TENANTS MUST HONOUR CONTRACTS
COVID-19 has left in its wake a trail of economic destruction. To aid the economy, the government gazetted the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 (“the Act”) on Oct 23, which provides temporary relief from contractual obligations.
Section 7 provides that the inability of any party to perform any contractual obligation due to measures prescribed under the Prevention and Control of Infectious Diseases Act 1988 (“PICD”) to control the spread of Covid-19 shall not give rise to the other party exercising his rights under the contract.
This relief was scheduled to be in force from March 18 to Dec 31 last year, but has been extended to March 3. Section 7 encompasses seven types of contracts including a lease or tenancy of non-residential immovable property.
Section 7 raises questions, especially whether tenants are required to honour their contractual obligation to pay rent during the enforcement period of the Act. A layperson reading of Section 7 may appear to answer the question in the affirmative.
A detailed legal analysis into Section 7 may offer a different interpretation. As a preliminary point, the savings provision in Section 10 is an express exception on the applicability on Section 7.
Section 10 essentially provides that notwithstanding Section 7, any contract terminated, or any legal proceedings starting from March 18 to Oct 23 last year shall be deemed to have been validly terminated or carried out.
Tenants would not be able to then rely on the relief provided under Section 7.
What about tenancy agreements terminated after Oct 23? It is a cardinal principle of law that he who asserts must prove.
Tenants will have to show that their inability to pay rent is due to the Movement Control Orders.
Section 7 provides that the inability to pay shall be “due to the measures prescribed, made or taken under the PICD to control or prevent the spread of Covid-19”.
Section 7 contains a limiting condition and is not a blanket provision for anyone’s inability to perform their contractual obligations.
Section 7 would otherwise be open to abuse for parties to escape contractual obligations with no consequences.
Section 7 should not be interpreted to deprive landlords of their rent, unless it can be shown that the tenants were “incapacitated” by the measures.
The main issue may be whether the tenant’s financial standing was affected by the measures imposed by the government.
A tenant could claim that due to the government’s directive prohibiting their operation, his business was affected, and in turn affected his ability to pay rent.
The Act does not distinguish between the different movement control orders and its severity.
Would a tenant be able to rely on Section 7 where a tenant could have operated, albeit with government approvals or was an essential service provider during the MCO but did not take steps to do so?
Many tenants were bound to fail due to mismanagement irrespective of the pandemic.
The legal test of causation and remoteness may be relevant in determining the causative relationship between the government’s directive and the tenant’s inability to pay rent.
In the event a dispute arises on the applicability of Section 7, the Act provides for mediation.
Typically, a mediator does not decide on a dispute, but acts as a neutral party to assist disputing parties in reaching a settlement.
In Singapore, where a dispute arises on the applicability of its Covid-19 Act, an assessor may be appointed to decide on the applicability of the Act.
As it stands, Section 9 may seem like a toothless tiger as ultimately our courts would be left to decide on the applicability of the relief afforded by Section 7.
Given that the Act was recently gazetted, there is a lack of judicial guidance on its interpretation.
However, Section 7 ought not to provide a blanket protection to tenants who have failed to pay rent. This would be an irrational conclusion that cannot be consistent with the underlying goal of the Act.