Commercial lessee seeks lower rental

This week our in-house Property Poser expert assists a reader who is a tenant in a mall that appears to be floundering.

The reader writes that many shops, including the anchor tenant, have left the centre. Unfortunately, he did not anticipate the exodus and resulting downturn in business and extended his lease.

The lessee now wishes to reduce his monthly rental or be released from his contract.

According to Property Poser, a lease is a contract whereby the use and enjoyment of property is afforded to a tenant in exchange for payment of the rental.

“Our law regards properly concluded and lawful contracts as binding on the parties thereto, as expressed in the maxim ‘pacta sunt servanda’, which means that contracts must be adhered to.”

Thus, in the absence of something that negates the validity of a contract, Property Poser says the parties must abide by the agreed provisions. “In this instance, the formalities appear to be in order and the lessee has not mentioned anything in particular that negates the validity of the lease.”

In order to cancel the lease, which only expires in October 2014, one would typically rely on its provisions, says Property Poser.

“The lease is somewhat one-sided in that it doesn’t refer to the lessee’s remedies on breach of the lessor, only the converse situation.”

Property Poser says this does not mean the lessee has no remedies available, as the law does permit him or her to place the lessor on terms.

“The lessee should allow a reasonable period for performance, failing which he or she may elect to cancel the lease and claim damages or sue for specific performance.”

In order for the lessee to rely on a breach of the lessor, Property Poser says there should be a positive duty on the lessor to do something, such as being obliged to hold a certain level of occupancy in the mall and/or anchor tenants.

“It would have been useful, in retrospect, for the lessee to have considered such factors when negotiating the terms for terminating the lease.”

Another idea would be linking the rental payable to the turnover of the lessee, says Property Poser. “Thus the lessor ‘suffers’ with the lessee if the mall is not commercially popular.”

If the parties had agreed to certain unwritten provisions, Property Poser says the “parol evidence” rule may be used to prove their existence. “This amounts to an allegation to be proved and substantiated by the alleging party, which may be difficult as far as evidence goes.”

For example, if the question of occupancy rates had not been reduced to writing or specifically excluded, this could be raised as forming part of the lease, says Property Poser.

“There is considerable controversy over the manner in which parol evidence is applied in our law and the lessee would do well to take legal opinion on this aspect should it seem worth pursuing.”

Assuming the lessee had negotiated a lower rental when the mall was floundering, Property Poser says he should bear in mind that the converse situation could have applied if the mall were upgraded and started attracting high-end tenants.

“He would certainly not have been happy with the lessor terminating his lease in order to find a more lucrative tenant.”

If altering the lease proves unacceptable, Property Poser suggests seeking a sub-lessee, with the lessor’s consent. “This sub-lessee could perhaps cover some or all of the lease costs and would ideally be less reliant on foot traffic through the mall.”

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