South Africa: Even As Commercial And Retail Vacancies Remain High, Landlords Are Advised To Maintain Tight Control On Lease Agreement Terms

Landlords,  particularly mall landlords, will likely be exasperated by the increase in vacant retail space in the 2022 financial year. There is an oversupply of office and retail space, matched to low demand – due in part to the work-from-home policies big companies implemented during the Covid-19 pandemic, alongside with liquidations, evictions and cancellation of commercial lease agreements due to non-paying tenants. 

Proactively, large property groups such as Growthpoint and Attacq are renegotiating the terms of their lease agreements, such as the monthly rent, and renewal periods. In some instances, tenants have received up to a 20% rent reduction for premises in underperforming shopping malls. In the past a commercial lease would have been entered into for an average period of 5 years however, at this point in time, the lease periods have decreased to an average period of around 3 years. The pendulum has undoubtedly swung in favour of tenants for the time being.

The impact of vacant retail space will force landlords think twice before cancelling a Lease Agreement and instituting ejectment proceedings against non-paying tenants, this will only create a snowball effect, out of experience tenants hardly ever catch up with outstanding rent. In the past where Landlords would have instituted legal proceedings the moment a tenant falls behind with rent, some are now more lenient and will wait a few months before instituting legal proceedings – an approach that sets a dangerous precedent.

As desperate as Landlords may be, they should always act immediately with demand, as prescribed by their respective lease agreements, the moment a tenant falls behind with their rent. Alternatively, it is important for both Landlords and tenants to meet each other halfway by negotiating rental relief. Even then, it is advisable that Landlords consider granting rental relief for tenants (upon request), when the tenant is at that stage up to date with their rent and isn't already in default for a period of 12 months prior to the rental reduction request.

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