COVID – 19: Imperatives Of Suspension Of Rent Clause In A Commercial Tenancy In Nigeria By Osita Enwe

Background:

TheGuardian report of Friday 27:03:2020 claims that according to NCDC “as at 11:55pm there are 81 confirmed cases of #COVID19 reported in Nigeria”. The Federal and State Governments in Nigeria are invoking restrictions on residents’ movement which include closure of businesses not supplying foods and daily needs in some States as well as restrictions on intra-State and inter-State travel.

Government of Lagos State had on Thursday 26:03:2020 mandated all businesses within the State other than suppliers of foods and daily needs to close for 7 days as a measure to contain spread of the COVID 19 – this is necessary yet it raises legal issues in landlords and tenants relationship for the period.

Generally, tenancies for commercial properties hardly include a force majeure and suspension of rent clauses, leases may be exceptions given that legal practitioners are modestly engaged to advise on it. But whether or not rent suspension clauses are included or force majeure clause worded in such a way as to include rent suspension in certain situations are a matter of skill and finesse of each lawyer representing its Client.

Lagos State Tenancy Law 2011 does provide for rent suspension clause in the happening of certain event – COVID 19 is a new event, and like the Tortoise who while embarking on a self-imposed exile from its kingdom, informed its species to seek him only in the happening of any new events, tenants occupying commercial properties and their Landlords may have to seek legal advise in the face of COVID 19, which is poignantly, a new event.

Differences between force majeure and suspension of rent Clause:    

Investopdia defines force majeure to refer to a clause that is included in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations. Nigerian Courts holds force majeure to include any event or effect that cannot be foreseen or controlled, it may be acts of God or human acts.

Force majeure reliefs parties off liabilities only and cannot – unless it is worded to include suspension of rent – operate to suspend rent payment or as applicable to our tenancy regime, to cease rents from running, giving that rents (whether leases or tenancies) are generally paid in advance in Nigeria.

Rent suspension rights in leases or tenancies include a clause which suspends rents in the event that the property becomes unusable or is put out of use. It usually will name certain events which will trigger rent suspension fully or partially until such event ceases. Named events may include Government restrictions, pandemics or epidemics, flood or partial or full destruction of the property. – Happier are Nigerian tenants whose tenancy agreement include a rent suspension clause because that it will not be liable for rent during this COVID 19 government restrictions.

How do you utilize a rent suspension clause:

We turn to a non-Nigerian judicial decision for clearer example. In Baillie v Savage (2018) EWHC 3035, a tenant reported that a garden fence in his property was about to collapse. It eventually collapsed onto the only path that led to his apartment. Tenant engaged a structural engineer to assess his premises, who recommended the property unsafe to reside in. The tenant invoked suspension of rent clause in his agreement and, the Court decided in his favour that combination of previous damage and potential for further damage, which may be dangerous to the tenant, is enough to suspend rents. He also got interest and costs against his Landlord.

Sadly, many rents on commercial properties such as offices and shops or kiosks will run as governments continue to restrict business operations across Nigeria. Owners of small and medium scale enterprises may suffer more, given that they may not have the capacity to re-negotiate rent payments. We are not aware of any tenancy laws in Nigeria that has a rent suspension clause, this means that rent suspension rights in Nigerian is a matter of contract only.

If your tenancy or lease agreement contains a rent suspension clause, governments’ COVID 19 related restriction renders your property unusable and you may consider:

• if the rent suspension clause include government restrictions or pandemic or epidemic as an event,
• if the rent suspension clause provides that it can be invoked in the circumstances named above and,
• documenting evidence of Governments’ restriction as a result of the pandemic – electronic evidence are generally admissible in evidence in Nigeria subject to minor condition of certification.

Does Rent Suspension apply to your service charge:

Generally, Nigerian Court are not very likely to construe rent suspension clauses to apply to service charges – but post-paid or estimated consumers of electricity distribution companies in Nigeria can only dispute electricity bills after governments lift COVID 19 related restrictions.

However, given that Governments restriction of business operations as a result of COVID 19 means that your entire property is closed down, we are of the view, that without or without rent suspension clause you can claim service charge especially for diesels or premium motor spirit and, other related costs which should exclude cleaning and security.

Legal Practitioners advising landlords in any rent renegotiation should factor in insurance premiums where the property is insured, given that Insurance companies may not renegotiate insurance premiums – in that situation, tenants may agree to contribute a proportion of insurance premium for the period.

Short term Innovative thinking:

As Nigerian Governments continue to join other Countries of the world to contain the spread of COVID 19, our economy is strained as businesses bleed. Life-long lessons are being learned in a shorter time. Tenants of commercial properties may not be able to receive reliefs from Governments in terms of suspension of rents or the generosities of landlords who may choose to suspend rent payment or running of rents or rent reduction.

Landlord and tenants or Governments should do any of the following:

• Landlord and tenants should work together to reach mutually beneficial solution post-COVID 19 related government restrictions
• Tenant may invoke rent suspension clause or request for rent reduction
• Landlord review your insurance policies and check whether it includes business interruption cover, and if it applies to pandemics or government restrictions
• any new lease or tenancy should consider rent restrictions and reduction clause with pandemics and government restrictions as trigger events.
• Landlords who secured facilities from financial institutions to finance their properties should not forget their lenders while renegotiating tenancy or lease agreement given that lenders generally require consent for any amendments
• Governments should offer rent suspension to commercial tenants or lessees and allow landlords to defray suspended rents from Land Use Charges – this measure will allow Governments to collect value added taxes and withholding taxes due on rents which may otherwise never be collected, that is, if Governments makes evidence of WHT remittance and VAT payable conditions for payment of suspended rents to any landlord.

Finally, legal practitioners, legislators, interest groups and professional bodies should, (post COVID 19 pandemic) lobby for amendment of Tenancy laws to include rent suspension clauses in the happening of cogent events such as pandemics or government restrictions or general unusableness of a property. This will provided reliefs to the ordinary Nigerian in the event of government restrictions or pandemics.

Stay safe by compliance!