The Movement Control Order (MCO) has affected everyone, something which we accept as necessary to curb the spread of Covid-19. The restricted movement during this period undoubtedly causes an impact on the economy.
Can Tenant request for waiving office/commercial rental?
The Tenant can rely on “Force Majeure” clause in the Tenancy Agreement. Force majeure means the occurrence of event(s) or circumstance(s) which could not have been foreseen at the time the contract was entered into, which prevents or impedes a party from performing one or more of its contractual obligations under the contract.
In the case of Intan Payong Sdn Bhd v Goh Saw Chan Sdn Bhd [2004] 1 LNS 537, the High Court stated that
“…it is trite that a party relying upon a force majeure clause must prove the facts bringing the case within the clause. He must, therefore, prove the occurrence of one of the events referred to in the clause and that he has been prevented, hindered or delayed, as that case may be from performing the contract by reason of the event. He must further prove that his non-performance was due to circumstances beyond his control and that there were no reasonable steps that he could have taken to avoid or mitigate the event or its consequence…”.
We take into the Consideration of this COVID-19 pandemic was unforeseeable and it shall qualify as a force majeure event within the ambit of “events beyond the control of the parties” as the parties have no control whatsoever on the occurrence, spreading of COVID-19 and/or the government’s imposition of the movement control order.
What if my Tenancy Agreement does not have this “Force Majeure” clause? Can I rely upon the doctrine of frustration to waive the Rental?
Under the Doctrine of Frustration and Section 57(2) Contracts Act which stated that:-
“…A contract to do an act which, after the contract is made, become impossible, or by reason of some event which is the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful…”
In the case of Guan Aik Moh (KL) Sdn Bhd & Anor v. Selangor Properties Bhd [2007] 3 CLJ 695 stated that a party must show the 3 elements of the event purported causing the frustration:-
1. the event must have been one for which no provision has been made in the contract;
2. the event must one for which the party was not responsible (i.e. it cannot be self-induced); and
3. the event which is said to discharge the contractual obligation must be such that renders it radically different from that which was undertaken by the contract. The court must find it practically unjust to enforce the original promise or contractual obligation.
If either of these 3 elements is missing, Section 57 of the Contract Act 1950 will not apply.
During this MCO period, the first and second element is satisfied. The third element will depend on the fact that the party to the contract would have to prove that during this MCO has resulted in the contractual obligation being made radically different from what was undertaken and facing financial difficulty in coming up with the monthly rental is insufficient. Even if a tenant is able to frustrate the tenancy agreement, the effect of frustration is that the tenancy agreement shall be rendered void and not the intended effect of a reduced rental throughout the MCO period.
What if Tenant dealing in non-essential services?
Pursuant to the MCO and regulations, if a business falls under the category of non-essential services, it shall shut down temporarily until 14 April 2020. If the tenant is unable to run its business in the leased premises or not being able to use the leased premises to generate any income due to the MCO, the tenant may claim frustration.
Any subsidy from the Government?
According to Prime Minister, any Landlords of private premises who reduce their rental rates by at least 30% from April to June this year will qualify for additional/double tax deductions.
**Please note though that the above FAQs do not constitute legal advice and as the situation remains fluid, the legal position may change in the near future.