In deciding whether a tenant has to pay his rentals, the law does not differentiate between private or commercial tenancies.

Tenancies are creatures of contractual law.

Much of what happens between the parties depends on what terms the parties have agreed to.

[1].    Government Tenants need not pay rentals during the MCO, and ‘Essential Services’ can hardly complain!

If a tenant is a company carrying out ‘Essential Services’, he can hardly argue that he is ‘prejudiced’.

[2]. If you are a residential or commercial tenant, do you have a written tenancy agreement?

If ‘Yes’ then go to paragraph (3).

[3].    Does your tenancy agreement have a Force Majeure clause?

If ‘No’ go to paragraph (12).

If ‘Yes’, such a clause will usually have two parts:

(1) a description of what such an event is, and

(2), a mechanism to mitigate the loss (‘mitigation mechanism’).

[4].  What is a Force Majeure event?

A Force Majeure means an event ‘beyond the control’ of the parties.

It may include ‘Acts of God’, (e.g. naturally occurring fires, explosions, earthquake, drought, tidal waves, floods and the like) or man-made disasters: war, hostilities, rebellion, revolution, insurrection, military usurpation of power, civil war; contamination by radioactivity, strikes, riots, commotions, lockouts, or threats  – or acts of –  terrorism.

[5].  What does the description in the Force Majeure clause say?

Look at what the Force Majeure clause says. Does it include an endemic or a pandemic?

[6].    Is a viral pandemic defined in the Force Majeure clause?

If not, is there a similar clause that can be ‘opened up’?

[7].    Three elements that a tenant has to prove to succeed in a Force Majeure defence

These are (1), externality; (2) unpredictability; and (3) irresistibility. The words mean what they say. If you need further explanation please see paragraph 26 of my previous article, here.

A force major clause may have a general phrase for example, ‘or such other natural disaster, or change of law, or government ruling’ or similar words.

If such clauses exist, then it can be inferred that the Covid-19 pandemic is included.

[8].  Does the Force Majeure clause have a ‘mitigation mechanism’?

Often Force Majeure clause set out a mechanism by which the parties would have, before the event occurred, decided what happens in an emergency – then the tenant is required to follow those procedures.

For example all rights to rentals may be temporarily suspended.

In that case the tenants are safe.

[9].    Utilise the Force Majeure mitigation mechanism

It will have two elements: (1) a description of what such an event is, and (2), a mechanism to mitigate the loss .

If this clause is there, then the tenant has to act in accordance with the mechanism in the mitigation clause.

It is the same as the clause discussed in the Force Majeure mechanism (‘mitigation mechanism’).

If the mechanism requires you to act in a particular way, then you have to follow that mechanism.

The tenant cannot exclaim, ‘Force Majeure!’, then fold his hands and do nothing.

[10].   If there is no mechanism to mitigate Force Majeure event

In that case, the tenant needs to have that particular clause construed.

If the construction of the clause brings the Covid-19 virus pandemic within the definition, then the tenant is covered, and need not worry.

If not, the tenant has to, when sued, argue that the event fell within the four corners of the clause.

[11]. Consequence of Force Majeure – depending on how individual contracts are worded

There is a slight difference between frustration and Force Majeure: frustration completely releases the parties from their obligations.

The contract is brought to an end, it in fact becomes ‘void’.

On the other hand the consequence of Force Majeure, depending on how the class is worded in the contract – and if there is no such clause – then a party’s responsibilities are only suspended for the duration of the disaster.

And therefore it is far better to rely on Force Majeure clauses than on frustration. Frustration is final and terminal.

Depending on the clause, Force Majeure could be temporary, and the consequence is simply that the tenant would be released from the obligations for that short period. When that period is over, his obligations re-commence.

Certainly, the disaster is of such an international and devastating scale, the tenant can cross the usual high level of difficulty.

[12].   If there is no Force Majeure clause in the agreement – then one is to fall back on the contractual principle of frustration

When an event that neither the landlord nor the tenant had talked about at the time they entered into the contract – happens – then both parties are released from performing their contractual obligations.¹BP Exploration Co (Libya) Ltd v Hunt(No 2) QBD 925 at 945 at para i

Examples of such an event are war, earthquake, riot, etc.

[13]. What does a tenant need to prove to succeed in a defence of ‘Frustration’?

The three elements of the law of frustration that the tenant needs to prove are:

(1) the occurrence of a Supervening Event after they entered the contract,

(2) unforeseeability – neither party could have foreseen it at the time they entered into the contract;

(3) the effect of the supervening event must be to ‘completely change the foundation of the contract’.

There is no doubt that the problem with the tenancy would have been caused the events surrounding the pandemic, which resulted in the Movement Control Order (‘MCO’).

A commercial tenant cannot use his premises because he is barred by the law from occupying the premises.

If he does, he acts against the law. His occupation of the premises is illegal.

[14].   Does the tenancy agreement have an express clause about a supervening event?

If Yes, then is there a ‘mitigation clause’? If Yes, the tenant must comply with it.

[15].   If there is no mitigation clause, then what happens

Then one is to fall back on the general law and try to ‘construe’ the clause in the tenant’s favour.

Where the unforeseen event occurs, like the Covid-19 pandemic occurs, then it is impossible to perform the contract – that impossibility ‘completely changes the foundation of the contract’.

[16].   What is the consequence of frustration?

The answer is, both parties are released from further performance of the terms of the agreement. The contract becomes from that point on, ‘void.’

[17].   These Force Majeure and frustration ‘consequences’ are unsatisfactory – and therefore some other mechanism needs to be found

Three mechanisms may be used to oppose a suit by a landlord against a tenant for non-payment of rentals during the MCO.

If one’s premises are commercial premises, it will take some time for business to pick up after the MCO has been lifted.

Whether one is running an engineering fabrication factory, a plastic bag extrusion factory, a food processing and packing factory, or an eatery.

Is there a way by which the law can assist the tenant?

There are several defences that could be used by a tenant. Whether these would be completely successful remains to be seen.

“Let us look at some other defences.  I do not promise they will work – but it is well worth an attempt!

[18].   Defence-1: the principle in Tamplin v. James [1880]

If the landlord insists on the tenant paying the rentals during the duration of the MCO, even if the law prevents the tenant from accessing the premises, would it not be unjust?

How could the covenant to pay rentals be suspended, but yet the contract of tenancy be continued?

Which legal principles – or a combination of them would allow that?

When I was casting about a for a solution, I received a cryptic message from Datuk Seri Gopal Sri Ram, a former Federal Court judge.

He said: ‘Look at Tamplin v.James’.

I asked if I could include it here.

I received a short reply: ‘Sure.’

This is what he said:

“Gopal Sri Ram:‘Knowledge is useless unless shared.’

The case of Tamplin v.James  decided 140 years ago, concerned the sale of an inn.²(1880) 15 Ch D 215 (CA).²There, an owner of an Inn sold it to a buyer. The buyer thought the inn included two adjoining gardens. They did not: nor did the buyer give that impression. The buyer, having first agreed, refused to complete it. He said he had made a mistake. Had he had examined the buildings’ plans, he would not have made the error. The seller asked the court for an order that the buyer should complete the transaction: he wanted ‘specific performance’. The question was whether the court could grant an order for specific performance against the purchaser. James LJ ruled that if -by holding the buyer to his bargain – ‘hardship amounting to injustice’ would have been inflicted upon him, that would have been unreasonable: and the court could refuse such an order. Here the buyer had made an error which was no fault of the seller. He had to go through with the purchase.

It had ruled that the courts may not grant specific performance to a person if that would cause hardship and injustice.

What if that principle would be used in tenancy cases?

If the landlord were to move the court for an order to kick out the tenant, it can be shown that the MCO had been ordered through no fault of the tenant.

To force the tenant to pay rentals would lead to the hardship and injustice. Tamplin v. James has been widely accepted in the Commonwealth, and Malaysia.³ The Tamplin v. James test is used to determine whether specific performance ought to be ordered, and on the effect of mistake on a contract. Goldsbrough Mort v Quinn [1910] HCA 20, (1910) 10 CLR 674 (19 May 2010), High Court (Australia). Voumard cites Brett LJ’s proposition as being an authority for the proposition that, mostly ‘the cases where a defendant has escaped [specific performance] on the ground of a mistake not contributed to by the plaintiff, have been cases where a hardship amounting to injustice would have been inflicted upon him by holding him to his bargain, and it was unreasonable to hold him to it’: Voumard: The Sale of Land: ‘Refusal of specific performance’, Thomson Reuters. [p. 1260]. See also Tham Kong v. Oh Hiam & Ors [1968] 1 MLJ 44 (FC) and Yuson Bien & Anor v. Bankers Trust Co Ltd, [1980] 1 MLJ 32 (FC)

[19].  Defence-2: The defence of unjust enrichment

Because of the MCO, the tenant cannot occupy the premises. Any monies that the landlord demands from the tenant would lead to his ‘unjust enrichment.’

Unjust enrichment occurs when the landlord is put in a position of greater advantage – ‘enriched’ – at the expense of the tenant – but for this principle to work, the court must accept that situation as ‘unjust’.⁴See generally: Mitchell et al, Goff & Jones Law of Unjust Enrichment (Sweet & Maxwell, 8th ed, 2011); Graham Virgo, The Principles of the Law of Restitution (3rd ed, 2015); Andrew Burrows, The Law of Restitution (3rd ed, 2011); Mason, Carter, and Tolhurst, Mason & Carter’s Restitution Law in Australia (LexisNexis, 2nd ed, 2008). On unjust enrichment as a ‘unifying legal concept’, see the judgment of Deane J in Pavey & Mathews v Paul (1987) 162 CLR 221

Three elements need to be proven for the tenant to succeed in this defence:

(1) the landlord received a benefit;

(2) that benefit is at the expense of the tenant;

(3) the landlord received the benefit under circumstances which make it unjust for the landlord to retain the benefit.⁵Pulte Home Corp., Inc. v. Countryside Cmty. Association, Inc., 2016 CO 64

This remedy is ‘discretionary’: the court may grant or refuse it. To succeed the tenant needs a very strong basis of proof.⁶Falcon Broadband, Inc. v. Banning Lewis Ranch Metro. Dist. No. 1, 2018 COA 92

The tenant will have to argue that if he were to pay the rentals for the MCO period – and a reasonable period thereafter for business to pick up, this will result in the landlord being ‘unjustly enriched.’

Whether this argument will be successful in a tenancy case is yet to be seen. But it is not a bad argument.

[20].   Defence-3: The concept of Severance from paying rentals during the MCO

Sometimes the court will be willing to ‘split’ contract into two parts. One of the parts could be found to be invalid and objectionable – while the other part will be held to be valid and enforceable.

The point is, if one part – here the payment of rental  during the MCO period of occupation  –  is ‘illegal’ or ‘objectionable’, then that part of the contract would be cut away and thrown out – ‘severed.’

But the courts have repeatedly said that they will not ‘re-draft contracts’.⁷Thus, in Mason v Provident Clothing Co, the court refused to substitute the phrase ‘in Islington,’ for ‘within 25 miles of London.’

Take the case of an agreement for the sale of jewellery.⁸Goldsoll v Goldman 475 U.S. 503 (1986), US Supreme Court

In this US case, a covenant in the sale of a jewellery business contained a restriction on dealing in ‘real or imitation jewellery’ in any of a long list of countries. This was too wide both as regards scope (the business was only concerned with imitation jewellery) and geographical area (the business was limited to the UK). Both restrictions could be narrowed, however, by simple deletions of the words ‘real or,’ and the list of countries other than the UK, and this the court agreed to do.

During the MCO, the occupation of the premises during the MCO became ‘illegal.’ The tenant can argue that the payment of rental for the MCO period was for occupation that is contrary to the law – and therefore illegal.

Thus, the tenant’s obligation to pay rentals during the duration of the MCO period – it could be argued – to be ‘unenforceable’ and could therefore be ‘severed.’

[21].   Defence-4:  Could the principle of Promissory Estoppel work?

‘Estoppel’ is a principle which stops a person from arguing a legal point – usually asserting a right that contradicts what has been previously agreed.

There are four elements which a tenant has to show to succeed in the defence of ‘promissory estoppel’:

(1) a pre-existing contract that has been modified;

(2) there must be a clear promise or representation by one party;

(3) the opposing side must have suffered ‘a change of position’; and

(4) it must be inequitable to allow the person who promised to go back on his promise’.

This principle was first established in Central London Property Trust Ltd v. High Trees House Ltd.⁹ (1947) KB130

For an history of how this principle came about, see here.

The crucial point is this: a ‘representation’ from Landlord to the Tenant need not be express. It can even be made impliedly.¹⁰Thomas Hughes v The Directors, & C., of The Metropolitan Railway Company (1877) 2 App.Cas.439

[22]. But Promissory Estoppel depends on one word: ‘representation’

When the landlord rents out his premises, he represents that it is ‘fit for occupation’. He promises that the tenant may ‘enter into, an exit from it without any hindrance’.

This representation may have been made in writing, or it may be ‘implied’ from the contract of tenancy.¹¹This is the ‘Moorcock test’: the court could ‘imply’ a term into the contract if it will lead to ‘business efficacy’: The Moorcock, (1889) 14 PD 64

If a landlord were to sue a tenant for outstanding rentals during the Covid-19 MCO, a tenant could say that the Landlord breached his express (or implied) assurance that the tenant could access the property. The MCO had banned that by law.

And therefore, for the period that the MCO lasts, the landlord would be ‘estopped’ – that is to say, prevented – from denying that the access to the tenant has been blocked.

[23].  Suppose the landlord protests that even if he did make this representation – this had to be made well before the pandemic. 

He will protest,

‘The law of promissory estoppel requires that my representation should have been made after the contract’.

And he will protest, ‘I did nothing of that sort! I had nothing to do with the Covid-19 pandemic, and I had nothing to do with the MCO.’

There is a possible answers : it springs from divergent streams of reasoning, but result in the same conclusion.

[24].  The answer is: it is a ‘continuing’ representation, renewed each time rent is collected

One answer could lie in the court implying, as a matter of ‘business efficacy’,¹²The court may ‘imply’ a term into the contract if it will lead to ‘business efficacy’: The Moorcock, (1889) 14 PD 64 that the landlord’s representation of accessibility is a ‘continuing’ one.

Each time he collects rentals the landlord makes a ‘fresh’ and ‘implied representation’ that the tenant can access the premises – in the future.

When accessibility is cut off, the duty to pay rent is suspended.

The contract is not terminated, but the ‘warranty of accessibility’ is breached.

Meanwhile the tenant can exercise an option to carry on paying rentals for periods outside the MBO.

Suppose, as the parties were about to sign the contract, a busybody had suggested to them,

‘You know, I think you should include ‘an implied term that the premises will be continuously accessible until the end of the tenancy or lease’.

What would they have said?

If they had ‘testily suppressed him with a common, “Oh, of course!”, then this argument would be correct.¹³Shirlaw v Southern Foundries [1939] 2 KB 206 Court of Appeal 

What do you think?

There is no reason why that cannot be done under the current circumstances.

And so, therefore, the landlord should be  ‘estopped’ from claiming rentals for the MCO period – for as long as the temporary lack of accessibility continues.

This is possibly a good defence.

Tenants, if sued, could try it.

[25].  Should the court re-deploy the law to protect the poor, the oppressed and the SMEs?

In these circumstances, is the law to be construed according to the old laws of contract, or is it to be made more flexible to answer the social needs of the day?

That is the question the courts should ask themselves.

[The writer expresses his gratitude to Ms KN Geetha, Mr JD Prabhkirat Singh, Mr. GS Saran, Miss KP Kasturi, Mr. Matthew Thomas Philip and Miss Amuthambigai Tharmarajah for their timely assistance.]