6 Jun 2015
The judgment discussed in this article relates to a commercial occupier and as is noted below, residential occupiers enjoy additional protections to commercial occupants. There will no doubt be much debate in legal circles as to what extent this new decision might or might not assist landlords of residential premises. As always, take advice upfront!
Lights out for a nightclub
A case in point was decided by the High Court recently –
• A landlord leased part of its building to a nightclub/bar business, owned by a close corporation.
• The landlord paid electricity for the whole building to the municipality, and then the night club and other tenants had to refund the landlord pro rata.
• When the nightclub fell into arrears (to the tune of over R300,000) the landlord asked the High Court for an order allowing it to cut the tenant’s electricity supply, pointing out that it needed to mitigate its damages and that all its other tenants would be prejudiced if the building’s electricity supply was cut for non-payment of the municipal account.
• The close corporation turned out to have been deregistered, and therefore the “lease” was totally invalid (for more on the dangers of deregistration see “When CIPC Deregisters Your Company” in last month’s issue of LawDotNews).
• Although there was no valid lease, the Court granted the disconnection order, holding that the building owner was effectively subsidising the nightclub’s business “which cannot be allowed to continue.”
Don’t take the law into your own hands!
Don’t be tempted to take the law into your own hands by cutting off your defaulting tenant’s electricity yourself. If you do, you face an immediate “spoliation order” application for unlawful dispossession (the rights and wrongs of your claims against the tenant are irrelevant at this stage), and that will put you in the wrong, waste time, and expose you to unnecessary legal costs and perhaps even a damages claim.
Rather – like the successful landlord in this case - take immediate advice on approaching the Court for assistance. Bear in mind that this may be a lengthy process, and that there are no guarantees here, particularly as the facts here were somewhat unusual, with the night club not actually being a “tenant” (the “lease” was never valid), and the arrears relating directly to non-payment for electricity. Also factor in that there was no element of residential occupation (which could have brought into play additional protections for occupiers/tenants), and that our courts may not always be as understanding of the landlord’s position as this one was.
Prevention - still better than cure
So whilst this judgment has been widely welcomed in media reports as a victory for landlords, the bottom line is that prevention is still better than cure – start off with a properly drawn lease (preferably supported by personal suretyships), do your credit checks properly, and make sure that any corporate entity you deal with is in fact still registered with CIPC.