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Covid-19 business interruption claims and rental remission

02 December 2021 Donald Dinnie, Norton Rose Fulbright
Donald Dinnie, Norton Rose Fulbright

Donald Dinnie, Norton Rose Fulbright

This recent Cape High court judgment contains some useful guidance for insurers in adjusting covid-19 business interruption claims involving recovery or remission of rental.

The court confirmed that as a matter of general principle:

  • a lessee is entitled to claim rental remission where there is a deprivation of or lack of beneficial use of occupation caused by vis maior (a superior force, power or agency that cannot be controlled or resisted by the ordinary individual).
  • as a general statement the lockdown regulations would constitute vis maior causing material impossibility of performance
  • the rental remission may be set off against the lessor’s claim if it is capable of speedy and prompt ascertainment.

On the particular facts of the case and because the lease defined ‘beneficial occupation’ as “the physical possession and control of the leased premises” and the circumstances were that the lessee had sublet and had itself not for some time prior to the lockdown occupied the leased premises and was not in physical possession or control, that the lessee was not entitled to claim rental remission.

In the circumstances the lockdown regulations had not resulted in the loss of beneficial occupation.  The lessor was entitled to recover of the full rental.

On these facts where there is a sublease, a lessor in the same position claiming business interruption would have no claim for the rental since it is entitled to recover it from the lessee.  Because the lessee had an obligation to the lessor to pay the rental, any business interruption claim by the lessee would include the rental as an expense and part of the loss.

Where on the facts the lockdown had deprived the lessee of beneficial occupation entitling it to a remission of rental that would constitute a loss by the lessor and a saving by the lessee, to be taken into account in any business interruption claim.

The context of the specific disaster regulations applicable at the time, the extent to which performance was not possible, the extent to which there is a loss of beneficial occupation, and the terms of the parties’ lease agreement must always be considered in each case.

First published by: Financial Institutions Legal Snapshot

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