Effect of the Covid-19 Bill on Housing and Tenancies

 
Effect of the Covid-19 Bill on Housing and Tenancies

 On the 25th of August 2020, the Dewan Rakyat passed the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Bill 2020 (“Covid-19 Bill“). The Covid-19 Bill consists of 19 parts and 59 sections, modifying 16 written laws and these modifications will have retrospective effect.

Amongst the legislations affected are Housing Development (Control and Licensing) Act 1966, Distress Act 1951, as well as certain types of contracts.

This Alert highlights for our clients the effect of the Covid-19 Bill on housing and tenancies in two separate articles

1. Housing

The Covid-19 pandemic, which led to the Movement Control Order (MCO) being enforced nationwide on 18 March 2020 and followed by a back-to-back CMCO and RMCO that was recently extended until 31 December 2020, has severely affected the housing development industry in Malaysia.

On 25 August 2020, the COVID-19 Bill was passed at the Third Reading in Dewan Rakyat, with amendments to be made to the Housing Development (Control and Licensing) Act 1966 (“the HDA”). The Bill aims to provide temporary relief for those who are unable to perform their contractual obligations due to the Covid-19 pandemic in the housing development industry.

This brief update highlights Part XI of the COVID-19 Bill which is titled “Modification to the Housing Development (Control And Licensing) Act 1966” and analyses the implications of the same.

A.         Modification to the Housing Development (Control And Licensing) Act 1966

 Section 32 of the COVID-19 Bill provides that modifications to the HDA are deemed to have come into operation on 18 March 2020. Hence, this bill which will next be brought to the Dewan Negara for debate and approval, if passed as law, will have a retrospective effect.

B.         Interpretation

Section 33 provides that the “agreement” referred to in Part XI of the COVID-19 Bill shall mean agreement for the contract of sale for the sale and purchase of housing accommodation in the forms prescribed in Schedules G, H, I and J of the Housing Development (Control and Licensing) Regulations 1989 entered into before 18 March 2020.

C.     Late Payment Charges

 With the implementation of the COVID-19 Bill, a Developer is precluded by the COVID-19 Bill from imposing late payment charges on the Purchaser for any instalment unpaid for the period from 18 March 2020 to 31 August 2020. It is further note that there is an avenue for the Purchaser to apply to the Minister for an extension of the period granted above and if the Minister is satisfied that additional time is required, may by a written direction to the Developer, extend the period in which the Developer shall not impose any late payment charges on the Purchaser, up to 31 December 2020.

However, the COVID-19 Bill appears to lack certainty on the grounds for allowing extensions, timeline for the entire application process and the procedures for applying for an extension, which may eventually cause confusion and delay in the making of such applications for an extension.

D.         Delivery of vacant possession and liquidated damages 

With the implementation of the COVID-19 Bill, the period from 18 March 2020 to 31 August 2020 is also excluded from the calculation of:-

  • the timeline to deliver vacant possession of housing accommodation to the Purchaser; and
  • the liquidated damages in the event of a failure of the developer to deliver vacant possession of a housing accommodation on

The COVID-19 Bill also provides a recourse to the Developer who requires additional time to deliver vacant possession, to apply to the Minister for an extension of the period granted above where the Minister may if satisfied, by a written direction, grant to the Developer an extension up until 31 December 2020 in which such extension shall have the same effect as the period referred above.

It appears though that there is no amendment proposed in the COVID-19 Bill regarding the completion of the common facilities and resulting liquidated damages in the event of a late completion. Hence, it is advisable for the Developer to ensure the common facilities are in its readiness to be delivered to the Purchasers, to avoid any possible claim by any of the Purchasers for the agreed liquidated damages which, under the agreement, is claimable by the Purchasers separately from liquidated damages for late delivery of vacant possession.

E.         Purchaser deemed to have taken vacant possession

 Section 35(4) of the COVID-19 Bill provides that for Purchaser who was unable to enter into possession of occupation from the date of service of a notice to take vacant possession by the Developer during the period from 18 March 2020 to 31 August 2020 (or any extension period granted by the Minister to the Developer to deliver vacant possession as mentioned in Item D above), the Purchaser shall not be deemed to have taken such vacant possession in accordance to the agreement.

On this premise, it is important for the Developer and Purchaser to compute and finalise the date of vacant possession by taking into account the exclusion period granted above as the actual date will later be decisive as to the date of commencement of the defect liability period, the payment of charges and sinking fund, outgoings and insurance etc.

F.         Defect Liability Period

 Section 36 of the COVID-19 Bill addresses the defect liability period in an agreement in which the period from 18 March 2020 to 31 August 2020 was proposed to be excluded from the calculation of:-

  • the defect liability period after the date the Purchaser takes vacant possession of a housing accommodation; and
  • the time for the developer to carry out works to repair and make good of the defect, shrinkages and other faults in a housing

Similar to the above, a Purchaser may apply to the Minister for an extension of the period granted above and the Minister may, if satisfied that additional time is required by the Purchaser, grant the Purchaser an extension period up to 31 December 2020, by a written direction made to the Developer to the effect.

Notwithstanding the exclusion period granted above, the Developer shall regardless, be attentive to the Purchasers’ request for defects rectification that have been notified to the Developer prior to 18 March 2020 as, upon failure by the Developer to rectify, the Purchaser shall have the right to carry out the repair works themselves subject to the terms of the “agreement”.

G.         Modifications shall not affect or annul a legal proceeding and its judgement

 Notwithstanding of the modifications proposed in Sections 34, 35 and 36 of the COVID-19 Bill (Items C, D, E & F mentioned above), the COVID-19 Bill provides that such modifications shall not affect any legal proceedings commenced, or any judgement or award obtained, to recover the late payment charges payable by the Purchaser or the liquidated damages payable by the Developer or any other sum during the period from 18 March 2020 until the full enforcement of the COVID-19 Bill.

On this premises, any late payment charges on any unpaid instalments that have been paid by the Purchaser, or liquidated damages resulted from the late delivery of vacant possession that have been paid by the Developer prior to the full enforcement of the COVID-19 Bill, shall be deemed to have been validly paid under the HDA and its regulations, and the same shall not be required to be refunded to the parties who have paid.

H.         Section 16N of the HDA – Limitation of Jurisdiction 

The COVID-19 Bill further provides that for a Purchaser (includes subsequent Purchaser) whose limitation period to file a claim in the Tribunal for Homebuyer Claims (‘Tribunal’) has expired during the period from 18 March 2020 to 9 June 2020, the Purchaser is allowed to file the claim from 4 May 2020 to 31 December 2020 and the Tribunal shall have jurisdiction to hear such claim.

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2.Tenancies

On the 25th of August 2020, the Dewan Rakyat passed the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Bill 2020 (“Covid-19 Bill”). The Bill was passed by a simple voice vote in the House. The purpose of this Covid-19 Bill is to temporarily suspend non- performance of contractual obligations in several different sectors due to effects of the Covid-19 pandemic.

For a general overview, the Covid-19 Bill consists of 19 parts and 59 sections, modifying 16 written laws and these modifications will have retrospective effect. This means that the laws in the Covid-19 Bill will attach new consequences to an event that occurred prior to its enactment.

As it stands, the COVID-19 Bill is expected to come into force perhaps sometime in late September or early October 2020

In the context of tenancies, the most pertinent parts of the Covid-19 Bill would be Part II: Inability to Perform Contractual Obligations and Part X: Modification to the Distress Act 1951.

Effect of the Bill on Distress Actions

Part X (10) of the Covid-19 Bill deals with the modifications in relation to distress actions. This part will have retrospective effect with the provisions coming into effect on 18th of March 2020, the day when the Movement Control Order (MCO) first came into operation.

Under the proposed modifications, before the 31st of December 2020, Landlords cannot recover arrears of rent which is due for the period from 18th of March 2020 until the 31st of August 2020 by executing a warrant of distress (Section 30).

There is however, a saving provision (Section 31) which states that any execution of the warrant of distress that has been issued before the date of publication of this Act shall be dealt with under the Distress Act 1951 as if the Distress Act 1951 had not been modified by this Act.

In short, this means that until the day the Bill/ Act is published, a Landlord’s right to distress will be governed under the current Distress Act 1951. After that, a Landlord’s right to distress will still be governed under the Distress Act but it will be subject to Sections 29 to 31 of the Act i.e no arrears of rent for the period from 18 March 2020 to 31 August 2020 can be distrained.

Thus, Landlords who wish to recover arrears of rent due from the tenants for the period from 18 March 2020 to 31 August 2020 by way of distress must act quickly to obtain the writ of distress before the date of publication of the Act, in order to avoid being affected by the temporary prohibition laid down in Section 30.

Effect of the Bill on exercising rights under Tenancy Agreements 

Part II (2) of the Covid-19 Bill deals with inability by parties in performing contractual obligations. This part of the Covid-19 Bill is deemed to come into operation from 18th of March 2020 until the 31st of December 2020. The Bill however does allow the Minister to extend the operation period by order published in the Gazette.

Section 7 of the Covid-19 Bill states:

“The inability of any party or parties to perform any contractual obligation arising from any of the categories of contracts specified in the Schedule to this Part due to the measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988 [Act 342] to control or prevent the spread of COVID-19 shall not give rise to the other party or parties exercising his or their rights under the contract.”

The seven categories of contracts which are mentioned in Section 7, include “lease or tenancy of non- residential immoveable property”.

Basically, Section 7 imposes a temporary prohibition on any party of a scheduled contract to take any action against the non-performing party during the period from 18th March 2020 to the 31st of December 2020. It is important to note however that this prohibition applies only to “inability” to perform “due to measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988 (Act 342) to control and to prevent the spread of Covid-19”. These two elements are crucial in that:

  • the Tenant must be unable to perform. Arguably, it being merely “difficult” to perform the obligations, should not bring it within the scope of section 7; and
  • the inability is due to measures prescribed, made or taken under Act 342. In the context of tenancies, most tenants would point to the inability to operate during the MCO. It is noted however that the restrictions were eased during the period of CMCO and RMCO, albeit with SOPs in place. The Tenant should presumably be able to show the linkage between the measures imposed and his actual “inability” to perform. It is possible that we may in future see challenges being brought before the Courts on the scope of section 7, and much may depend on the judicial approach taken towards interpretation of the

The Bill then mentions that any dispute arising from this may be settled by mediation (Section 9). The Minister may determine the mediation process (helping parties appoint a mediator, conducting the mediation etc) and upon the conclusion of a mediation and parties reaching an agreement, the parties shall enter into a binding settlement agreement in writing. However, mediation is not mandatory.

Like Part X, Part II also contains a saving provision, in Section 10. Similar to Section 31 of the Bill, Section 10 states that until the Act has officially been published, any “termination, depoit or performance bond forfeited, damages received, any legal proceedings, arbitration or mediation commenced, and judgment or award granted and any execution carried out” from 18th March 2020 is deemed to have been validly terminated, forfeited, received, commenced, granted or carried out.

Thus, all actions which arose from and/or in relation to enforcing a contractual obligation by the other party shall be deemed to have been validly carried out if done before the date the Act is published. In short, if a Landlord wishes to terminate a contract, forfeit deposit, or commence a suit due to the Tenant’s inability to perform as a result of measures prescribed, made or taken under Act 342, he should do so before the Covid-19 Act is published, else his hands shall be tied until Part II ceases to be in operation.

Modifications to debt threshold for bankruptcy 

In tandem with the Insolvency (Amendment) Bill 2020, the minimum debt threshold required before a bankruptcy petition can be filed will also be increased from RM50,000.00 to RM100,000.00. Thus, a Landlord who has an existing judgment against an individual tenant and who seeks to have it enforced by way of bankruptcy proceedings, should keep the soon to be increased threshold in mind and take action promptly, if affected.

With that, we at CCLC welcome any further queries in relation to the Covid-19 Bill. As the Covid-19 Act has not been passed and enforced yet, parties have the opportunity to enforce or preserve certain existing rights by being decisive and taking action quickly before the Act comes into force.

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CCLC regularly advises on a wide range of housing and tenancy matters, litigation, commercial contracts and corporate exercises including mergers and acquisitions, joint venture transactions, corporate restructuring, and banking and financing. Feel free to contact us if you have any queries, and we would be happy to assist.

Disclaimer: This article does not constitute legal advice and is not intended to be used as a substitute for specific legal advice. Please contact us if you require legal advice or if you have specific queries.