Updated: May 15
A look at some issues regarding residential and business leases
According to the State there is social relief available to persons who have lost or suffered a reduction in income, a retrenchment or a termination and includes self-employed persons. The relief packages include public assistance support, temporary food support and rental support.
During this period of the Covid-19 pandemic, issues have arisen on its economic impact on business, employment and the general economy. The State’s offer of rent support to those impacted by an inability to meet that financial obligation is the focus for us here.
It appears simple enough, to qualify for rent support/relief one has to have experienced a termination, retrenchment or entire loss or reduced earnings as an employed, formerly employed or self-employed person. There is a *form to fill out and submit to the Ministry of Social Development either as an employed person or self-employed person within which you may request any of the three grants available. For rent relief additional evidence is also needed, such as: 1. a copy of the rental agreement, 2. evidence of most recent rent payments and 3. a copy of the Landlord’s national identification. Once successfully qualifying rental assistance will be at the amount of $2,500 monthly for an initial three (3) months with the possibility of extending for a further three (3) months at a subsistence of $1,500. An extension beyond six (6) months is also possible but at a reduced grant of $1000, however, this relief will not extend beyond one year.
The supporting evidence is reasonable and justified. The provision that the rental relief will go directly to a Landlord has its obvious justification too. What happens, however, where a Landlord refuses to give the supporting evidence required? Now, why would that be the case as surely it is in the Landlord’s interest to facilitate his/her tenants in procuring financial relief available to them in this pandemic climate of economic uncertainty. Unfortunately, there has been a general complaint that certain Landlords are reluctant to provide the supporting documentation, in particular, those being the ones, who, having received the benefit of affordable state housing, are sub-letting to tenants in breach of their own contractual obligations to the State. As they are in breach of the provision against sub-letting how can they acknowledge the sub-let which they have created as this, it is feared, would result in accountability for their actions?
Generally, any lessor in breach of its obligations to not sub-let, is not a breach which may automatically result in the termination of the lease. All long leases and titles held under a Deed of Mortgage typically contain a clause that a lessee may not sub-let without the consent of the lessor and the lessor may not unreasonably withhold consent. It is rare, but, there are instances where to sub-let is absolutely prohibited, which may be the case with public housing as this would go against its primary purpose.
In any event, where there is a breach of a clause against sub-letting more often than not the lessor must first notify the lessee of this potential breach by a formal notice and allow for its remedy, that is, to terminate any sub-let within a specified period before taking any further action. A lessor who may be aware but fails to give such notice may be deemed to have acquiesced to the sub-lease or not be interested in pursuing its strict contractual rights. In which case, the lessee may arguably have no case to answer at the given time unless and until the lessor elects to take action.
Given the State’s offer of rental relief due to the far more pressing matter of the Covid pandemic then a similar humanitarian response is also required of the lessor as it has been offered by the State. That is to say, all landlords including those who are under a lease for state housing but have a sub-let should not in good conscience deter or place an undue economic pressure on their tenants for rental demands when, for an impecunious tenant, state aid is at hand and can be applied for especially where the likelihood of the lessor relying on its strict contractual rights is not a priority at this time.
This rental relief, however, does not extend to business leases or tenancies. And this presents a different problem. In the news we hear of small to medium businesses especially those who are tenants in malls bemoaning the challenge and near impossibility of meeting rental demands. Again, the humanitarian response should be one of understanding and negotiation given the current economic climate. Most business not falling within the ‘essential services’ category have been unable to function for the past few months and have therefore suffered a sharp drop in revenue whilst shouldering stock costs and staff costs among other business related expenses.
From a negotiable standpoint when it comes to business leases, the particular wording of the lease may offer some alternatives. Most business leases contain what is known as a ‘force majeure’ clause. The effect of such a clause however is strictly derived from its express wording. Typically it may include a list of specified events which would allow the parties through no fault of either, an opportunity to suspend certain obligations under the lease once it is shown that a specified event in question directly affects the parties’ obligations premised upon the benefit or purpose of the lease arrangement.
The specified events in question may include what is referred to as “acts of God” like a natural disaster, war, acts of terrorism or civil unrest and even government regulations which upon a change of law directly restricts or limits the purpose of the lease. It may also include diseases specified as either an epidemic or pandemic. It may therefore allow for the current scenario of a global pandemic coupled with laws which has affected the conduct of business by a tenant under a lease for its business location/activities but is unable to actually conduct its business due to the consequential cessation of business activity which would be the primary purpose of the tenancy arrangement. Again, it all depends on the particular wording of such a clause. If this first hurdle is circumvented then the effect of the impact of such may also be considered as provided under the lease. That is, whether the lease in light of a force majeure scenario allows for a partial or whole suspension of certain obligations under the lease which may include the rental obligation and to what extent it allows for this or rather affords the parties an opportunity to re-negotiate its terms without termination of the lease itself until the event in question no longer presents a hindrance to resuming the full contractual rights and obligations of both parties.
Business leases are premised for the benefit of both parties. In that, it is usually one which due to its long duration relies on the good standing of both parties in business taking into account events outside of either parties control whilst still allowing for the option of maintaining its benefit. This is why most may usually contain a force majeure clause acknowledging a measure of flexibility due to specified events without impacting the continuance of the business relationship.
The pragmatic approach would be for both parties to consider this and to be open to re-negotiation in order to preserve a business relationship once it meets the very factual circumstances that allow for this under the lease which may include a rent reduction or abatement during the force majeure period until such time that prevailing circumstances cease.
If there isn’t a written business tenancy agreement (which may be the case) and rent due is an inexcusable term by agreement then a Landlord is within its rights to insist upon a rent due as agreed for the benefit of a lease. Still, one may also consider whether forfeiture of a business lease is the best course especially where the current state of affairs is likely to negatively affect the leasing industry in that all other potential tenants may be unlikely able to invest or enter into and maintain a lease presently. Any prudent Landlord should also have regard to say a current tenant who for any duration always fulfilled its rental obligation and would continue to have done so were it not for an event outside of its control.
Please note that this opinion is not a substitute for dedicated legal advice which may be received from an Attorney-at-law by a legal consultation according to your particular circumstances.