TENANCY RELATIONSHIP AND COVID 19

By Gerald Ajoku Esq.

This Article considers the impact of Covid 19 on tenancy agreements OR landlord/tenant relationships. The very different needs and wishes of Landlord [property owner] and the Tenant [property occupier] can give rise to friction at the best of times when the squeeze is on, and the bonds that tie the parties together can be stretched to their very limits. The unique circumstances we are living through at this lockdown are already putting more pressure on the tenant and the landlord and is only likely to get worse.

We are witnessing an unprecedented situation of this Covid 19 which not only has disrupted our economic and organizational norms hereto, but also has deeply affected our relationships both interpersonal and social. In almost all or most of our rural and urban areas, a simmering unease and discontent is palpable in connection with the issue of non-payment of rent by tenant. This article further analyzes the legal implications of Covid 19 on tenancy agreement and adumbrates some probable solutions.

• KEY CONSIDERATIONS IN MANAGING LANDLORD/TENANT RELATIONSHIP

As Nigerians strive to come to terms with the government’s dramatic change in policy, especially on the order of lockdown, the real consequences of the pandemic is yet to be acutely felt. The effect of the presidential proclamation on a total lockdown of Lagos, Abuja and Ogun State, as well as the ban on public gathering and business transactions will be felt throughout the country both now and for months, possibly years to come.[1]

The government has been quick to make reassuring promises of support for businesses and menial workers as palliatives but understandably we still lack details of whom and who are entitle to it. The self-employed, currently remain a large gap in the government’s programme of relief. With no money coming in, many businesses will struggle to meet the monthly commitment of payment of staff wages and rent for a while. Recommended and implemented measures to curtail the spread of Covid 19 requires business owners to make difficult decisions. This includes reduction of working hours, limitation of scope of services render, switch to remote working, and at the extreme, temporarily close operations.[2]

There are plethoras of questions being asked at this time. Questions of this nature raise significant legal issues with material ramifications for all businesses, including landlord and tenant. The questions are as follows:

1. Can a landlord insist on payment of rent when he has closed down his building, prevented access, or ceased providing services?
2. If a tenant stops operating, do they still have to pay rent?
3. Are there specific remedies available to landlords and tenants arising from Covid 19 related defaults?

A comprehensive answer to these questions are basically found in the Lease Agreement between the parties. A comprehensive lease agreement should contemplate every reasonable eventuality that may impact the landlord and enhance contractual relationship of the landlord and tenant. Understandably few lease agreements anticipated Covid 19 and the disruption it caused to the world.[3]

SOME RELEVANTS CLAUSES THAT SHOULD BE ANTICIPATED WHILE DRAFTING LEASE AGREEMENT

A Force Majeure Clause: This takes care of a situation where a particular covenant cannot be performed by either the landlord or the tenant due to an event beyond the control of either of the party. This Force Majeure Clause excuses performance of an obligation for the duration of the event causing the frustration, however, such event cannot terminate the lease.

The Supremacy of Presidential/Governors’ Directives on Suspension of Businesses over the Lease Agreement: A clause containing the Presidential Directives should be included in the agreement which should have the effect of suspending the lease agreement during the subsistence of the lockdown directives. Where governmental orders require the tenant to close, it is likely the compliance with the laws clause should triumph.

Quiet Enjoyment/Possession Covenant: This is one of the most fundamental lease provisions. Through this provision, a landlord covenants to grant his tenant quiet enjoyment of the premises. This means that the tenant has exclusive possession of and access to the premises without material disruption from the landlord or any person claiming through the landlord. This clause operates as long as the tenant complies with its obligations under lease.

Factual Circumstances: In proffering solution to any particular Covid 19 questions, in addition to the precise language of the lease, consideration must be given to other relevant factual circumstances such as the willingness and ability of the landlord and the tenant to weather the Covid 19 crises together, bearing in mind that the landlord may have mortgage(s), operating cost and property taxes to pay; and shareholders and investors to satisfy. The tenant, on the other hand, may have employees and suppliers to pay etc. According to the Chairman , Nigerian Institution of Estate Surveyors and Valuers [NIESV] Mr. Sam Eboigbe[4]  he said and I quote:

“Most of the commercial landlords have pending mortgage   arrangements and will essentially require the imputs of the banks and other stakeholders at renegotiating loan repayment terms and conditions accordingly…… it is generally believed that the government should be able to intervene by offering tax incentives to this commercial landlords. The government can afterwards firm up the proposals through the enactment of legislation at the parliaments.”

• RECOMMENDATIONS:

Of the many questions asked, the most pressing is whether a landlord can require a tenant to continue to pay rent, notwithstanding that the tenant is not conducting business from the premises. Assuming that a review of the lease agreement does not provide a clear right of the tenant to abate rent, or to cease operations during a pandemic, or a situation where a closure of the premises or building has been ordered by governmental authorities, or any other unique factual circumstances, it is likely recommended as follows:

1. That the court in an action for recovery of possession should allow a tenant to withhold their rent during a pandemic period. Similarly, if the landlord is not meeting its obligation to provide the tenant with quiet enjoyment of their premises, or if the landlord is unable to provide the services required in other for the tenant to use the premises, then there may be an argument for rent abatement. It will be questionable whether that scenario amounts to a breach of the landlord’s covenant for quiet enjoyment. In that circumstance, the governmental ordered closure is more likely to be an event of force majeure as explained above.
2. Government assistance may be available to backstop the rent that the tenants are required to pay during the pandemic period.
3. That there should be an immediate and prompt legislative response that could have an impact on the lease during the pandemic period.
4. That the court should seek to evolve equitable remedy or doctrines to suit the circumstances at hand.
5. That both landlord and tenant should have insurance cover and policy to ameliorate the adverse effect of Covid 19 on their business. Some of this insurance policy may also cover business interruptions from government ordered closure.
6. CONCLUSSION:

We anticipate that there will be a number of situations where landlords wish to close their offices, premises and still seek rent from their tenants. We also anticipate  that there will be a number of situations where tenant wish to temporarily cease operations and either cease paying rent or pay a reduced or deferred rent until they are fully in operation again, without the landlord terminating their lease for default.

In the context of Covid 19, a number of circumstances must be taken into account as to whether a landlord can seek rent from his tenants, and whether a tenant may be able to cease operation without terminating the lease or pay rent. Consideration must be given not just to the applicable lease provisions discussed above, but also the applicable laws in their respective jurisdiction, as well as the current orders, directives or recommendations from the relevant authorities.

• REFERENCES:

Works Cited

1. The Quarantine Act CapQ2 LFN 2004.
2. Farrer & Co. Impact on Landlord and Tenant, March 2020
3. Borden Ladner Gervais LLP: Covid 19 and Landlord/Tenant Relationship, March 2020
4. Chinedum Uwaegbulam, [2020] property owners, tenants in peril as corona virus hits rent income
5. Prof. A. Okoh Alubo: Contemporary Nigerian Land Law 2nd Edition, 2012

[1] Quarantine ACT 2004

[2] Farrer & Co LLP

[3] Borden Ladner Gervais

[4] Property owners, tenant in peril as corona virus hit rent income