The Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Act 2020 (“COVID-19 Act”) is divided into 19 Parts and includes measures to mitigate the socioeconomic impacts of COVID-19. Following the enforcement of the COVID-19 Act on 23rd October 2020, this is a sequel to our previous FAQs titled Impact of the Movement Control Order on Tenants published on 30th March 2020.
These FAQs focus on the impacts of two Parts of the COVID-19 Act — Inability to Perform Contractual Obligation and Modification made to Distress Act 1951 — concerning leases and tenancy agreements of non-residential immovable properties.
Inability to Perform Contractual Obligation
Question 1: What temporary relief does the COVID-19 Act provide for lessees/tenants of non-residential immovable property?
Answer:
Lessees/tenants of non-residential immovable properties are entitled to the relief provided under Section 7 of the COVID-19 Act, which protects a tenant’s inability to perform contractual obligations (e.g. to pay rent) due to measures taken under the Prevention and Control of Infectious Diseases Act 1988 (PCIDA 1988) to curb COVID-19.
When such inability arises, Section 7 prevents landlords from exercising contractual rights against the tenant for non-performance. However, the inability must directly result from measures under the PCIDA 1988 (e.g. MCO or CMCO closures). Defaults occurring before those measures do not qualify.
Question 2: When does the relief for lessees/tenants come into effect?
Answer:
Upon enforcement on 23rd October 2020, the relief applies retrospectively from 18th March 2020 and remains effective until 31st December 2020 (“Operative Period”).
This means landlords are restrained from taking action against tenants who can prove their inability to perform was due to COVID-19 measures. The Minister of Law may extend this period, and the Act itself is effective for 2 years from 23rd October 2020, unless further extended.
Question 3: What recourse is available to aggrieved landlords?
Answer:
Section 9 provides that disputes on inability to perform contractual obligations may be resolved by mediation.
Mediation allows a neutral third party to help both sides reach an amicable settlement. After mediation, parties can sign a binding written agreement. While other dispute methods are not excluded, mediation is encouraged as landlords may not commence legal actions until after 31st December 2020.
Question 4: Does Section 7 affect ongoing or completed legal actions?
Answer:
No. Section 10 provides a saving clause: any action, termination, forfeiture, judgment, or award made between 18th March 2020 and 23rd October 2020 remains valid.
This means any legal actions taken by landlords during that period are still enforceable and not negated by Section 7.
Modification made to Distress Act 1951
Question 1: What is a distress action?
Answer:
A distress action is a landlord’s legal remedy to recover outstanding rent (excluding rent due to the government). Under Section 5 of the Distress Act 1951, landlords can claim up to 12 completed months of rent preceding the date of the distress application. It applies to both residential and non-residential leases.
Question 2: What modification does the COVID-19 Act make to distress actions?
Answer:
The COVID-19 Act suspends landlords’ rights to distrain for rent arrears from 18th March 2020 to 31st August 2020 (“Moratorium Period”).
However, any warrant of distress issued before 23rd October 2020 remains valid and can include arrears within that period.
Question 3: How long will this modification operate?
Answer:
The modification operates retrospectively from 18th March 2020 to 31st December 2020 (“Operating Period”).
After 1st January 2021, landlords may again commence distress actions for arrears accrued during the Moratorium Period. Unlike other modifications, there is no extension provision for this period.
Question 4: What does this mean for landlords and tenants?
Although the modification offers temporary relief, both landlords and tenants should note the following points:
| Timeline | Lessors/Landlords | Lessees/Tenants |
|---|---|---|
| Pre-Moratorium Period (Before 18 March 2020) | May commence distress actions for outstanding rent before the Moratorium Period. | Should ensure all rent due before 18 March 2020 is paid to avoid distress action. |
| During Moratorium Period (18 March – 31 Aug 2020) | Before 23 Oct 2020, warrants of distress may include arrears from this period. | Before 23 Oct 2020, tenants still face risk of distress for unpaid rent during this period. |
| Post-Moratorium / Operating Period (1 Sept – 31 Dec 2020) | From 23 Oct 2020 onwards, cannot distrain for rent due during Moratorium Period, but may claim for Sept–Dec 2020 rent. | Rent during Moratorium Period cannot be distrained but rent after 1 Sept must be paid on time. |
| Post-Operating Period (After 1 Jan 2021) | May commence distress actions for arrears during Moratorium Period. Negotiation for instalments is advisable. | Should clear all rent for the Moratorium Period by 31 Dec 2020 or negotiate deferment to avoid distress actions. |
Contributed by
Tan Min Lee
Partner, Gan Partnership
minlee@ganlaw.my
Benjamin Kho Jia Yuan
Pupil-in-Chambers, Gan Partnership
jiayuan@ganlaw.my
Lee Hui Juan
Associate, Gan Partnership
huijuan@ganlaw.my
Disclaimer:
This article is for general information only and should not be relied upon as legal advice. The position stated herein is as at the date of publication on 4th November 2020. For any enquiries, please contact our partner Tan Min Lee.
