How Does Business Rescue Affect Lease Agreements?

Business rescue proceedings in South Africa, governed by the Companies Act of 2008, have implications for commercial lease agreements when a company enters into this process. Here's how business rescue can affect commercial lease agreements in South Africa:

1. Automatic Stay of Legal Proceedings: When a company enters business rescue, there is an automatic stay on legal proceedings against the company, including actions by landlords to evict the company for non-payment of rent or other lease breaches. This provides temporary relief to the company.

2. Moratorium on Termination: During business rescue, lease agreements generally cannot be terminated solely because the company is under rescue proceedings. This protects the company from immediate eviction or termination of the lease due to financial distress.

3. Negotiation and Consent: The business rescue practitioner (BRP) appointed to oversee the rescue process can negotiate with landlords regarding lease agreements. They may seek to renegotiate lease terms, such as rental amounts or lease durations, to ensure the company's viability during and after the rescue process.

4. Potential Rental Payments: The BRP may propose terms for the payment of rental arrears accrued before the business rescue commenced. This could involve restructuring payment schedules or seeking creditor consent for the payment plan.

5. Legal Disputes: If disputes arise between the landlord and the business rescue practitioner regarding the lease agreement, these may be resolved through negotiations or, if necessary, through the courts. However, the focus is often on finding a mutually beneficial solution to support the company's recovery.

6. Termination Post-Rescue: If the business rescue fails and the company goes into liquidation, lease agreements may then be terminated according to the provisions of the lease and applicable law.