Written by Andrew Lourdes
Criminal Defense Lawyer and Life Coach
The COVID-19 virus has impacted over 140 countries globally, with schools and businesses being closed down – inevitably affecting contractual obligations nationally and internationally. This article will look at whether COVID-19 triggers a force majeure clause in a commercial lease.
The main concern for tenants tied to a lease is whether they can waive rental payments until the COVID-19 crisis is over.
Legally the landlord’s obligation under a lease is to permit the tenant to enjoy and use the premise. Therefore the landlord cannot be responsible if the shutting down of premises is directed by force of law under the MCO.
It must be understood that the MCO is not an automatic ground to defer paying or reduce rent.
In other words tenants seeking to rely on the MCO or the Covid-19 outbreak to defer or reduce rent must first, find out whether their tenancy agreements contains a force majeure clause, and if yes, whether the clause is wide enough to cover the MCO or the COVID-19 outbreak.
Unlike a tenancy agreement in a mall which normally covers force majeure most individual shophouse commercial leases are drafted by the landlord. They are typically vague, and do not provide much protection for the tenant. Most do not address what happens in the event of a pandemic.
Some mall chains in Malaysia have allowed outlets operating within them to not pay rent throughout the MCO. The waiver of the rent is possibly the result of a force majeure clause in their contracts. It’s worth mentioning that not all mall tenancy contracts have a force majeure clause. So, in such cases, tenants would still need pay their rent during this crisis. If you are facing difficulty in paying rentals during this crisis we would advise:
- Use your security deposit as an asset – offer that as the first step in paying next month’s rent. You may have more than one month on hand, and if that’s the case, it will buy you even more time .
- Negotiate with your landlord for a reduction or waiver of rent. Malaysians in general are kind at heart and if you have been paying your rent on time your landlord himself may want to help you out of the kindness of his own heart. As long as you and your landlord both agree to this, the rental agreement can be put on hold or completely set aside.
Contracts are, after all, agreements between parties and they can always agree amongst themselves on matters not provided or addressed therein. A waiver or reduction of rent not only benefits the tenants, but may help landlords to avoid the risk of the premises being left unoccupied if the tenants vacate the premises or close their businesses.