RENTING IN THE PREMISE OF COVID-19

John just rented a new space for his company. Located on the 38th floor of a commercial building in KL’s most prime, John is paying a sizeable rental every month but sees it as a worthy investment for his company’s growth. However, all that has changed since the Covid-19 outbreak and ensuing Movement Control Order (“MCO”).

Since the MCO came into force, lowered shutters and padded locks on the doors of offices, stores, factories and premises of usually bustling businesses have become a common sight.

Like John, businesses which are left out of the “Essential Services” category find themselves unable to operate at their rented premises. However, the question is – does John still have to continue paying rent for a space which he is unable to use?

This article discusses the steps available to an affected tenant like John to resolve or mitigate his “White Elephant” situation.

Firstly, we should look to the terms agreed between the parties under the tenancy contract. If the contract has a force majeure clause, John may be able to rely on that to suspend his obligation to pay rental for the period of the MCO. However, as we have explained previously, there is ‘no one size fits all’ force majeure clause and the language of the clause must be examined carefully to see if it applies to John (please refer to our previous article on force majeure clauses).

In the absence of a force majeure clause, John could try to argue that the contract has become void on grounds of frustration. In this sense, John will have to prove that due to the occurrence of the MCO, the contract has:-

a) become genuinely impossible to perform; and

b) its purpose radically different than originally contemplated.

Depending on the individual facts of John’s case, this could be an uphill battle as frustration is construed very narrowly. Just because John may have struck a bad bargain or faces financial hardship, difficulty or financial loss does not mean the contract is frustrated due to the MCO.

If John’s intention is to continue the contract with a reduced rental, frustration may not be an ideal remedy as the contract is terminated.

The ideal solution would be for John to negotiate and come to a compromise with his landlord. Any agreement reached should be recorded in writing especially if it operates outside of the tenancy contract.

This article is not intended as nor does it substitute for legal advice. If you have any queries or require legal advice, please contact Justin Chong at justincck@jmcvc.com or through any of our general lines.