The South African Property Owners’ Association (Sapoa) sees risks for the commercial and industrial property industry contained in the draft Companies Bill 2007, particularly regarding provisions that deal with business rescue.
”Sapoa anticipates that in its present form, the Bill could have a widely negative impact on property owners, developers and managers,” Dinga Nkwashu, chairperson of Sapoa’s legal committee, said on Tuesday.
The business rescue provisions come into play in three general scenarios: temporary supervision of a company’s affairs, including its fixed property; a temporary moratorium on the rights of claimants, including landlords and property managers; and the implementation of an action plan to rehabilitate the company.
These applications raise some thorny issues for the commercial and industrial property industry, said Nkwashu.
Sapoa members would be particularly affected where a tenant business was subject to the rescue process, or where a property management company administered properties for a landlord that was subject to business rescue processes.
At the heart of the association’s concerns is the fact that rental and property management fees owing would be frozen during the rescue process. At the same time, companies undergoing the rescue process could not be evicted from premises or sued for outstanding rental income, Nkwashu said.
”Clearly the situation would be economically destructive to Sapoa members where they find themselves settled with such tenants or clients.”
According to Nkwashu, the business rescue provisions are in contradiction of the law of contract, because any lease or professional services agreement concluded between members and the business in distress would be effectively disregarded.
”The landlord’s hypothec and other common law as well as contractual rights are relegated to the bottom of the pile,” he said.
As a result Sapoa members could be left with a huge, unpaid rental or fees bill.
To address these shortcomings, Sapoa has proactively submitted a number of practical comments on the Bill to the Department of Trade and Industry.
These include the registration of a notarial bond over the movable goods of a tenant; introducing a requirement for cash deposits instead of bank guarantees; and encouraging swifter action on the part of the landlord against arrears. — Sapa