We covered parts of Covid-19 Bill in our previous post relevant to a Housing Developer, JMB and MC. They relate primarily on Defect Liability Period and Liquidated Ascertained Damages issues excluding the period from 18.3.2020 to 31.8.2020 with an extension if it is allowed by the Minister.
Landlord and Tenant
Today, we write about the impact it will certainly have on Landlords and Tenants. Section 7 of the Covid-19 Bill sets out that the inability to pay on one party in performing any contractual obligation (of contracts specified in the Schedule) due to the measures prescribed or taken under the Prevention and control of Infectious Diseases Act 1988, the other party is not allowed to exercise his rights under the contract.
The list of categories of contracts in the Schedule is reproduced below:
1. Construction work contract or construction consultancy contract and any other contract related to the supply of construction material, equipment or workers in connection with a construction contract;
2. Performance bond or equivalent that is granted pursuant to a construction contract or supply contract;
3. Professional services contract;
4. Lease or tenancy of non-residential immovable property;
5. Event contract for the provision of any venue, accommodation, amenity, transport, entertainment, catering or other goods or services including, for any business meeting, incentive travel, conference, exhibition, sales event, concert, show, wedding, party or other social gathering or sporting event, for the participants, attendees, guests, patrons or spectators of such gathering or event;
6. Contract by a tourism enterprise as defined under the Tourism Industry Act 1992 [Act 482] and a contract for the promotion of tourism in Malaysia;
7. Religious pilgrimage-related contract
Item 4 of the List provides expressly to a lease or tenancy of non-residential immovable property.
In other words, if a landlord and tenant has entered into a tenancy agreement or a lease, and a tenant does not pay up the rental for the period within MCO, CMCO and RMCO, the landlord cannot exercise its rights provided in the contract, which usually includes:
(a) initiating a distress action;
(c) terminate the tenancy agreement;
(d) suspend utilities to the demised premises;
There is a saving provision however provided in Section 10 which spells out that any legal proceedings carried out from 18.3.2020 to the date of publication shall be deemed to have validly commenced.
Any dispute arising from inability to pay to perform the contractual obligations (ie to pay rental) is encouraged to refer it to mediation where the Minister may determine the mediation process by appointing a mediation until the conclusion of mediation.
Part X (Modification to the Distress Act 1951)
Sections 29 and 30 of the Covid-19 Bill also provides that a warrant of distress issued under the Distress Act 1951 shall not include the distrain for arrears of rent for the period from 18.3.2020 to 31.8.2020. In lay man terms, it means the warrant of distress should exclude the arrears for rental payable for the period from 18.3.2020 to 31.8.2020. Recovery of Rental through distress during those period will be stalled.
Any execution of the warrant of distress for the recovery of rent due issued before the publication of this Act however shall be dealt with without modification provided for in (Section 30 – as mentioned above). In other words, the distress can still be taken out for recovery of rental for the period from 18.3.2020 to 31.8.2020 until the Covid-19 Bill is gazetted.
What can a Landlord Do Now?
A landlord will now be caught in a bind since there are many tenants who are unable to pay rental due to the MCO, CMCO and RMCO. Business Owners especially retailers in a mall are still suffering languish sales with turnover reduced by a large percentage, some of them 60% to 70%.
The landlord whilst on one had want to hold on to these tenants (to prevent empty row of outlets), the tenants may not be in position to pay full rental. A landlord in this regard can offer rebates to the tenant should it wish to preserve the tenant mix.
If the landlord is however certain that it wishes to pursue its rights against the defaulter, it should initiate an action NOW before the Covid-19 Bill is gazetted which will prevent a landlord from exercising its rights in the tenancy agreement and recovery through distress for rental from 18.3.2020 to 31.8.2020.
What can Retailers (tenants) do NOW?
Retailers should take advantage of the Covid-19 Bill and extract the relevant provisions and point them out to a landlord. They should consider seriously whether they wish to terminate or continue by adopting the wait and see approach hoping the economy will have a quick turnaround and sales to recover to its normal amount pre-MCO.
For tenants who wish to terminate, they may explore paying up to the date of occupation of the Demised Premises and requesting a full waiver on rental for the unexpired period.
For tenants who wish to continue to occupying the Demised Premises, they can approach the landlord to request for a rebate and propose a genuine payment scheme in installments. The rebate now ranges from 30% – 50%.