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Commercial Leasepack
Commercial Leasepack
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A CPA Lease must be signed when the
Tenant is a Natural Person or a Juristic Person with both an asset value and an
annual turnover of less than R2 million.
A Natural Person is an individual and
not an entity as listed below.
A non-CPA Lease must be signed
(regardless of their asset value or annual turnover) if both the Tenant and the
Landlord are:
- Companies;
- Close Corporations;
- Body Corporates;
- Partnerships;
- Associations; or
- Trusts.
As we know, the provisions of the CPA do not apply to
juristic entities with an asset value or annual turnover of more than R2 000
000.00 (Two Million Rand). It is important to note that the Regulations specify
that the calculation of turnover is based on gross revenue as opposed to net revenue.
In general, most entities that are able to rent commercial property will exceed
this threshold, but it is important to establish this benchmark upfront so as
to ensure that the correct Lease is concluded.
There is often a lot of confusion around the issue of VAT
insofar as the payment of the deposit is concerned. Should VAT at the
applicable rate be included in the calculation of the Deposit, or not? The
answer is rather complex. In terms of
section 1 of the Value Added Tax Act 89 of 1991 (“the Act”) “consideration” is
defined as being any payment made
for the supply of goods or services. The section, however, goes on to stipulate
that “a deposit (other than a deposit on a returnable
container), whether refundable or not, given in respect of a supply of goods or
services shall not be considered as payment made for the supply unless and
until the supplier applies the deposit as consideration for the supply or such
deposit is forfeited”.
It follows that only when the Deposit is utilised, either to
repair any damage to the Premises or to recover arrear Rental, will the amount forfeited
by the Tenant be subject to VAT at the normal rate. As such, when interpreting
the provisions of the Act, the Deposit initially paid by the Tenant should technically
not include VAT. HOWEVER, in the event that VAT is not included in the
calculation of the Deposit then the Landlord or Agent may end up being be out
of pocket should the Deposit, or any portion thereof, indeed need to be
utilised to affect repairs or recover arrear Rental. In other words, one must
include VAT, at the standard rate, in the calculation of the total Deposit,
although this fact need not be stipulated in the Lease.
Whilst directors, members and the like are often hesitant to
sign suretyship agreements, in the case of commercial lease agreements, ticking
this box is even more important that in the case of residential lease agreements.
The reason for this is that the quantum when it comes to commercial lease
agreements is generally far higher than in the case of residential lease
agreements, thereby exposing the Landlord to significantly more risk. Should a
company be unable to pay its debts for any reason and liquidation proceedings
commence, then the Landlord stands to lose a significant amount of money. Given
the current economic climate, this actually tends to occur more often than one
would think. Where suretyship agreements are in place, the Landlord may then
immediately claim the full outstanding amount from the sureties in their
individual capacity or from a founding company or franchisor in the event that
a juristic entity signs as a surety. This issue is covered further in clause 47
of the Lease.
The Permitted Purpose refers to the type of business that
may be operated out of the Premises. This is obviously very important given
that certain properties may only be suitable for certain activities. In the
event that the Tenant attempts to utilise the Premise for purposes beyond the
scope of the Permitted Purpose, then this shall constitute a breach of the
Lease and the Landlord shall be entitled to cancel the Lease. This is covered
further in clause 6 of the Lease.
You will notice that clause 6 in the CPA compliant Lease differs
from clause 6 in the non-CPA compliant Lease Agreement. The reason for this is
that in the CPA compliant Lease, one needs to take into account the provisions
of section 14 of the CPA. These provisions can seem complicated, but in a nutshell
are quite simple. In the event that the Tenant is a NATURAL PERSON (The
provisions of section 14 do not apply to juristic entities, regardless of the
threshold values, hence these provisions will only apply where the Tenant is an
INDIVIDUAL) then:
The Landlord may cancel the Lease on 20 (Twenty) Business
Days’ notice to the Tenant in the event that the Tenant is in breach of its
obligations in terms of the Lease.
The Tenant may cancel the Lease at any time on 20 (Twenty) Business
Days’ notice to the Landlord, subject to a reasonable penalty.
When the Initial
Period of a Lease comes to an end and the Tenant has not communicated the
desire to either renew or terminate the Lease, the Lease will automatically continue
on a month to month basis. The implication of this is that the Lease will no
longer be deemed to be a fixed-term contract and will rather be a periodic
lease. As such, section 14 of the CPA will no longer apply, the 20 business
days’ notice provision will fall away and either party may cancel the Lease on
one Calendar Month’s notice to the other party. Alternatively, the Tenant may
communicate the desire to terminate the Lease upon expiry of the Initial
Period, or to renew the Lease for a further fixed-term period.
Given that section 14
obviously does not apply to the Non – Consumer Protection version of the Lease,
this Lease provides only that the Lease will terminate on the Termination Date
unless terminated earlier by the Landlord. There is no provision for the Tenant
to cancel the Lease early.
Finally, clauses 5.5 and 5.6 of both versions are essential
clauses. In the event that a Tenant refuses to vacate the Premises, the Tenant
will be obliged to make payment of Rent for the period that the Tenant
continues to inhabit the Premises BUT this will not preclude the Landlord from
instituting eviction proceedings against the Tenant. Thus, the Tenant will not
be able to raise the fact that it is continuing to make payment of Rent as a
defence in any litigation proceedings which obviously strengthens the position
of the Landlord.
Specifying a narrow Permitted Purpose is very important
given that certain Premises may only be utilised for very specific purposes. Title
Deeds and Town Planning Schemes may in some instances impose stringent
restrictions relating to the use of certain Premises and certain areas may only
be zoned for certain activities i.e. manufacturing verses retail activities. Whilst
clause 6.3 in both Leases may seem to be a very obvious clause, it is a very
important one. In this regard, it should be brought to the Tenant’s attention
that “illegal activity” need not only refer to something as obviously serious
as, for example, manufacturing drugs. Something as simple as storing
counterfeit goods can have serious implications for a Landlord given that, in
terms of the Counterfeit Goods Act 37 of 1997 (“the Act”), any person who is involved in dealing in
counterfeit goods, or who aids and abets other persons to do so, can be held
liable for any actions relating to such goods. Landlords who, knowingly or not, facilitate or
enable other persons to deal in counterfeit goods can face serious consequences
in terms of the Act. Landlords who rent out storage facilities are particularly
at risk. The Tenant’s attention should be brought to the fact that should the
Landlord become aware of any criminal activity being conducted out of the
Premises, such activity will immediately be reported to the applicable body and
the Lease will immediately be cancelled.
In order to enforce any conduct rules, the Tenant is
obviously required to be familiar with such Rules and as such, it is advisable
that such rules initially be annexed to the lease agreement and that the Tenant
be made aware of the fact that the Landlord or its letting or managing agent
may publish updated rules from time to time, which rules will be distributed to
the Tenant. This requirement is
unfortunately often overlooked or not brought to the attention of the Tenant. If
a Tenant has not had sight of the rules, he or she obviously cannot be expected
to comply with them.
It is essential that there is no ambiguity regarding the date
and manner in which Rental is to be paid by the Tenant. Generally, it is
advisable to clearly stipulate that Rent must CLEAR in the Landlord’s nominated
bank account by the date specified in clause 1.12 of the Schedule. If this is
not specified then Tenants would be able to effect payment on the date
specified in clause 1.12, but the funds would potentially only clear a few days
later or, thereby prejudicing the Landlord. Unlike in the case of Residential
Leases, Rent generated in respect of Commercial Leases does attract VAT. As a
general rule, the rate applicable will be 14%, but there are certain exceptions
in the Income Tax Act 58 of 1962, hence the provision for this rate to be
altered in clause 1.16 of the Schedule.
When it comes to Commercial Leases, in many instances more
than one Tenant will inhabit the Premises. In such an instance, the Tenant will
obviously only be responsible for the payment of a portion of the Rates and
Taxes and, in the case that no sub-meters have been installed, a portion of the
Utilities. These portions will be calculated based on the Tenant’s
Participation Quota, as stipulated in clause 1.19. One would therefore need to
multiply the total amount of Rates and Taxes (and Utilities, if applicable) by
the percentage stipulated in clause 1.19. This percentage is calculated by
dividing the area in square meters actually occupied by the Tenant by the total
area of the Immovable Property in question as a whole. It stands to reason that
a small business occupying ¼ of a building should not be liable for the same amount
as a large business occupying a full floor. It is also important to note that,
in terms of clauses 10.5 and 11.4, the Landlord is obliged to present the
Tenant with an invoice in respect of Rates and Taxes and Utilities. Many
disputes arise where Landlords merely capture an amount on, for example, an
Excel Spreadsheet. This provision is therefore an important one for the
Landlord to take note of.
The Lease clearly states that Rent must be paid by
Electronic Funds Transfer. The reason for this is that, in the case of cheques,
there is obviously more of a risk of the payment being delayed or the cheque
not clearing. This therefore increases the Landlord’s risk of not being paid.
In the event that a Tenant pays Rent late, the Landlord shall be entitled to
charge interest on such outstanding amounts, at the rate specified in relation
to incidental credit agreements in the National Credit Act 34 of 2005. This
rate is currently 2% (Two Percent) per month up to a total of 24% (Twenty Four
Percent) per annum – in other words, the interest is compounded interest. This
clause is important because, should it not have been included in the Lease then
the Landlord would only be able to charge interest at the rate specified in the
Prescribed Rate of Interest Act 55 of 1975. On large amounts, the difference
between 15% (Fifteen Percent) and 24% (Twenty Four Percent)can be substantial.
The Deposit may be any
amount that the parties agree to and need not only be the equivalent of 1 (One)
month’s Rent. If there is any doubt as to the integrity of the Tenant, a larger
Deposit should be taken. The Deposit must be held in an interest bearing.
Unlike in the case of a Residential Lease, where use of the Deposit during the
subsistence is prohibited in terms of the Rental Housing Act 50 of 1999, in the
case of a Commercial Lease the Deposit may be utilised to cover arrear costs
during the subsistence of the Lease. In such an event, the Tenant must,
however, IMMEDIATELY reinstate the Deposit to the original amount. The reason
for this is twofold, firstly because by utilising the Deposit early, the amount
of interest generated will be affected and secondly because if the Deposit is
whittled away during the subsistence of the Lease, there is no guarantee that
there will be any funds left upon termination of the Lease to cover damage to
the Premises, further arrear Rental, lost keys and the like. At the end of the
Lease Agreement the Deposit, less any deductions must be refunded to the Tenant.
For the reasons stated in clause 1.1, when calculating the Deposit amount, one
must take into consideration VAT.
Whilst ingoing and
outgoing inspections are not a legal requirement insofar as Commercial Leases
are concerned, such inspections are nevertheless advisable. The purpose of the
inspection is obviously to ascertain the existence of any defects so as to
ensure no ambiguity when the Lease comes to an end. At the very least, the Tenant must within 10
(Ten) days of the Commencement Date notify the Landlord in writing at the
Landlords nominated address of any defects that the Tenant has managed to
identify. Failure to provide such notification within this period will result
in the Tenant being deemed to have accepted the Premises as is.
It is obviously essential that any Alterations to the
Premises be approved by the Landlord in writing prior to such Alterations being
affected. This is obviously important from a quality control perspective. This
clause provides that upon termination or cancellation of the Lease the Landlord
may require the Tenant to either remove the Alterations and repair any damage
to the Premises, or to leave the Alterations as is, subject to them being
restored to good order. It is important to note that clause 15.7 specifically
states that the Landlord shall not need to compensate the Tenant for any
approved Alterations to the Premises. This clause is important because disputes
often arise around this particular issue. This clause makes the Tenant’s
position clear and unambiguous from the outset.
Clauses 16 and 17 set out the various obligations of the
parties insofar as maintenance is concerned. In a nutshell, the Landlord shall
be obliged to maintain the exterior of the Premises, while the Tenant shall be
obliged to maintain the interior of the Premises. Upon termination or
cancellation of the Lease, the Tenant is required to restore the Premises to
the same good order as they were in as at the Commencement Date. In the event
that the Premises are not restored to their original good order upon
termination or cancellation of the Lease, then the Landlord shall be entitled
to either require that the Tenant restore the Premises post the termination
date, or to restore the Premises itself and hold the Tenant responsible for the
costs of any repairs. Importantly, clause 17.6 clearly stipulates that where
the Premises need to be restored after the Lease has been terminated or
cancelled, the Tenant shall be responsible for the payment of additional Rent
until such time as the Premises are fully restored to their good order and
state. This clause should be carefully explained to the Tenant so as to ensure
that the Tenant is fully aware of what its liability may be.
This clause stipulates that the Landlord
and/or its agents must be granted access to the Premises at all reasonable times
to inspect the Premises, repair any damage, ensure that the Tenant is complying
with all of its obligations in terms of the Lease and show the Premises to potential
purchasers or Lessees. In the event that the Tenant is inconvenienced by the
Landlord needing to access the Premises (usually in the instance of needing to
make alterations or affect repairs) the Tenant may NOT withhold the Rent or any
portion thereof. This is an issue that crops up often and thus this clause
should be clearly highlighted to the Tenant.
This clause is relatively standard
and obviously provides that the Tenant may not sublet the Premises without or
permit a third party to occupy the Premises without the prior, written consent
of the Landlord. In Commercial Leases this sometimes occurs in the case of the
Holding Company/Subsidiary relationship or the Franchisor/Franchisee
relationship. Clause 20.7 specifically provides that where the Landlord
consents to the subletting of the Premises, the Landlord shall be entitled to benefit
from any profit made by the Tenant in respect of such sublease. This amount
would obviously need to be agreed upon between the parties, in writing, when
the Landlord gives its consent to the Tenant to sublease the Premises.
You will note that the provisions
of this clause differ in the Consumer Protection Act Version of the Lease and
the Non-Consumer Protection Act Version of the Lease. The reason for this is
that the CPA specifically prohibits warranties that favour the supplier (in
this case the Landlord) and not the consumer (in this case the Tenant). As
such, for obvious reasons, the Non-Consumer Protection Act Version of the Lease
provides far more protection to the Landlord than the Consumer Protection Act
Version of the Lease.
This clause may seem confusing given
the language utilised, but it is actually rather simple. Vis Major and Casus Fortuitus
are legal terms used to describe a "superior
force or chance occurrence, essentially a so called “act of God”. Such occurrences
include all the items referred to in clause 22.1.1.1 to 22.1.1.5 as well as occurrences
such as hurricanes, wars, earthquakes and the like. This
clause is simply stipulating that the Landlord will be freed from performing
any of its obligations in terms of the Lease in the event that any such events
occur. It is important to note that the Landlord’s obligations will not be
suspended indefinitely, but only for the period that the event in question
continues.
This clause simply gives the
Landlord two options in the event that more than one Tenant signs the Lease
Agreement. In such an instance, should Rental not be paid, the Landlord has the
option to either take action against one of the Tenants for the full amount, or
both of the Tenants together in whatever ratios he deems appropriate. This clause means that the Landlord is not
obliged to split the arrear Rental between the parties in equal proportions,
which is particularly important when it becomes obvious that one of the Tenants
is experiencing financial difficulty.
Vicarious Liability is a common
legal principle whereby a principal is automatically responsible for the actions
of the principal’s employees, agents, servants and invitees – basically any
person acting on behalf of the principal. It commonly arises in the
employer/employee relationship, where the employer will be liable to third
parties for any damages sustained as a result of the actions of an employee. This
clause therefore precludes the Tenant from denying liability for any breach
committed by the party representing the Tenant, even where such party was
acting beyond the scope of the powers granted to it by the Tenant. An example
would be that the person concluding the lease did not have the authority to do
so. By virtue of the provisions of this clause, the Tenant would not be able to
escape liability to the Landlord, even if the person signing the Lease did not
have the authority to do so. This should, in any event, not occur if a valid
Resolution has been requested by the Landlord.
It
is vitally important that you get all the relevant documentation form foreign
nationals. All copies of passports should be certified, the originals should be
presented and copies of the relevant visa documentation should
be requested and provided on a yearly basis.
It
is important to take these steps so as to ensure that your risk is minimalised as in terms of Section
42 (1) of the Immigration Act 13 of 2002: “save for necessary humanitarian
assistance, no person shall aid, abet, assist, enable or in any manner help an
illegal foreigner including but not limited to harbouring him or her, which
includes providing accommodation or letting or selling or in any manner making
available any immovable property in the Republic to him or her”
This clause sets out all the
circumstances in which the Landlord may cancel the Lease. You will note that
clause 29.1.3 in both lease agreements stipulates that a Landlord may cancel
the Lease in the event that a Tenant fails to remedy a breach within 7 (Seven)
days of receipt of written notification from the Landlord requiring the Tenant
to do so. This often causes confusion, given that the 20 (Twenty) Business Day
Rule in the event of breach is drummed into us so hard. The reason that 7
(Seven) days has been stipulated in both agreements is due to the fact that in
99% (Ninety Nine Percent) of Commercial Leases, the Tenant will be a juristic
entity i.e. a Company, Close Corporation, Body Corporate or Association. As
stated above, while the other provisions of the CPA may apply depending on the
entities threshold value, the provisions of section 14 do not apply to juristic
entities – ever! As such, the 20 (Twenty) Business Day Rule is unlikely to
apply. In the event that the Tenant is indeed a natural person acting in his
individual capacity, then this clause needs to be amended to reflect 20
(Twenty) Business days, Obviously, an individual signing on behalf of a juristic
entity, such as a director or a member, is not considered an individual for the
purposes of this clause.
This clause protects the Landlord
from any injury or loss that may occur to property situated on the Premises or
the Immovable Property, and ties in with clause 22. You will note that clause
3.2 is not applicable to the Consumer Protection Act Version of the Lease. As
stated above, the reason for this is that the CPA specifically prohibits limiting
the liability of the supplier (in this case the Landlord) and not the consumer
(in this case the Tenant).
As we know, diplomats throughout
the world are afforded special rights and granted special immunities, and South
Africa is no exception to this rule. This clause ensures that in the event that
a Tenant is a diplomat and any claim arises out of the beach of the provisions
of the Lease by the Tenant, the Tenant will not be able to raise the defence of
diplomatic immunity in order to escape sanction or demand special treatment. Normal
legal process will thus be followed in order to resolve any dispute between the
parties.
The word version allows you to upload your own logo and make amendments to your documents. As a word subscriber, we have also given you access to a free digital signature platform called eSign. eSign allows you to send the TPN LeasePack documents out for electronic signature. Click here for to find out more about accessing eSign. When using an apple product like a mac, ipad or iphone the word version of the document may not pull through the correct formatting, this is due to Apple iOS not having Microsoft installed and defaulting the word document to open using Pages. You are able to bypass this by using the editable PDF supplied in the shop or using the eSign system to complete the document. Alternatively change your default for .docx documents to open on Microsoft Word if you have it installed.
As we know, in terms of the
National Credit Act 34 of 2005, prior to a credit enquiry being performed, the
written consent of the consumer in question must be obtained. As such, this
clause is absolutely essential for obvious reasons.
The PDF version allows you to fill details on the document in electronically but does not allow you to make amendments to your documents or upload your own logo.
As stipulated above, Commercial
Rent is subject to VAT. The amounts stipulated in the Lease will not include
VAT, but VAT at the applicable rate will need to be added on to any amounts
appearing on any invoices furnished to the Tenant. Furthermore, as highlighted
in clause 1.1, it is essential that VAT at the applicable rate be added in to
the total Deposit payable by the Tenant so as to ensure that the Landlord is
not out of pocket upon termination or cancellation of the Lease Agreement for
any reason.
A suretyship clause or document is very important
because it provides the Landlord with security in the event that Rent is not
paid. Importantly, when a surety signs as both a surety and a co-principle
debtor, as is provided for in the TPN Suretyship Agreements, the Landlord’s
rights are even further protected because the Landlord need not even claim
amounts owing from the Tenant first, but may rather proceed directly against
the surety for any outstanding amounts. Legally, this is termed “renouncing the
benefit of excussion” and is particularly beneficial in an instance where, for
example, a company is not generating enough profit to pay Rent. In such a case
the Landlord would be able to claim the Rent directly from the directors of the
company in their personal capacity. In terms of the TPN Suretyship Agreements,
the directors will be bound jointly and severally. This means that the Landlord
can elect to split the outstanding amount between the sureties or simply claim
the total amount from one surety alone. The provisions of the various
suretyship agreements and their implications will be dealt with in a separate
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