COVID-19 Act: Impact on Leases and Tenancy Agreements 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 party (tenant/lessee)’s inability to perform any contractual obligations e.g. to pay rents pursuant to the lease or tenancy agreement due to the measures taken under the Prevention and Control of Infectious Diseases Act 1988 (“PCIDA 1988”) to curb the COVID-19 pandemic.

When such inability arises, Section 7 of the COVID-19 Act prevents another contracting party (landlord/lessor) from exercising its contractual rights under the lease or tenancy agreement against the party experiencing such inability to perform.

Subject to interpretation by courts, tenants/lessees are cautioned that such inability to perform must be related directly to the measures under the PCIDA 1988, such as, the closure of economic sectors (except for essential businesses) during the Movement Control Order (MCO) and certain period of the Conditional MCO (CMCO). The defaulting party (lessee/tenant) will not be able to rely on the relief under Section 7 of the COVID-19 Act, if the default occurred before the implementation of the measures under the PCIDA 1988.

Answer:               

Upon the enforcement of the COVID-19 Act on 23^rd October 2020, the relief provided to a lessee/tenant under Section 7 of the COVID-19 Act comes into operation retrospectively from 18^th March 2020 and shall continue to remain in operation until 31^st December 2020 (“Operative Period”). Subject to the provisions of the lease/tenancy agreement, this denotes that a lessor/landlord is restrained from exercising his contractual rights, which may include commencing an action against the defaulting lessee/tenant, if his inability to perform contractual obligations is proven to be caused by the measures under the PCIDA 1988.

Further, the Minister of Law may extend the Operative Period before the expiry of such, subject to the effective period of the COVID-19 Act. Tentatively, the COVID-19 Act will be enforced for 2 years from 23^rd October 2020, unless a further extension is made by the Prime Minister.

Answer:               

Section 9 of the COVID-19 Act provides that any dispute relating to any inability of any party to perform any contractual obligation may be settled by way of mediation.

Mediation is an alternative dispute resolution process whereby a mediator will be appointed to mediate the dispute between parties with the objective of reaching an amicable settlement on the dispute. Upon the conclusion of a mediation and the reaching of an agreement, the parties shall enter into a binding written settlement agreement.

While the COVID-19 Act is silent on other resolution methods, it is suggested that parties should utilise the mediation as a medium to negotiate for a favourable solution for both parties, in view of the landlord/lessor may not be able to commence an action in court, until after 31^st December 2020.

Answer:               

The relief provided under Section 7 of the COVID-19 Act will not affect the legitimacy of ongoing or completed legal actions initiated by lessors/landlords against the defaulting lessees/tenants between 18^th March 2020 and 23^rd October 2020.

Section 10 of the COVID-19 Act provides a ‘saving’ provision whereby the section states that any contract terminated, any deposit or performance bond forfeited, any damages received, any legal proceedings commenced, any judgment or award granted and any execution carried out from 18^th March 2020 until 23^rd October 2020, shall be deemed to have been valid.

Section 10 of the COVID-19 Act negates the protections provided under Section 7 of the COVID-19 Act for some lessees/tenants affected by the MCO, CMCO or other measures to curb COVID-19 under the PCIDA 1988.

Answer:

Apart from rent due to the federal and state governments, a distress action is a remedy for a lessor/landlord to recover outstanding rent from a lessee/tenant, where the lessor/landlord may apply to the court for a warrant of distress. However, Section 5 of the Distress Act 1951 prescribes that the amount of outstanding rent which a lessor/landlord can claim is limited to twelve (12) completed months of the tenancy immediately preceding the date of application for a warrant of distress.

Also, a distress action is applicable to lessors/landlords of all types of premises which is the subject of a lease or a tenancy agreement, including both residential and non-residential immovable property.

Answer:               

Essentially, the COVID-19 Act modifies the Distress Act 1951 to suspend the rights of lessors/landlords to distrain for the arrears of rent for the period from 18 March 2020 to 31 August 2020 (“Moratorium Period”). Having said that, any warrant of distress issued before 23 October 2020 will proceed accordingly, as the modification made by the COVID-19 Act does not affect such warrant of distress. In short, a warrant issued by the court before 23 October 2020 could still include the outstanding rent during the Moratorium Period.

Answer:               

Upon the enforcement of the COVID-19 Act, the modification made to the Distress Act 1951 is deemed to operate retrospectively from 18 March 2020 until 31 December 2020 (“Operating Period”). This would mean that the modification made to the Distress Act 1951 will cease to have effects from 1 January 2021 onwards. The lessors/landlords are entitled to commence distress actions against the defaulting lessees/tenants to recover the outstanding rent during the Moratorium Period. Unlike some modification to other statutes, the modification made to the Distress Act 1951 does not provide for extension of the Operating Period.

Answer:               

Although the modification offers a temporary relief to the lessees/tenants amidst the COVID-19 pandemic, both lessors/landlords and lessees/tenants should take note of these few points: