Coronavirus - Block Exemption for the Retail Property Sector – South Africa

• South Africa

• Real estate
• Retail - E-briefings

03-04-2020

The Covid-19 Block Exemption for the Retail Property Sector (the “Regulations”) were published on 24 March 2020 in response to the declaration of the National State of Disaster.

The Regulations exempt certain agreements or practices within a designated sector of retail tenants and their property landlords from sections 4 and 5 of the Competition Act No. 89 of 1998 (“the Act”) and aims to foster dialogue in order to minimise the economic impact on tenants’ businesses during the national disaster. Ultimately, retail property landlords will need to initiate this process.

The Competition Act

Section 4 of the Act prohibits agreements between competitors which will result in fixing prices or other trading provisions. Section 5 of the Act prohibits agreements between suppliers, firms and customers if such agreement has the effect of preventing or lessening competition in the market. For the purpose of the Regulations, retail tenants are deemed customers.

Designated Retail Tenants

The Regulations provide that the following categories of retail tenants and their respective landlords are exempt from the application of sections 4 and 5 of the Act:

1. clothing, footwear and home textile retailers

2. personal care services (such as hairdressers and beauty salons)

3. restaurants

Exempted Agreements and Practices

The limited agreements and practices which are exempt from sections 4 and 5 of the Act include:

1. payment holidays and/or rental discounts for tenants

2. limitations on the eviction of tenants

3. the suspension or adjustment of lease agreement clauses that may restrict the designated retail tenants from undertaking reasonable measures required to protect viability during the national disaster

To qualify for an exemption, a landlord must extend the exempted practice or agreement to all applicable retail tenants, including small, independent tenants. This is to ensure that all tenants within the designated category of tenants are treated equally, regardless of the size of their business.

Further clarification will be needed from the Minister regarding the Regulations, which provide that the exemption may only be “undertaken at the request of, and in coordination with the Department of Trade, Industry and Competition”.

Parties entering into any exempted agreements or practices are required to keep minutes of meetings held and written records of these agreements or practices.

Limitation on Exemptions

Limitations contained in the Regulations include the following:

1. the exemption only applies to agreements or practices amongst or between the relevant retail tenants and landlords for the sole purpose of preserving a tenant’s business during the national disaster

2. the exemption will not apply to communications or agreements relating to pricing arrangements, unless prior authorisation is granted by the Department of Trade, Industry and Competition (ie the exemption is not an opportunity for competing businesses to negotiate retail property rental prices)