By Kyle Venter, Candidate Attorney and Anja van Wijk, Senior Associate
Introduction
This article explores the legal implications of a recent notice gazetted by government on the 24th of March 2020. The notice comes in light of the recent developments unfolding in South Africa emanating from the COVID-19 outbreak, which has now been declared a national disaster.
There is some confusion as to the effect of the notice and this article aims to clarify the intent and consequences of the notice.
Purpose of Notice
The purpose of the notice is to create an exemption from compliance with sections 4 and 5 of the Competition Act for a limited category of agreements or practices between designated retail tenants and retail property landlords to enable them to continue to operate safely during COVID interruptions.
The purpose is stated in the notice as being two-fold:
- To promote conduct aimed at preventing an escalation of the national disaster and to alleviate, contain and minimise the economic and social effects of the national disaster; and
- to empower the retail property sector to minimise the negative impact on the ability of designated retail tenants, including small independent retailers, to manage their finances during the national disaster and be able to continue normal operations beyond this national disaster.
[1] Government Notice No. 258 of Government Gazette No. 43134. [1] Competition Act 89 of 1998. [1] Refers to South African retail tenants that fall in trading lines such as clothing, footwear and home textile retailers; personal care services; and restaurants. [1] Refers to businesses that are involved in the supply of rentable space in the retail property sector such as retail shopping centres, among others. The categories of landlords may include real estate investment trust companies, property developers who own or operate retail shopping centres and other intermediaries through whom the letting of rentable space in the retail property sector is facilitated (as defined by the notice).
Unpacking Sections 4 and 5
Section 4 of the Competition Act places a prohibition on agreements between competitors that directly or indirectly involve any fixing of a purchase or selling price or any other trading condition. An example of a trading condition may include an agreement for a discount.
Section 5 of the Competition Act places a prohibition on an agreement between a firm and its suppliers, alternatively between a firm and its customers (which could be understood as “tenants” in this instance), that has the effect of substantially preventing or lessening competition in the South African market.
Essentially, the regulations exempt agreements or practices between retail tenants and/or retail property landlords from scrutiny under sections 4 (agreements between competitors) and 5 (agreements between suppliers, firms and customers) of the Competition Act for the sole purpose of allowing them to enter into agreements or conduct themselves in a manner that would otherwise be outlawed by the Competition Act as anticompetitive, in order to allow them to respond to the COVID-19 pandemic national disaster and continue operating as retail outlets during this time.
An example of this conduct (which is now permissible in terms of the regulations in order to respond to COVID, but would otherwise have been precluded by sections 4 and 5 of the Competition Act) is the “collusion” between certain landlords and tenants, to allow certain tenants (but not others equally across the board) a discounted rental/payment holidays/deferred payment terms/extended credit whilst others are compelled to pay full price. This would ordinarily be seen an anti-competitive but is permissible in this strained economic environment because of the impact COVID has had on the economy and the number of businesses and jobs at risk.
Categories of agreements exempted
Categories of agreements which are to be exempted from sections 4 and 5 include the following:
- Payment holidays and/or rental discounts for tenants;
- limitations on the eviction of tenants; and
- the suspension or adjustment of clauses in lease agreements that would restrict the designated retail tenants from undertaking reasonable measures required to protect their viability during this national disaster.
An example of these agreements would be where a landlord agrees to grant its tenant/s a payment holiday for 4 months or undertakes not to evict them for the duration of this pandemic. However, flowing from recent developments, government has now placed a temporary moratorium on evictions in South Africa while the lockdown is underway and therefore this would no longer have any bearing in these circumstances.
This agreement would then be free from scrutiny by the Competition Tribunal in terms of section 4 and 5.
It is worth noting, however, that these agreements should extend to all South African retail tenants trading in designated lines (clothing, footwear, home textile, personal care and restaurants as per annexure “A” of the notice), which includes your independent tenants (reference to those who are not part of a chain or franchise) and should be concluded with the sole aim of securing and ensuring the survival of these tenants during the COVID-19 pandemic.
[1] In 1 above.
The “catch” and overseeing authority
The notice explicitly requires the involvement of the Department of Trade, Industry and Competition in such undertakings between parties as inferred by the choice of words used by government in point 3 of the notice.
The notice, in addition, expressly requires retail property landlords and designated retail tenants, who engage and/or participate in any agreements falling within the scope of these exemptions, to keep minutes of such meetings held, and written transcription of same as records of such agreements or practices taking place.
Conclusion
It would appear that government’s publication of this notice allowing for certain exemptions which would otherwise not be permitted by sections 4 and 5 of the Competition Act, has specifically been designed to aid retail tenants and/or those in certain retail categories (clothing, footwear, home textile, personal care and restaurants) which government deems highly vulnerable during this national disaster.
It is clear from the notice that government is opening the doors to landlords and tenants alike to enter into these collective agreements (as contemplated) with the aim of securing the survival of these tenants during and post the COVID-19 pandemic.
However, and until such time that an amendment to the regulations proves otherwise, those engaging in these collective agreements would be well advised to include that of the Department of Trade, Industry and Competition in such negotiations and to actively keep adequate records of all undertakings/agreements between parties in writing.
[1]https://www.thesouthafrican.com/news/covid-19-south-africa-bans-evictions-during-national-lockdown/
