CLIENT UPDATE

3 APRIL 2020

IMPACT OF THE CORONAVIRUS (COVID-19) OUTBREAK ON

TENANCY

To contain the spread of the coronavirus (Covid-19), the Government of Malaysia For enquiries please contact:
has implemented movement control order nationwide (“MCO”) from 18 March to NEOH LI TING
14 April 2020 (“MCO Period”). Partner
+603 2164 0200 (ext no. 260)
neoh.liting@azmandavidson.
Following the implementation of the MCO by the Government of Malaysia, com.my
businesses which are not of essential services are restricted from being carried
out during the MCO Period. NG YEE FUNG
Associate
+603 2164 0200 (ext no. 227)
As such, we set out below some relevant issues that business operators may face
ng.yeefung@azmandavidson.
in respect of their tenancies during the MCO Period. com.my

1. Can a tenant seek for reduction of rental?

This depends on whether the tenancy agreement consists of a force

majeure clause, allowing a tenant for a reduction in rental if the tenant
cannot reasonably access or use the premises.

If the tenancy agreement provides that rental shall be reduced due to

unforeseen events beyond the control of both parties, such as pandemic,
outbreak, act or actions of Government, then the tenant is entitled for a
reduction of rental under this force majeure clause.

2. What is a force majeure clause and consequences thereof?

A force majeure clause is a contractual provision which excuses either party

from performing its obligations under the contract due to unforeseen events
beyond the control of the parties to the contract.

The consequences of force majeure events depend on the terms of the

tenancy agreement. Some common force majeure clauses are as follows:-

(i) suspends the performance of tenant’s obligations under the

contract (this allows the tenant to suspend payment of rental and
continue to pay rental after the cessation of the force majeure
events); or

Azman Davidson & Co., Suite 13.03, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak 50400 Kuala Lumpur, Malaysia
www.azmandavidson.com.my
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 (ii) waives the performance of tenant’s obligations under the contract
(this allows rental to be waived during the period of occurrence of
force majeure events); or

(iii) terminates the contract (this allows termination of the tenancy

agreement and tenant to return vacant possession of the premises
to the landlord).

3. Does force majeure clause cover Covid-19 pandemic?

It depends on the drafting of the force majeure clause in the tenancy

agreement.

For example, If Covid-19 pandemic is not listed as a force majeure event

under the tenancy agreement, but the force majeure clause in the tenancy
agreement covers events which are beyond the control of the parties,
Covid-19 pandemic will qualify as a force majeure event.

4. Is a residential tenant able to rely on Covid-19 pandemic as a

force majeure event to suspend performance in the tenancy
agreement?

No, as residential premises are for the purpose of accommodation and not
for business operation. Therefore, MCO has no impact on the tenancy of
the residential premises.

5. Can a tenant seek suspension of performance in the tenancy

agreement if the tenancy agreement does not consist of a force
majeure clause?

In order for a tenant to rely on the force majeure clause to suspend

performance under the tenancy agreement, the tenancy agreement must
consist of a force majeure clause. If the tenancy agreement does not consist
of a force majeure clause, the tenant is required to continue with the
performance and observation of his/her obligations under the tenancy
agreement, unless the landlord agrees to suspend the performance of the
tenant.

6. Can a tenant claims that the MCO frustrates the tenancy

agreement entered into between them and the landlord on the
following grounds:

(i) tenant facing financial difficulty in paying the rental; or

(ii) suspension of business operation during the MCO Period?

A contract will only be subject to frustration if the performance of the party

under the contract to do an act becomes impossible or unlawful.

Therefore, the tenant may not be able to claim that the implementation of
the MCO results in the performance of the party under agreement being
impossible to be carried out.

Azman Davidson & Co., Suite 13.03, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak 50400 Kuala Lumpur, Malaysia
www.azmandavidson.com.my
Advocates & Solicitors • Chartered Arbitrators • Adjudicators • Mediators • Notary Public
Patent Agent • Trademark Agent • Industrial Designs Agent
A member of Legalink (www.legalink.ch), an international association of independent law firms with 69 offices in 60 countries.
 7. Conclusion- Can the landlord insist on the tenant to pay the
agreed rental?

If there is no force majeure clause in the tenancy agreement or other

contractual terms that provides otherwise, the landlord is entitled to
disagree with the tenant’s request for a rental reduction or delay in their
rental payment.

However, during the MCO Period, the landlord and tenant can come to a
mutual agreement to reduce the rental or allow a grace period for the tenant
to meet its obligations under the tenancy agreement to pay the rental to the
landlord.

Azman Davidson & Co., Suite 13.03, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak 50400 Kuala Lumpur, Malaysia
www.azmandavidson.com.my
Advocates & Solicitors • Chartered Arbitrators • Adjudicators • Mediators • Notary Public
Patent Agent • Trademark Agent • Industrial Designs Agent
A member of Legalink (www.legalink.ch), an international association of independent law firms with 69 offices in 60 countries.