20 Jul Covid 19 and Its Effect on the Real Estate Sector: Rights of Landlord and Tenant

EFFECT ON THE REAL ESTATE SECTOR

COVID-19 is currently exhibiting negative effects on the real estate sector both locally and globally. Due to restrictions on movement forced on citizens by the government, a lot of businesses that require the physical presence of its staff on its properties to function, have suffered some financial instability.

Businesses such as restaurants, salons, retailers, event companies, gyms and other service providers requiring physical presence are going through tough times as they have been forced to shut down with no way of continuing operations and no source of income to perform payroll obligations (i.e. paying rent or mortgages). These have necessitated businesses to implement different cost cutting measures which include laying off employees, furloughs or reduction of employee salaries by a percentage. All of the above have led to several unintended consequences and effects such as:

Default in Payment– There have been several cases of defaults in payment of monthly/yearly mortgages or rents by businesses and individuals who lack the funds to make the necessary payments due to the pandemic affecting their sources of income. Many once profitable establishments and even dutiful tenants are faced with lack of funds to pay their rent or mortgage and are unable to commit to a later payment date as a result of the uncertainty of the current situation.

As a result, internationally & locally, some banks have suspended mortgage payments in consideration of the uncertain times, some landlords/real estate companies have either given moratoriums on rent for a three to twelve-month period or given a rent-free holiday of three to six months. Although, this is highly commendable, it does not cover the vast majority of people currently going through this situation.

Decline in purchase/lease of property– Another consequence of COVID-19 is the reduced demand on the purchase or lease of unencumbered property. Companies and individuals are shying away from spending excess cash on properties for the purpose of expansion at this time especially if it is not a priority. A lot people are in a state of conserving their resources as no one knows how long this pandemic would last. As such, there has been a decline in the purchase and lease of property, more so, because the government restrictions have also made the necessary due diligence on properties difficult to carry out.

Breach of Leases/Tenancy Agreements– A number of terms in tenancy agreements are being breached because of the default in payment of rent and this has led to many tenants facing possible termination and evictions. Since force majeure clauses are usually not present in tenancy agreements, this cannot be relied on by the tenant as a form of protection. Furthermore, due to the suspension of court proceedings, both landlords and tenants have been forced to a standstill in seeking the justice of the courts. This is because locally courts are either not in session or are only attending to extremely urgent and important matters and as such may not attend to any eviction process filed by a landlord nor can the tenant be heard in defence of his tenancy. This has therefore, led to consequences whereby some landlords forcibly eject the tenants fully aware that the tenants cannot find redress in court at this time. This is why it is vital for tenants to be aware of the rights available to them as well as the rights of a landlord.

Below are some of the rights open to Tenants and Landlords as covered by the Tenancy Laws in Nigeria.

RIGHT TO A WRITTEN AGREEMENT

Every tenant has the right to a written agreement in relation to any property he/she intends to rent whether for commercial or personal purpose. Although, agreements can be oral or written, it is advisable that agreements between parties should be in writing. This is to ensure that both parties are aware of their obligations to one another and there are no misunderstandings or confusion. Furthermore, any misunderstanding can be easily dealt with by making reference to the agreement. It is also advisable for the tenant to review the agreement thoroughly before signing as it should contain many essential clauses such as the description of the property, its location, basic features, the duration of the tenancy, the rent payable, the date at which such rent would become payable and the right to renew. Where a tenant has commenced his tenancy with executing a written agreement, the tenant can later execute a written agreement.

Although, tenancy agreements do not usually have clauses dealing with force majeure, there may be a clause in the agreement that deals with concessions available to the tenant for failure to make payment as at when due where there exists a reasonable reason. Where possible, tenants can begin to insist on a carefully drafted force majeure clause in their tenancy agreements that will cover extraordinary event beyond the control of the parties and remedies. This event must be unforeseeable, unavoidable (i.e. not the result of the defendant’s actions) and must render performance impossible or impractical. This is why a written and executed agreement is very important. Although, not all landlord might accept a force majeure clause in a tenancy agreement, it can prove use in protecting both the tenant and the landlord in unique circumstances.

RIGHT TO ISSUANCE OF RECEIPT OF PAYMENT – It is the right of a tenant to be issued a receipt upon payment of rent. A receipt of payment of rent is an acknowledgment from a landlord or an agent that a payment has been made by a tenant. It must contain the name of the landlord and the tenant, the amount paid, the date of such payment, the property for which such payment is made, the duration that such payment will cover and the signature of the receiver. The issuance of this receipt signifies that the landlord is granting the tenant peaceful enjoyment of the property without interference. It is also proof that the tenant has fulfilled a major part their obligations to the landlord. This receipt can be relied upon as evidence both in and out of court where necessary.

RIGHT TO A VALID NOTICE TO QUIT – A tenant should not be removed from the property he is renting unless there is a strict compliance by the landlord with the relevant Recovery of Premises Law applicable in the State where the property is situated. The Recovery of Premises Law for most States provides that a valid notice to quit “quit notice” stating a landlord’s intention to terminate/quit the tenancy of the tenant must be written and served on the tenant within a stipulated period, depending on the type of tenancy. Therefore, it is advisable that a tenant reads through the tenancy agreement before signing as a tenant may sign away his rights for a ‘quit notice’. Nevertheless, even when a tenant signs away his rights, the courts may favour the tenant and order the landlord to give the required notice to quit to the tenant. Although this is a probable scenario, it is important to note that it would consume time and money. Hence, it is advisable to ensure that a well detailed and written tenancy agreement exists to avoid unnecessary expenses.

RIGHT TO A COMPULSORY (7) SEVEN DAYS NOTICE TO RECOVER POSSESSION – The protection given to a tenant by the Tenancy Law prevents landlords from evicting tenants without issuing a “Seven Days’ Notice to Recover”. The “Seven (7) Days’ Notice of Owner’s Intention to Recover Possession” is a notice from a landlord’s lawyer notifying a tenant upon whom a “Quit Notice” had been served and same had expired; that the lawyer will after seven (7) days from the date of the service of the Notice, proceed to court to recover the property on behalf of the landlord. This is another step that must be followed before a tenant can be removed from the premises.

CONCLUSION

Although a lot of people are facing financial challenges which is currently threatening their means of livelihood and shelter, it is recommended that landlord and tenant come together to discuss the effects of COVID-19 on their necessary obligations during this time.  Actions such as accepting installment payments, suspending/deferring rent/mortgage payments or even granting rent holidays are some of the solutions landlords can grant tenants during this pandemic.

The information provided in this article is for general informational purposes only and does not constitute legal advice. If you require specific legal advice on any of the matters covered in this article please contact info@berkeleylegal.com.ng