The Competition Act and Consumer Protection Act in focus.
The recent outbreak of the COVID-19 (coronavirus) and the resulting declaration of a state of the national disaster led to the President ordering a nationwide lockdown of, initially, twenty-one days. The lockdown has subsequently been extended by a further fourteen days[1]. This lockdown has had a profound effect on the day-to-day running of suppliers’ businesses.
With the announcement of the national lockdown, the government declared that only Essential Service Businesses may be open and operational during the lockdown period. This means that the majority of suppliers will not be operational and will be impacted by the lockdown directly. The biggest issues for suppliers are paying their employees and paying rent on their premises. The payment of employees is discussed in other articles, so I will not be discussing it here[2]. The problem of paying rent is one that affects most suppliers that are closed during lockdown but, to a greater extent, suppliers that also qualify as consumers.
Non-payment of rent
Because the payment of rent is a contractual duty on businesses, their first step will be to fall back on their lease agreement to see if there are any suspensive conditions granting them the right to withhold rent for this period of lockdown. A force majeure clause will entitle the business to withhold rent in the event that this “act of God” renders performance impossible[3]. Unfortunately, a lot of commercial rental agreements do not make provision for the suspension of the agreement due to an “act of God”, so businesses have to find other ways to avoid a breach of contract and minimise financial loss due to their inability to pay rent. The main way in which businesses do this is by approaching their landlords to contractually lessen the rental burden. Businesses and their landlords come to agreements that the rental amounts due will be less than usual, or postponed in totality, for a specific period. Unfortunately, this is where the Competition Act[4] comes into play.
The Competition Act
Sections 4 and 5 of the Competition Act provide that companies may not enter into lateral or vertical agreements where these agreements will have the effect of substantially preventing, or lessening, competition in a market[5]. The practical implication of these sections, with specific reference to agreements between commercial landlords and their tenants, is that agreements to lessen and/or waive rental amounts for a certain period may be regarded as agreements preventing or lessening competition in the market. Other landlords may not be in a position to offer a reduction of rent, so by entering into this agreement the competition in the market is decreased.
The Minister of Trade, Industry and Competition, Ebrahim Patel, published regulations on March 24 2020 (Government Gazette No 43134) outlining details of a block exemption from the application of Sections 4 and 5 of the Competition Act[6]. These regulations’ purpose is to exempt a category of agreements or practices between designated retail tenants and the retail property landlords from the application of Sections 4 and 5 of the Act in response to the declaration of COVID-19 pandemic as a national disaster. It further aims to enable the retail property sector to minimise the negative impact on the ability of retail tenants, to manage their finances during the national disaster and to be in a position to continue normal operations beyond the national disaster[7].
The Regulations state that certain agreements will be exempt from the application of Sections 4 and 5 of the Competition Act[8]. The agreements exempt by the Regulations are agreements where the sole purpose is to ensure the survival of the tenant during and after the COVID-19 national disaster by providing for:
- Payment holidays and/or rental discounts for tenants;
- Limitations on the eviction of tenants; or
- The suspension or adjustment to lease agreement clauses that restrict the designated retail tenants from undertaking reasonable measures required to protect viability during the national disaster[9].
The Consumer Protection Act
The application of the block exemption brings the Consumer Protection Act[10] (the CPA) into focus when a tenant is not only a supplier but also a consumer. The CPA states that the CPA will not apply where a consumer is a juristic person whose asset value or annual turnover, at the time of the transaction, equals or exceeds R2 million[11]. This means that any business whose asset value or turnover is less than R2 million is classified as a consumer and will be afforded the rights as stated in the CPA.
When entering into an agreement granting payment holidays and/or discount on rent, the tenant’s attention must be drawn to all clauses that fall within the scope of Section 49 of the CPA[12]. The agreement must also comply with the requirements of Section 48[13] and 51[14] of the CPA. This places a burden not only on the landlord to ensure that the agreement is drawn up in line with the CPA but also on the consumer-tenant to comply with their duties in terms of the CPA.
Conclusion
In the context of agreements between landlords as suppliers and retail tenants as consumers, it is crucial that the agreement must not only fall within the application of the block exemption but also conform with the requirements of the CPA before it can be regarded as a lawful agreement. Companies who qualify as consumers must, therefore, take note that where they approach their landlord to enter into agreements for payment holidays and/or discounts in rent, that they act within the scope of both the CPA and the Competition Act.
Should you require any assistance or consumer-related advice as a supplier, please contact your nearest SEESA office, or SMS the word “SEESA” to 45776 for professional legal advice.
ABOUT THE AUTHOR
Louwrens
Bakker is a SEESA Consumer Protection & POPI Legal Advisor. He obtained his
BCom (Law) degree in 2015 and his LLB degree in 2016, both from the University
of Pretoria. He was admitted as an Attorney of the High Court in 2018. He started his career at SEESA in 2018 after
leaving practice.
[1] https://www.gov.za/speeches/president-cyril-ramaphosa-extension-coronavirus-covid-19-lockdown-end-april-9-apr-2020-0000; Accessed on 16 April 2020.
[2] https://blog.seesa.co.za/a-step-by-step-guide-to-the-covid-19-ters-application-process/; Accessed on 16 April 2020.
[3] Peters, Flamman & Co v Kokstad Municipality 1919 AD 427.
[4] The Competition Act No. 89 of 1998.
[5] Section 4(1)(a) and 5(1)(a) of the Competition Act, 89 of 1998.
[6] https://www.moneyweb.co.za/news/economy/covid-19-block-exemption-for-retail-property-sector/; Accessed on 16 April 2020.
[7] Regulation 2.2 of the COVID-19 Block Exemption for the Retail Property Sector, 2020.
[8] Fn 4 above.
[9] Regulation 3.1 of the COVID-19 Block Exemption for the Retail Property Sector, 2020
[10] Consumer Protection Act, 68 of 2008 (the CPA).
[11] S 5(2)(b) of the CPA.
[12] S 49(1) of the CPA states that the attention of the consumer must specifically be drawn to any provision of consumer agreement where the provision purports to:
a. limit in any way the risk or liability of the supplier or any other person;
b. constitute an assumption of risk or liability by the consumer;
c. impose an obligation on the supplier or any other person for any cause;
d. be an acknowledgement of any fact by the consumer.
[13] S 48 of the CPA deals with Unfair, unreasonable or unjust contract terms.
[14] S 51 of the CPA prohibits certain transactions, agreements, terms or conditions.