Business rescue and landlords

Most companies lease properties to conduct their business and landlords are often the first to realise that their tenants are facing financial difficulties.

Not so long after the tenant’s failure to pay rent, landlords find themselves with tenants which commenced with business rescue, wanting to evict them from their premises.

Section 133 of the Companies Act (“the Act”) makes provision for a moratorium on legal proceedings and enforcement actions against a company, or in relation to any property belonging to a company, or lawfully in its possession, being commenced or proceeded with, in any forum, during business rescue proceedings, save for certain exceptions.

It is common practise for business rescue practitioners to immediately suspend all contracts to which a company under business rescue is a party to which prevents any party to enforce the agreement. However, if the practitioner neglects to suspend the contracts immediately after commencement of business rescue proceedings, the company may find itself losing the protection of the moratorium offered by section 133.

In the case of Kythera Court v Le Rendez-Vous Cafe CC and Another 2016 (6) SA 63 (GJ) the exceptions to section 133 were dealt with. The legal issue in this matter was when may a landlord evict a tenant that has initiated business rescue proceedings and is in breach of the lease agreement.

In the above case, the court held that the landlord cancelled the lease agreement prior the practitioner’s suspension notice and therefore held that the tenant became an unlawful occupier of the property thus forfeiting the protection offered by section 133. Therefore, the landlord may proceed with the eviction proceedings against a tenant.

It is to be noted, that if the suspension notice was sent before the landlord cancelled the lease agreement, the protection offered by section 133 would have applied.

Therefore, landlords must be vigilant with their tenants and act immediately once a tenant is in breach of the lease agreement.

Disclaimer: The contents and information provided above are generalised and must not be acted upon as legal advice