisingly there was no notice of intention to defend from the debtor, whereupon the creditor took a default judgment and attached and froze the debtor’s bank account (leaving him, so he said, unable to pay his covid-related hospital and medical expenses).
  • The debtor asked the High Court to set aside (“rescind”) the judgment, arguing amongst other things that the summons hadn’t been properly served on him.
Why the debtor lost
  • As the Court put it: “Service on an address chosen by a debtor as the domicilium citandi et executandi constitutes good service even if the debtor is known not to be residing at the domicilium address, is overseas or has abandoned the premises.” In other words the summons is considered properly served whether you are still at the address or not.
  • “The manner of service at a domicilium address, however, must be effective. It must be such that the process served at the domicilium citandi et executandi would, in the ordinary course, come to the attention of and be received by the intended recipient.”One way of meeting that requirement is to serve the process on a “responsible employee” – and, held the Court, security complexes not being easy to access in the absence of an occupant, it made no difference that the security guard in question worked not for the debtor but for the complex.
  • The obligation is on a debtor changing address “to update or amend the debtor’s chosen domicilium address with the credit provider.” You have only yourself to blame for the consequences if you forget to do that.
  • Critically, you must advise a change of domicilium in whatever manner the contract requires (usually in writing at the very least). Make sure you specify it is your domicilium address that you are changing – “A change in residential address does not serve to change a domicilium address.”
  • And don’t think that your obligation to notify a change of address falls away once the contract is terminated. On the contrary, “the domicilium address survives cancellation of the agreement.”

End result – the judgment stands and the debtor must cough up.

Keep proof!

First prize of course is to avoid any disputes with the other party in the first place, but bad things happen to even the most careful of us so make sure that you aren’t left blissfully unaware of any notices or summonses that are issued against you at the wrong address. And if you do find yourself applying for a default judgment to be set aside, make sure you have kept proof that you notified the other party of your change of domicilium in the specified format.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Heigh Ho, Heigh Ho, It’s Off to Court We Go – But What are the Costs of Suing?

Written by Nicole Ross Attorneys on . Posted in Litigation.

“Agree, for the law is costly” (Marcus Tullius Cicero)

As Roman lawyer and statesman Cicero pointed out two millennia ago, litigation comes at a cost. So first prize will always be to settle out of court. If you can’t settle and decide to sue, arm yourself with “deep pockets and nerves of steel”, particularly if you end up in the higher courts.

The upside is that if you win your case, you are likely to benefit from a costs order in your favour, our law generally following the rule that “costs follow the result”. There are however a few things to bear in mind with that –

  • No matter how “watertight” you may think your case is, litigation always carries an element of chance, and the hard fact is that you could lose for any number of unforeseeable reasons – evidence going badly, grey areas of law being interpreted against you, misdirections by whichever court you are in – those are just some of the risk factors you face. And if you do lose, you will be paying two sets of legal costs!
  • There are also exceptions to the “costs follow the result rule” – for example in labour matters, employees will normally not be ordered to pay any costs at all. Our courts have also been known to exercise their discretion to depart from the general rule in order to spare unsuccessful litigants from an adverse cost order where principles of fairness or special circumstances are involved, such as an attempt to protect the interests of minors or other vulnerable groups.
  • Remember also the “Pyrrhic Victory” factor – it’s all very well getting a costs order in your favour, but enforcing payment is another thing entirely, particularly if you are suing a debtor pleading poverty or an adversary skilled at dodging your attempts at recovery.
  • You are in any event unlikely to recover more than a portion of your costs. That sounds unfair but it’s how it works. To understand why, read on…
Three categories of legal costs

You will in practice come across three main types of costs –

  1. “Party and Party costs”: These are the costs you are most likely to be awarded if you win. They will be “taxed” by a court official at whatever tariff applies to the court you find yourself in, and the tariffs vary widely – ask your lawyer for details.These tariffs are applied strictly and will only include your lawyer’s necessary costs for the actual litigation, not for pre-litigation consultations and the like. Nor will they include additional work carried out by your lawyer which the taxing official regards as not strictly necessary to the conduct of the case.
  2. “Attorney and Client costs”: These costs are also subject to the same tariffs but their scope is broader, and the taxing official may allow for example additional attendances and correspondence, travel costs and the like. An example commonly given is correspondence to you from your lawyer keeping you advised of progress in the case – not strictly necessary for the litigation itself, but likely to be allowed as a recoverable “attorney and client” charge.You will only be awarded attorney and client costs where either they are specified in a contract with the other party (it’s a particularly common clause in property-related and commercial agreements), or where a court decides for whatever reason to punish your opponent with a “punitive” costs order.
  3. “Attorney and Own Client costs”: These are additional costs you must pay your lawyer at whatever rates you have agreed to. The rates are normally incorporated in a mandate which you agree to when you first seek legal help, and they are not capped by the tariffs mentioned above. You cannot in practice recover them from the other party.
Alternative sources of funding

If you can’t afford to sue, or if you don’t want to risk your own money to fund a court case, ask about alternative sources of funding such as –

  • Contingency (“No Win, No Fee”) arrangements, which are offered by some attorneys, most commonly in personal injury cases.
  • Legal Aid is available to “poor” people who pass a Means Test and whose case meets all the other criteria set by Legal Aid South Africa.
  • Litigation Funding is normally only available for larger matters, and the funders apply strict criteria.

Although these alternatives should protect you from costs if you win the case, check what risk you run if you lose and an adverse costs order is made against you.

Litigate with your eyes open!

Go into litigation with your eyes open. Make sure you understand your prospects of success, what resources of time (and stress!) you will have to commit to the cause, what costs you might recover from your opponent and what you won’t, what you might have to pay the other side if you lose and so on.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Directors, Creditors – Do Personal Suretyships Survive Business Rescue?

Written by Nicole Ross Attorneys on . Posted in Company / Corporate / Compliance, Insolvency / Liquidation, Litigation.

“Creditors have better memories than debtors” (Benjamin Franklin)

In these hard times of pandemic and economically destructive unrest, an unfortunate number of businesses face collapse, and many will opt for the “first aid for companies” option of business rescue.   

Creditors coming out of that process with a shortfall (only the luckiest creditors are likely to emerge with full settlement) will naturally look to any personal suretyships they hold to cover that shortfall.

A recent SCA (Supreme Court of Appeal) decision has brought welcome clarity to the question of whether – and in what circumstances – such personal suretyships will survive the business rescue process.

Both directors and creditors need to understand the outcome, and to act accordingly.

Sued for R6m, a CEO’s defence crumbles
  • A company CEO (Chief Executive Officer) signed a personal suretyship in favour of a creditor supplying the company with petroleum products.  
  • When the company fell upon hard times it was placed into business rescue. Eventually a business rescue plan was adopted, the rescue process was terminated, and the creditor sued the CEO for the shortfall on its claim of just over R6m.   
  • The CEO’s main defence was that his liability as surety was an “accessory obligation” – in other words, if the creditor’s claim against the principal debtor (the company) fell away, he should be released from his liability as surety.  
  • But, held the Court, although a principal debtor’s discharge from liability does indeed ordinarily release the surety, our law allows the creditor and the surety to agree otherwise.   
  • And the suretyship agreement in this case did just that. It contained “unobjectionable” and “standard” terms which included a specific agreement by the surety that he would remain liable even if the creditor “compounded with” the company by accepting a reduced amount in settlement of its claim. Nor was there any mention in the business rescue plan of its effect on creditor claims against sureties (it could, for example, have provided specifically for sureties to remain on the hook, or to be released). But the deciding factor remained that the wording of the suretyship was such that the creditor did not abandon its claim against the surety by supporting the business rescue plan.  
  • Bottom line – the CEO goes down over R6m, and the creditor has another shot at emerging unscathed from the mess.

Heed these lessons from the judgment!

The SCA in its judgment undertook a comprehensive interpretation of the terms of the deed of suretyship, of the business rescue plan, and of the relevant legislation. Although the detail will be of more interest to lawyers and academics than it will be to the average director or creditor, it did bring welcome clarity to an issue of great practical importance, and the valuable lessons therein should be heeded –

Directors: As always, think twice before signing any personal suretyship, and if you absolutely have no alternative, at least understand fully what you are letting yourself in for both legally and practically. Equally, ensure that the business rescue plan lets you fully off the hook as regards any possible personal liability; you may be advised to go further and have a separate release agreement with any creditor/s holding your surety. Although not directly relevant to this article, think also of managing any risk of personal liability beyond suretyship, such as allegations of reckless trading and the like.

Creditors: You on the other hand should always try for watertight and upfront suretyships from directors and others with attachable assets (again not directly relevant to this article, but also take whatever security you can over company assets such as debtors, fixed property etc). And when it comes to the business rescue plan, make sure that it leaves your claim against sureties unaffected.

Upfront professional advice and assistance is a real no-brainer here!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Suing a Debtor – Make Sure Your Victory Isn’t a Hollow One

Written by Nicole Ross Attorneys on . Posted in Debt Recovery, Litigation.

“Pyrrhic victory”, n. A very costly victory, wherein the considerable losses outweigh the gain, so as to render the struggle not worth the cost (Wiktionary)

With our economic woes unlikely to abate any time soon, expect an increasing number of your debtors to find themselves in financial difficulty. If you end up litigating against any of them the last thing you will want to do is to throw good money after bad.

And whilst fighting a court case and winning against a recalcitrant debtor is all very well, it’s a hollow victory if by the time you come to enforce your judgment the debtor has no assets left to execute against. You may have won the battle, but you’ll have lost the war. You’ll be left with nothing but a large legal bill and a very sour taste in your mouth.

So what can you do if, during the litigation, you realise that the court case is nothing but a delaying tactic to give the debtor time to dispose of or hide assets? Or perhaps the debtor genuinely thinks it has a valid defence to your claim but decides to get rid of assets just in case it loses. Either way, you risk having no assets left to execute against if you eventually win.

Fortunately our law has an effective remedy for you in the form of an “anti-dissipation interdict” (sometimes referred to as a “Mareva Injunction” which is a similar English remedy). Its effect is to freeze, until your case is finalised, enough of your debtor’s assets to satisfy any judgment in your favour.

A R230m case illustrates what you must prove 
  • A plaintiff suing in the High Court for R230m plus interest and costs became aware through media reports of a potential dissipation of the defendant’s assets in the form of a corporate unbundling exercise.
  • It obtained an order that the defendant provide security of R430m and when this security was not forthcoming the plaintiff applied for an anti-dissipation interdict. 
  • The Court set out what you must prove thus –
    • That the defendant “is dissipating assets or hiding assets”. 
    • That “there is reason to believe that such dissipation or hiding of assets is taking place mala fide [in bad faith] with the intention of defeating [your] claims”.
    • In addition you “must satisfy the Court that all the other requirements for the granting of an interim interdict have been established.” These other requirements, as set out in many other cases, are proof of – 
    • A prima facie (“at first view”) right, even if it is subject to some doubt,
    • A reasonable apprehension of irreparable and imminent harm to the right if an interdict is not granted,
    • The balance of convenience must favour the granting of the interdict, and
    • You must have no other remedy.
  • Finding on the facts that the defendant (a company) was indeed disposing of its assets and would be left as only an empty shell after doing so, and that it was acting in bad faith and “with the view to frustrate the [plaintiff’s] claims and to render its victory in the pending action pyrrhic”, the Court granted the interdict.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Lockdown! Nuisance Neighbours and How to Handle Them

Written by Nicole Ross Attorneys on . Posted in Litigation, Property.

“You can be a good neighbour only if you have good neighbours” (Howard E. Koch)

It looks as if we will still be under “restricted movement” orders for a while – even when we finally get down to Alert Level 2 and who knows when that will be. 

Tensions between neighbours are no doubt at an all-time high, and whether you are working from home or just trying to stay sane until our “new normal” starts kicking in, you are no doubt noticing more than ever all those little irritants from next door that would normally fly below your radar or at least be tolerable. 

And of course remember it’s a vice-versa situation – your neighbour is in exactly the same position. That’s a recipe for dispute, and going to war with a neighbour is a classic lose-lose option, in court or out of it. Any short-term victory you may think you can achieve will pale against the ongoing trench warfare that will inevitably result. 

First prize: A negotiated win-win

Negotiation will always be your best path to a win-win outcome, and whether you open up dialogue with a friendly chat over WhatsApp or a socially-distanced masks-on discussion over your boundary wall, here is one bit of advice that will substantially increase your chances of a happy outcome for everyone: Understand your legal rights before you start negotiating! 

Should your negotiations come to naught, consider as your next step mediation, arbitration or official intervention (more on possible municipal or police intervention options below). Remember that if you live in a “community scheme” such as a sectional title development or a Homeowners’ Association community, the CSOS (Community Schemes Ombud Service) provides a dispute resolution service to assist with a wide range of community disputes.

Then – and this should normally be your last option only to be resorted to when all other avenues have failed – you have the legal route, normally in the form of an interdict application and/or damages claim. 

How can our law help you? It’s a balancing act…

The principles laid down by our courts in dealing with neighbour disputes over many years are firmly rooted in common sense. You are entitled to the use and enjoyment of your property – so long as you act lawfully – without unreasonable interference. “An interference” our courts have held, “will be unreasonable when it ceases to be a ‘to-be-expected-in-the-circumstances’ interference and is of a type which does not have to be tolerated under the principle of ‘give and take, live and let live’.”  

As the Supreme Court of Appeal (SCA) put it in 2016: “Nuisance involves the unreasonable use of property by one neighbour to the detriment of another.” It’s a balancing act between competing rights – yours and those of the other property owners around you. 

Peacocks, a cherry tree, and the court’s wide discretion

It is also difficult to set out too much in the way of hard and fast rules here, for as our courts have put it “modern conditions require the exercise of a wide discretion in the adjustment of neighbour relationships”. 

Thus the High Court, in a 2013 case involving nuisance peacocks, a “much loved” cherry tree on the boundary of two properties and in danger of being chopped down, and a partially-demolished boundary wall, both quoted and applied that principle with an order encapsulating a resolution of the neighbourly disputes in a detailed and pragmatic manner. The peacocks for example had made a major nuisance of themselves by being noisy, messy and destructive trespassers (they had damaged expensive vehicles by pecking at them when they saw themselves reflected in the rear-view mirrors and highly polished metal surfaces). The court order included both authority for them to be removed by either the municipality or by the SPCA (there being no municipal permit to keep them as required by the municipality’s bye-laws), and an admonition to find them “good and lawful homes”. The cherry tree on the other hand is now protected by an interdict against its removal, with detailed instructions in the court order as to the reconstruction of the boundary wall next to it.

Bear in mind therefore that what is said below is of necessity a simplified and brief summary only – every case will be different, our courts will take into account a whole range of factors in deciding a dispute, and in many instances technical questions of “wrongfulness”, “fault”, “moving to the nuisance” and so on may apply. If your dispute gravitates towards legal action, specific advice is essential!

What is a “nuisance”?

The range of potential disputes falling into the “neighbour law” and “nuisance” categories is wide. Some examples (from the SCA again – emphasis supplied) – “repulsive odours, smoke and gases drifting over the plaintiff’s property from the defendant’s land, water seeping onto the plaintiffs property, leaves from the defendant’s trees falling onto the plaintiff’s premises, slate being washed down-river onto a plaintiff’s land, causing a disturbing noise, causing a common wall to become unstable by piling soil up against it, overhanging branches and foliage, an electrified fence on top of a communal garden wall, blue wildebeest transmitting disease to cattle on neighbouring ground, and occupants of structures on neighbouring land allegedly causing a nuisance.” 

Two common areas of dispute – noise and trees

Let’s have a closer look at how those general principles have been applied to two of the more common areas of dispute –

  1. Noise: If barking dogs, power tools, loud music or the like are making your life a misery – keeping you awake at night perhaps, or (a common concern in this time of remote working) unable to concentrate on that business project or to participate in your daily Zoom “office” meeting – sooner or later you will need to take action.

    Particularly relevant here are the various national statutes and local bye-laws dealing with noise pollution. Contact your local municipality or the police for help if you need to. If you live in a complex, Body Corporate or Home Owners Association rules and regulations will probably come into play as well. SAPS should respond to serious violations of our anti-noise laws, and just a warning visit from a blue uniform might solve your problem once and for all. 

    If you end up in a legal fight, our courts will take into account factors such as “the type of noise, the degree of its persistence, the locality involved and the times when the noise is heard”. As we said above, every case will be different.  

  2. Trees: If your neighbour’s trees are damaging your property (common complaints relate to boundary walls, underground pipes, building foundations, driveways and the like), or are causing a nuisance in the form of falling leaves or branches, or are blocking your views/depriving you of light, you are once again left with no hard and fast rules. A court will look at what is “objectively reasonable” in all the circumstances. As a general rule, don’t count on much sympathy from a court if damage is minor and easily repaired, if the nuisance caused is controllable by you with regular maintenance (clearing leaves from gutters and so on) or if your only complaint is loss of your views. That last aspect is a whole separate debate with many twists and turns, but all based on the concept that you will have no automatic right to a view.   

    Where you are dealing with an “overhanging branches” issue, old common law principles will usually apply unless factors such as local bye-laws, heritage protection of older trees etc come into play. You will generally have a right to cut overhanging branches back to your property line if the neighbour refuses to do so and to keep or dispose of the branches if your neighbour declines to take them. 

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Leases, Contracts and COVID-19: What is Force Majeure?

Written by Nicole Ross Attorneys on . Posted in Contract, Litigation, Property.

The COVID-19 crisis has changed everything. Our personal lives have been upended and our businesses hit hard. 

And with many businesses operating out of leased premises, a great many landlords and tenants are asking themselves what happens if the crisis leaves a tenant unable to pay the agreed rental. 

What follows is of necessity a general guide only – professional advice specific to your case is essential here.

Tenants – your risk

As always “With Great Change comes Great Opportunity”, but if you aren’t able to very quickly find and exploit a viable new opportunity you may well struggle to pay your rental. 

Don’t just stop paying rental! Failing to pay rental on time means breaching your lease, and if you do that you face cancellation, legal action for recovery of outstanding rental, damages claims for breach (substantial if your lease has a long time to run and your landlord struggles to re-let) and calling up of your personal suretyships (exposing you to loss of all your personal assets, house etc). 

Bottom line – take professional advice before you just stop paying!

Landlords – your balancing act

As a landlord you have a very delicate balancing act – on the one hand you won’t want to lose even half-reasonable tenants at a time when finding new ones is going to be problematic. One wonders for example how many small businesses will now either fail entirely or be forced to cut costs. And how many others, having had an enforced period of “working from home”, will now be reconsidering the whole concept of leasing separate office space at all. 

On the other hand of course you need to cover your ongoing costs, which probably means enforcing payment of rent. That in turn means understanding your legal position – for example does your tenant now have an excuse to cancel the lease without penalty? If so, you lose a tenant without recompense. But if your tenant is still bound by the lease, you are free (if you wish – long-term support of your tenant may still be your best option) to demand full payment, then to reduce your losses by cancelling, evicting, executing against the tenant’s assets and calling up personal suretyships. 

What about “force majeure” or “impossibility of performance”? 

“Force majeure” (a French legal term meaning “superior force”) is an event, either due to “natural causes” (earthquakes, cyclones and so on) or to “human agency” (war, riots, legislation and the like) that makes it impossible to comply with the lease. 

We really are sailing into uncharted waters here with worldwide debate over whether or not this pandemic is indeed a case of force majeure. There is bound to be a great deal of litigation before we can be certain whether or not the crisis (particularly the declaration of a national state of disaster and the lockdown period) will be accepted by our courts as a “force majeure” event. If it is, many tenants will argue that their failure to pay rental is not a breach of lease but rather a lease-destroying “supervening impossibility of performance”. 

So where do you stand? There are two main scenarios to consider –

  1. What does the lease say? The onus of proving a force majeure is on the tenant trying to escape from the lease, and the first thing for both parties to check is what the lease says.

    Many leases have a clause that deals with a tenant’s inability to occupy premises as a result of damage to or destruction of the premises which won’t apply here, but some leases do have specific force majeure clauses. If yours has such a clause you are bound by whatever it says so check whether a pandemic or government order to cease business might fall under the clause, and if so what results and remedies are specified.

  2. What must the tenant prove if there is nothing in the lease? If there is no force majeure clause in your lease, our common law applies. Your problem here is that there are a lot of grey areas involved and every case will be different, so what follows is just a general and non-exhaustive guide.  

    A tenant would have to prove not only that the impossibility caused a loss of beneficial occupation (entitling the tenant perhaps to a rebate of rental for the lockdown period, or perhaps frustrating the lease altogether) but in all probability also that it is –

  • “Unforeseeable with reasonable foresight”. In this regard we may well hear arguments along the lines of “the emergence of the coronavirus and its impacts were neither unexpected nor improbable”. Could such an argument prevail? Only time will tell.   
  • “Unavoidable with reasonable care”. 
  • An absolute as opposed to a probable impossibility. “The mere likelihood that performance will prove impossible is not sufficient to destroy the contract.” 
  • An absolute not a relative impossibility. “If I promise to do something which, in general, can be done, but which I cannot do, I am liable on the contract”.   
  • Not the fault of either party. “A party who has caused the impossibility cannot take advantage of it and so will be liable on the contract.”   
  • The “contrary common intention of the parties” could override the defence of impossibility. Consider any representations made by either party to the other that may be relevant.

Moreover our courts have held that “In each case it is necessary to ‘look to the nature of the contract, the relation of the parties, the circumstances of the case, and the nature of the impossibility invoked by the defendant, to see whether the general rule ought, in the particular circumstances of the case, to be applied’.”

That’s all fertile ground for expensive and draining litigation, at a time when neither of you is likely to have an appetite for either. 

Which brings us to…

A practical template for negotiation

Take this advice from Roman lawyer and statesman Cicero over two millennia ago: “Agree, for the law is costly”. 

So if you are a tenant, rather than just stopping rental payments and then having to fight it out through the legal system, ask your landlord to agree to a win-win compromise that will limit both short-term and long-term damage to your respective businesses.

Draw up a checklist including matters such as –

  • Do you or your landlord have any sort of insurance cover for this sort of disaster?
  • If you want to cancel the lease entirely, consider whether, if the protections of the Consumer Protection Act are available to you (see below*) it might pay you to give your 20 business days’ notice and pay the “reasonable cancellation penalty” the landlord is entitled to demand. (*You need to take advice on this – leases between “juristic persons” such as companies and trusts in particular are excluded from this particular protection).
  • Alternatively consider what you can offer the landlord to accept your cancellation without a fight. 
  • If you want to continue in the premises, make sure that your failure to pay on time is specifically recorded as not being a breach of the lease.
  • Decide whether you will ask for a full rental holiday, or a rental reduction. For how long? The better a tenant you have been, the more incentivized your landlord is going to be to help you stay in place. Offering an extension of the lease – if it ties in with your long-term planning – could help a lot with that.
  • If you run into a brick wall there, think of proposing that the arrears not be written off but rather just be deferred until your business is back up on its feet. Specify when payment of arrears will be made, what if any interest will be charged and so on.
  • If the tenant is a corporate entity and you signed a personal suretyship for it, don’t forget to specifically cover that aspect in your agreement. 
  • Remember to include in your agreement what happens to any deposit the landlord may be holding from you.
  • If you agree on a new or amended lease, think of including a professionally-drawn force majeure clause (or check an existing clause for possible update). 
Beyond leases – force majeure and contracts generally

Although this article specifically addresses landlords and tenants, the general principles of “force majeure” and “impossibility of performance” apply to all contracts and might in some cases entitle you to delay or avoid contractual obligations beyond lease agreements. Take professional advice specific to your circumstances!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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