By Amani Pilapitiya LL.B, AAL
Introduction
This note outlines the general guidelines adopted by other jurisdictions regarding Landlord-Tenant relationship with the ongoing pandemic; Covid-19. Provisions contained in these guidelines fall well within the ambit of force majeure, a separate limb of law of contract solely dealing with eventualities. In a backdrop where no such specific guideline has been issued by the Government of Sri Lanka, the approach adopted by other countries stated below would provide a springboard in striking an amiable compromise between landlord and tenant (or, lessor and lessee, as the case may be) if the need so arises.
- Jurisdictions with legislative enactments in place-
New Zealand
- The Minister of Finance announced on the 23rd March 2020 a freeze of rent increases and protections against tenancy terminations. This has been applied as law through the Covid-19 Response (Urgent Management Measures) Amendment Act.
- Due to loss of employment income, if some tenants are faced with issues paying their rent, they must let their landlord know straight away and consider if they can agree on a payment plan.
- Landlords and tenants that reach an agreement can choose to have this formalised using the ‘Fast Track resolution process.’ Which is a service provided by Tenancy Services to help landlords and tenants formalise an agreement that has been reached after a dispute.
- It encourages landlords and tenants to sort out their tenancy problems themselves by working together to come to an agreement.
- Financial support from the Government’s Wage Subsidy and Leave Payment scheme is available to eligible employers and workers with continued problems with making the payment.
- For the next three months (commencing from April) landlords can’t apply to the Tenancy Tribunal to end the tenancy for rent arrears unless the tenant is at least 60 days behind in rent.
- The Tribunal must consider whether it would be fair in the circumstances to terminate the tenancy, taking into account whether the tenant made reasonable efforts to pay rent.
- Tenants are still liable for rent and landlords can ask tenants to pay what is due.
- Landlords can also seek a monetary order from the Tribunal for rent arrears even though they can’t currently ask the Tribunal to terminate the tenancy if the rent is less than 60 days in arrears.[1]
United States
- The Coronavirus Aid, Relief, and Economic Security Act (CARES Act 2020) which seeks to provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic has three new unemployment insurance (UI) programs.
- Those that would qualify for UI would include anyone who has lost their job, been furloughed, or is unable to work or find work because of the coronavirus crisis. That includes people who leave work due to risk of exposure or to take care of family.
- Crucially, the self-employed and independent contractors now qualify for unemployment through the Pandemic Unemployment Assistance program. This temporary, federally funded program allows those who don’t qualify for traditional unemployment to receive benefits during the pandemic.[2]
- Those coming under the authority of the UI program will be eligible for up to $600 per week in addition to the UI aid. The UI aid under this act is based on the income you’d been receiving for 18 months before losing employment.
- This act, although not specifically addressing Landlord-Tenant relationships will however allow individuals that lost a job to still have a stable income and make their rent payments.
- While the act provides overall protection and concessions, the respective state policies would dictate the exact scope of this Landlord-Tenant relationship.
USA (Maryland Eviction policy)
- Due to these unforeseen circumstances the eviction policy in Maryland has changed for the time being.
- Until the virus passes and individuals can re-coup, the Governor has prohibited utility companies to cut off service and evictions to occur.
- This means, tenants are safe from both eviction and losing the use of utilities due to lack of income during the Covid-19 outbreak.
- However, the evictions are legally banned as long as the tenant shows a failure to pay rent in correlation with the virus.[3]
USA (California Apartment Association)
- Authorities in some states have issued letters[4] to tenants stipulating relief measures available to them.
- They state that if they have suffered a job loss or other substantial loss of income due to the Covid-19 pandemic and are unable to pay rent, they are encouraged you to notify the association as soon as possible to discuss potential alternative payment arrangements that may be made to accommodate their situation.
- However, if they are not currently facing a Covid-19 related hardship, they must continue to pay their rent.
United Kingdom
- Key features of the Corona Virus Act 2020 that addresses this relationship includes;[5]
- It provides a moratorium (temporary prohibition) on forfeiture of commercial leases for non-payment of rent.
- However, “rent” is defined to include any amount payable under the lease and, taken literally, this applies to all payments required to be made by the tenant including service charge, insurance payments, utilities and so on.
- The moratorium applies as from 26 March until 30 June 2020, or such later date as may be specified. This means that, whilst the moratorium is in place, a landlord will not be able to evict a tenant for non-payment of rent.
- It doesn’t stop the rent (and other payments) still being payable and leaves the tenant open to contractual or other enforcement.
- A landlord therefore still has its other remedies available should it wish to enforce the debt – including instructing bailiffs to effect;
- Commercial Rent Arrears Recovery (CRAR),
- Issuing a court claim,
- Service of a statutory demand/insolvency process,
- Enforcing against guarantor,
- Drawing down on a rent deposit etc.
- Failure by the tenant to pay rent during the moratorium period is removed as a ground of objection by a landlord to a new tenancy under the Landlord and Tenant Act 1954.
- Once the legislation has lapsed (currently scheduled for 30 June 2020) a landlord will be able to claim for forfeiture for both payments that became due during the moratorium period, and for any becoming due but unpaid after it ends.
- The legislation does not apply to a short (i.e. not more than six months) lease. Landlords whose tenant is on a lease of 6 months or less can therefore still forfeit their tenant’s lease.
- Other than forfeiture, landlords still have their usual remedies available and the right to forfeit will arise again in June 2020, unless the moratorium period is extended.
- Where a tenant has withheld payment of the March quarter’s rent without its landlord’s consent, it is well advised to open a dialogue with the landlord before the expiry of the moratorium period in June 2020.
- Jurisdictions without legislative enactments in place-
Kenya
- The question of whether to pay rent, in full amount, partial amounts or no payment at all has been raised. However, there is no specific guideline which outlines what should be done.
- While addressing the media in Nairobi, the Health Cabinet Secretary stated that “landlords should be a bit sensitive towards tenants and remember that people are not in the situation where they always are…however, we need to know that even landlords have bank loans that they need to pay up. It is a chain of events that will need all of us to be humane towards one another.”[6]
- Central Organization Trade Union (COTU) Secretary General has asked landlords to exempt Kenyans from paying rent for the next three months. While they have made this appeal to the government, no legal exemptions have been imposed as of yet.
Singapore
- This is with reference to retailers and small businesses in the food and beverage industry.
- Struggling retailers and food and beverage operators are calling for a temporary change in how retail rents are calculated, as the Covid-19 outbreak takes an increasing toll on their businesses.[7]
- Currently, most retail leases are structured around a minimum fixed charge called base rent, with a small component based on a tenant’s gross turnover or total sales generated.
- To avoid “massive permanent store closures and loss of jobs within the next three months”, the industry group (Singapore Retailers Association (SRA)) wants leases to be no more than 15 per cent of a tenant’s gross turnover for six months or for the base rent to be halved, whichever is lower, owing to the stricter safe distancing rules imposed by the authorities resulting in ‘zero sales’ for retailers.
- SRA also suggested landlords to allow businesses “who cannot sustain anymore to exit” before their lease expires, without losing their security deposits or risk of legal action.
- Here too no specific legal provision has been introduced to address the issue.
As stated above some jurisdictions have enacted legislative guidelines while others have advised parties to agree among themselves as to their rights and obligations under tenancy or lease agreements. However, it is noticeable that any entitlement for either a rent or lease moratorium as well as concessions thereof is contingent upon notifying the landlord or the lessor of the financial inability caused by the pandemic
[1] COVID-19 (coronavirus) – information for landlords and tenants available on Government website. https://www.tenancy.govt.nz/about-tenancy-services/news/coronavirus-covid-19-what-landlords-and-tenants-need-to-know/
[2] Article titled Everything We Know About CARES Act Expanded Unemployment Benefits https://nymag.com/intelligencer/2020/04/cares-act-unemployment-benefits.html
[3] Article titled Do I have to pay rent during the COVID-19 pandemic? https://www.baymgmtgroup.com/blog/pay-rent-maryland-covid-19/
[4] California Apartment Association Information website https://caanet.org/sample-letter-to-residents-amid-covid-19-outbreak/
[5] Article titled Coronavirus Act 2020 and forfeiture of leaseshttps://www.lewissilkin.com/en/insights/coronavirus-act-2020-and-forfeiture-of-leases
[6] Article titled to Pay or to Not Pay Rent Amid COVID-19 Crisis? Govt Answers https://www.capitalfm.co.ke/business/2020/04/to-pay-or-to-not-pay-rent-amid-covid-19-crisis-govt-answers/
[7] Article titled Tenants need ‘unprecedented’ rent relief amid COVID-19 outbreak, say retail and F&B groups https://www.channelnewsasia.com/news/business/tenants-need-unprecedented-rent-relief-amid-covid-19-outbreak-12598104
