By Prisilla Chong and Chew Jin Heng

Introduction

On 16.3.2020, our Government implemented a nationwide Movement Control Order (“MCO”) from 18.3.2020 until 31.3.2020 under the Control and Prevention of Infectious Diseases Act 1988 and the Police Act 1967. Following that, the MCO was extended three (3) times to 12.5.2020 in light of the increase in numbers of confirmed cases of Covid-19 in our country.  On 1.5.2020, the Conditional Movement Control Order (“CMCO”) was implemented by our Government and will stay in force until 9.6.2020. 

The MCO has severely affected businesses as it imposes a complete restriction on movement. Many business premises were forced to close, save for those related to essential goods and services. On 6.4.2020, as part of the additional RM10 billion stimulus package to support businesses (Prihatin Plus), our Government announced that owners of buildings or business spaces that provide a rental reduction or waiver of at least 30% to tenants that consist of small or medium enterprises (SMEs) are given a further tax deduction which is equivalent to the amount of rental reduction for the months of April to June 2020. 

In view of the uncertain times, we understand that both landlords and tenants alike have many questions regarding the rights and obligations under their respective tenancy agreements. This article aims to address the following frequently asked questions on this burning issue:

Frequently asked questions

1. Does Covid-19 or the MCO affect the validity of my tenancy agreement? 

Your tenancy agreement is still valid unless Covid-19 or the MCO has made it impossible for you to carry out your respective obligations under the agreement. It is important for you to examine whether your tenancy agreement contains a force majeure clause which entitles you to suspend or terminate the tenancy agreement due to Covid-19 or the MCO.

2. What is a force majeure clause?

A force majeure clause is a contractual term whereby parties set out the unforeseeable events which may excuse one (or both) of the parties from the performance of a contract, in whole or in part. These unforeseeable events are usually beyond the control of both parties. 

There are various types of force majeure clauses. The effect of such clauses will depend on the scope of the unforeseeable events contemplated by the  parties. It is important to note that a force majeure clause can only be invoked and relied upon if it has been expressly provided for in the tenancy agreement. The burden of proof lies on the party wishing to invoke the clause.

 The following is an example of a force majeure clause:

“An event of force majeure is an event or circumstance which is beyond the control and without the fault or negligence of the party affected and which by the exercise of reasonable diligence the party affected was unable to comply with any of its obligations under this contract provided that the said event or circumstance is limited to the following:

(a) earthquakes, drought, tidal waves and floods, fire or other physical natural disaster; and

(b) riot, war, invasion, hostilities (whether war be declared or not) acts of terrorism, civil war, revolution, insurrection of military or usurped power, requisition or compulsory acquisition by any governmental or competent authority.

3. There is a force majeure clause in my tenancy agreement. Can I rely on it? 

Whether you can rely on the force majeure clause depends on the wordings of the force majeure clause and the nature of your tenancy agreement. If your tenancy agreement contains a force majeure clause which expressly provides for circumstances such as “pandemic”, “disease”, “global health emergency” or “lockout” as force majeure events, the COVID-19 pandemic would arguably fall within the scope of the clause. 

4. I am a tenant. Does this mean that I do not have to pay rent during the MCO period?

The short answer to this question is – no.  You will still have to pay rent under the tenancy agreement. A tenant’s ability to use the premises is a right and not a contractual obligation. Therefore, the tenant’s obligation under the tenancy agreement (i.e. to pay rent) is not directly affected by the MCO unless there is a force majeure clause that covers situations like Covid-19 or the MCO.

5. I have heard about the doctrine of frustration. What is frustration?

The doctrine of frustration is embodied in Section 57(2) of the Contracts Act 1950 and provides that “A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful”. When a contract is discharged by frustration, the contract is brought to an end immediately. 

In Guan Aik Moh (KL) Sdn Bhd & Anor v Selangor Properties Bhd [2007] 4 MLJ 201, the Court of Appeal set out three (3) elements that must be shown before the doctrine of frustration can be applied:

a. The event must have been one which the contract does not provide for;

b. The event must be one which the party is not responsible for; and

c. The event must render it radically different and practically unjust from that which was undertaken in the contract.

In short, the doctrine of frustration is usually invoked when a party states that it has become impossible or unlawful to carry out his or her obligation under the contract due to radical changes and it is unjust to enforce the obligation.

6. Can I rely on the doctrine of frustration to not pay rent?

No, it is unlikely that the tenancy agreement has been frustrated or rendered impossible to perform by the MCO. In Pacific Forest Industries Sdn Bhd & Anor v Lin Wen-Chih & Anor [2009] 6 MLJ 293, the Federal Court held that “a contract does not become frustrated merely because it becomes difficult to perform. If a party has no money to pay his debt, it cannot be considered impossible to perform as it is not frustration.” Therefore, you cannot rely on the doctrine of frustration to not pay rent during the MCO. 

7. What can I do as a tenant to reduce the rent payable?

A landlord has no obligation to reduce or defer the rent payable. However, you can reach out to your landlord to ask for a discount on your rent. If you are unable to pay the rent at all, you can ask for an extension or deferment of payment from your landlord. 

8. I am a landlord. What can I do if my tenant does not pay rent?

During these unprecedented times, you can perhaps offer your tenant a discount or restructure the rent payable. However, if your tenant has failed to pay rent for a prolonged period, you can choose to terminate the tenancy agreement between parties. The following remedies are available if your tenant defaults in his or her rental payment:

a. You can issue a Notice of Forfeiture to the tenant giving him or her notice of the alleged breach (i.e. failure to pay rent) and reasonable time within which the tenant is to remedy the breach. Your notice must also specify the arrears of rental that the tenant failed to pay. 

b. You can file an action in court and claim for rental, mesne profit, damages and/or vacant possession.

c. In the event the tenant refuses to move out after you obtained a court order, you can apply for a Writ of Possession whereby the court will direct a designated bailiff to remove the tenant and his or her belongings from the premises. Alternatively, you can also apply for a Writ of Distress which allows you to seek the assistance of the court bailiff to enter the premises to seize and sell the tenant’s movable properties, in order to make up for the outstanding rental.

Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.

By Prisilla Chong and Chew Jin Heng

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