Tenancy Agreements : Effect of the Movement Control Order

By Loh Yun Ping, Alicia

1. When Malaysia was placed under the Movement Control Order “MCO” from 18/3/2020, the Government initiated various incentives to individuals and SMEs, one of which is in respect of rental payments –

i. Rental payments are excluded / rental discounts are given for business in premises owned by government linked companies.

ii. Owners of buildings / business space who provided a reduction / release of rental to Tenants are entitled to additional tax deductions equal to the amount of rental reduced from April 2020 to June 2020 (Note: Rental reduction is 30% from the original rental). This covers the private sector.

2. Do Tenants still have to pay rental during the MCO?

Yes because the above incentive does not state that the payment of rental be waived during the MCO period.

The wordings “Owners of buildings / business space who provided a reduction / release of rental” means that it must be a mutual agreement between the parties in which the Owner is to party who has the discretion to agree or not to it.

If the Owner agrees to reduce or waive the rental payments, then this agreement must be in writing, as proof for tax purposes.

If the Owner does not agree to reduce or waive the rental payments, the tenancy agreement still remains a valid and binding contract between the Owner and Tenant. The Tenant has to comply with its obligations is to make payment of rental by a certain time.

Advise : the Tenant should attempt to make the request to the Owner and negotiate with regards to the payment of rental.

3. Is the “force majeure” clause applicable to defer or waive the payment of rentals?

Yes only if the clause has been specifically drafted into the tenancy agreement. It is not an automatic right.

For Commercial Tenants, the “force majeure” clause has to be reviewed as to the manner in which it had been drafted to determine whether the “force majeure” clause states specifically whether the rentals are to be :-

i. deferred (meaning payment of rentals are still due but only after the MCO has been lifted) or
ii. waived (meaning no rentals to be paid during the MCO) or
iii. the tenancy agreement will be terminated (meaning the Tenant has to choose to pay and continue to rent the premises or to move out). It should be noted that if the Tenant defers payment of rental, as long as the rental is paid, the Owner cannot proceed to exercise their right to terminate the tenancy agreement.

The Owner cannot simply force the Tenant to move out of the premises for non-payment of rental but must comply with the provisions as required by law (Specific Relief Act 1950) whereby notice must be given to the Tenant (period of notice is 30 days) and only on expiry of the notice period can the Owner proceed to take an action in court for vacant possession of the premises and recovery of rentals.

[United Kingdom : under the Coronavirus Act 2020, the Landlord is not entitled to forfeit the business tenancy agreement due to non-payment of rental during such period. It is advised that parties negotiate a payment plan for the payment of rentals and such payment plans are not deemed a waiver of the Landlord’s right for rental.

In respect of shopping centres which have to be closed – the principle of “derogation of grant” is given to the Tenant depending on what has been granted on the lease under the business tenancy agreement.

A “derogation of grant” is a general legal principle that if one party agrees to give a benefit to another party, those parties should not do anything that substantially deprives the other of the benefit]

[South Africa : has taken a more pragmatic approach. It has been suggested that the Landlord gives the Tenant a “payment holiday”, if where the Tenant has been making good the rentals on time, the parties are advised to negotiate a payment plan such as utilising the security deposit to offset the rentals and upon the uplifting of the lockdown the Tenant is to reinstate the security deposit in instalments. A contract is to be drafted between the parties regarding the terms so agreed]

If Owner and Tenant agree that the MCO constitutes a “force majeure” event then the parties can proceed to negotiate a payment rental plan (in the event the Owner does not agree to waive the rental payment).

In all likelihood, the Owner may not agree that the MCO constitute a “force majeure” event and in such situations, then whomever intending to rely of the “force majeure” clause (usually the Tenant) would have to bring this issue to Court for the Court to interpret whether the “force majeure” clause applies to the MCO.

4. What happens if the tenancy agreement has expired?

The Owner cannot force the Tenant to move out during the MCO period.

The Owner should grant an extension of time to the Tenant until after the MCO period has been lifted for the Tenant to move out and return the premises to the Owner. This is subject to negotiations between the Owner and Tenant with suggestions that the Owner give an extra 1 month from the lifting of the MCO for the Tenant to make arrangements to move out. Rentals are still to be paid by the Tenant to the Landlord during such extensions unless otherwise agreed between the parties.

5. The Tenant should have make request for waiver or defer or reduction of rental to the Owner upon lockdown or soonest thereafter.

Silence does not mean the Owner consents to the Tenant’s request and the Owner is to ensure that the Tenant does not mis-interpret the silence as an agreement and should respond.

Have a side-letter drafted (to the tenancy agreement) as to the terms of the rental payment plan.

Tenant should check whether there is a “force majeure” clause or review the “force majeure” clause in the tenancy agreement.

Seek the advise of a solicitor regarding the matter as soon as possible.

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