Lease and Force Majeure in Relation to the COVID-19 Pandemic

The livelihood and business operations of many Filipinos have been severely affected by the COVID-19 pandemic, with the declaration of a State of Public Health Emergency and the implementation of various levels of community quarantine throughout the Philippines. This has significantly impacted many business owners’ capacity to comply with rental obligations.

On this page, we’ll take a closer look at certain factors affecting the current state of the Philippine leasing business during the pandemic and how government efforts to provide relief and curb the spread of the virus has impacted the industry.

Force majeure clauses in lease agreements

Financial difficulties caused by the pandemic and restrictions and guidelines imposed by the government continue to restrict many individuals’ and businesses’ capacity to pay rent. With businesses closing and workers facing unemployment, landlords of both residential and commercial spaces are affected financially by the economic burdens suffered by their tenants.

In general, under Article 1174 of the Civil Code, a force majeure event is considered as a ground to terminate a lease agreement or to exempt a tenant from abiding by its obligations. Including a force majeure clause is customary in lease agreements, which exempts all parties involved from fulfilling the obligations that may arise from situations that could not be foreseen, or inevitable though foreseen.

Any event can be deemed a force majeure under a lease agreement if the following requisites are present:

  • Cause must be independent of human will
  • Impossible to foresee the event OR if it can be foreseen, must be impossible to avoid
  • Occurrence will make it impossible for the lessee to fulfill his obligation in a normal manner
  • Lessee must be free from any participation in the aggravation of the injury resulting to the lessor

satisfy these requirements, which means it could therefore be considered a force majeure event. However, this is still subject to stipulations. Some contracts may have inclusions that limit the definition of a force majeure event, such as a stipulation that the contract may not be terminated due to a force majeure event.

Negotiating your rent

Undoubtedly, the pandemic has caused a slump in the property sector. More and more establishments are being vacated because businesses who are leasing such establishments have been closing as they cannot cope with their losses during the pandemic. Some have permanently implemented a hybrid work from home scheme allowing them to downsize their leased space. Thus, there is a rise in vacancy and at the end time a significant fall in rental prices. It was predicted that the property sector will recover come 2022, but there is still uncertainty given the current rise in the number of COVID cases.

This can be an opportunity to negotiate lower rent with your lessor. Ask your lessor if it is possible so you can cope with your losses during the pandemic. You can highlight to your lessor that you have always been paying the rent on time, and have never incurred a delay. You’ll be surprised, your lessor may agree to renegotiate just to keep you as a lessee.

Need more information on force majeure in relation to the COVID-19 pandemic? Talk to the experts at Duran & Duran-Schulze Law. Call us today at (+632) 478 5826 or send an email to info@duranschulze.com for more information.