The ongoing pandemic has come to affect the legal positions of both landlords and tenants in Malaysia.

Some questions are frequently asked, and I will try to offer clarity as to what parties can or cannot do in these trying times.

Does the Restricted Movement Order affect the validity of tenancy agreements and its terms?

For most tenancy agreements, no.

The Restricted Movement Order (“RMO”) – or also known as the Movement Control Order (“MCO”) – does not affect typical tenancy agreements.

It is only if a tenancy agreement has a force majeure type of clause that the MCO may have an impact on the agreement.

A ‘force majeure’ clause essentially states that if an unexpected event (for example, acts of God and declaration of wars) occurs beyond a party’s control, certain contractual obligations of parties will be suspended as they are unable to perform the contract due to the said unexpected event. Depending on how the clause is drafted, the entire contract could also be terminated, instead of suspended.

Therefore, a tenancy agreement may contain a force majeure clause, which will suspends obligations due to the unforeseen MCO, such as the need to pay rent. However as mentioned, the typical tenancy agreement does not have such a clause.

Thus, in reality, the MCO is unlikely to affect the vast majority of tenancy agreements out there.

Is rent still chargeable?

Yes. Unless the tenancy agreement has a force majeure clause as explained above, rent remains chargeable and has to be paid even in the MCO period.

Interestingly, Singapore proposed a bill on 2 April 2020 (known as the ‘COVID-19 (Temporary Measures) Bill’). It contains various legal measures to assist businesses during this tumultuous period. One of the proposed measures is to suspend the obligation of non-residential tenants from paying rent for a period of six months. The rent still accrues, but the tenant is not legally required to pay the rent for the period fixed by parliament.

No such proposal has been made in Malaysia yet, and so tenants currently have no right to withhold payment despite COVID-19 and the MCO.

This appears consistent with law: the Malaysian Federal Court in the case of Pacific Forest Industries Sdn Bhd & Anor v Lin Wen-Chih & Anor [2009] 6 MLJ 293 clarified that a contract, which includes tenancy agreements, does not in law become frustrated merely because it becomes difficult to perform. Thus even if a party has no money to pay his debt rent, it cannot be considered a valid justification to breach the tenancy agreement.

Can the tenant ask for lower rent?

Tenancy agreements are just like any other contracts between private parties.

Once a tenancy agreement is signed, it forms a valid and binding contract between them. Any change to the contract can only be done in the manner prescribed under the contract, which usually means that all parties must agree to any intended change.

A tenant can always request for a discount to the rent, or for the payment obligation to be deferred. However, such change (be it a discount or deferment) can only be valid if the landlord agrees to it. If the landlord rejects the request, the tenant is still legally required to continue performing the tenancy agreement.

What happens if the tenant fails to pay rent?

Almost all tenancy agreements will have a ‘termination clause’.

This clause entitles the landlord to terminate the tenancy in the event of breaches - which includes where there is failure to pay rent. The landlord can terminate the tenancy by serving notice to the tenant in the manner required in the tenancy agreement.

Even if there is no ‘termination clause’, it can be argued that the tenant’s failure to pay rent constitutes a fundamental breach of the tenancy agreement, which then entitles the landlord to terminate it.

Thus in all situations, the landlord should act reasonably by giving sufficient notice to the tenant.

What happens if the landlord terminates the tenancy agreement?

If the landlord terminates the tenancy agreement and gives valid notice to the tenant to vacate the property, the tenant will be required to leave upon expiry of the notice period.

The landlord is also entitled to sue the tenant for any outstanding rent.

What happens if the tenant refuses to vacate the property?

This is an important issue.

As explained above, the landlord has a legal right to take back possession of the property. He may do so by serving a notice to terminate the tenancy agreement. The tenant then has to vacate the property once the notice period expires.

If the tenant continues to remain on the property upon the expiry of the termination notice period, the tenant becomes a trespasser.

Yet despite the trespasser status, the landlord cannot forcibly remove the tenant unless that landlord first obtains a court order to evict the tenant. The landlord cannot physically kick out the tenant, change the locks, or barge into the property and throw out the tenant’s belongings.

The landlord must in law file a civil suit against the tenant, and obtain the proper court order, before he is entitled to physically evict the tenant. Se Section 7(2) of the Specific Relief Act 1950, which states:

“…Where a specific immovable property has been let under a tenancy, and that tenancy is determined or has come to an end, but the occupier continues to remain in occupation of the property or part thereof, the person entitled to the possession of the property shall not enforce his right to recover it against the occupier otherwise than by proceedings in the court.” (emphasis added)

See also the cases of Dr Harjit Singh v Suhaimi Bin Samat & Anor [1995] MLJU 109 and Metro Charm Sdn Bhd v Lee Nyan Hon & Brothers Sdn Bhd & Anor [2007] MLJU 2272 where it was held that the landlord cannot retake possession of the property except by way of Court proceedings, and that any attempt to proceed otherwise will amount to a tort.

If the latter happens, the landlord becomes liable to be sued instead.

What can the landlord do in the meantime?

The process of obtaining a court order to evict the tenant from the property may take a few months.

In that period, although the landlord cannot forcibly remove the tenant, the landlord will be compensated in law by requiring the tenant to pay higher rent starting from the expiry of the notice period. There is thus some recompense.

Consider, as mentioned above, that upon expiry of the termination notice period, the tenant becomes a trespasser on the property. When this happens, the tenant becomes liable to pay what is known as ‘mesne profits’. Black’s Law Dictionary (9th Edition) defines this as:

“…The profits of an estate received by a tenant in wrongful possession between two dates. Also termed (archaically) medium tempus.”

Generally, the court accepts and will impose double-rent as reasonable ‘mesne profits’ to compensate the landlord. For example:

• Assume that the agreed rent is RM 5,000 per month, and that the tenancy agreement terminates on 31 March 2020.

• The Court may order the tenant to pay rent of RM 10,000 per month starting from 1 April 2020 until the date the tenant leaves the property (either voluntarily or when physically removed through a court order).

• The failure to pay entitles the landlord to sue the tenant for the owed amount.

• Further, and if the debt is more than RM 50,000, the landlord may also bring bankruptcy proceedings against the tenant.

Two cases have discussed the principle of ‘mesne profits’: Mohamed Abu Bakar s/o Yusof v PA Syed Aboothahir s/o P Ahmed [1990] 1 MLJ 26; and Syed Ahmad Al-Junied & Ors v Reshty [1969] 1 MLJ 87.

Conclusion

COVID-19 and the resulting impact on the economy is guaranteed to affect many individuals and businesses in many ways including their tenancy agreements. The best way forward is for parties to be understanding and compromise wherever possible.

The time, effort and costs for parties to litigate often outweighs the cost of agreeing to a compromise. If rent can be discounted or deferred, it is certainly worth consideration.