COVID-19: Landlords, tenants and mortgagors

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COVID-19: Landlords, tenants and mortgagors

BY Venice Williams-Gordon

Wednesday, April 08, 2020

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The COVID-19 pandemic presents a real threat to our economy. In Jamaica, landlords, tenants and mortgagors are concerned about whether they have any rights when dealing with a pandemic and its potential consequences.

RESIDENTIAL LANDLORDS AND TENANTS

All landlord and tenant issues are governed by the Rent Restriction Act, The Judicature (Resident Magistrate) Act and The Law Reform (Landlord and Tenants) Act. The oarish courts and the Rent Board are the governing bodies that help disputing landlords and tenants resolve disagreements. For both landlords and tenants, questions arise about the impact of the COVID-19 pandemic on their lease relationships. Is there a claim to reduce or defer the rental payment obligation? Can the contract be terminated because of delayed payment under these circumstances?

Does the contract need to be adapted to the current situation?

Landlords and their tenants are usually in contractual relationships, and in such relationships there are contractual obligations. Nevertheless, landlords should have an interest in their tenants surviving the crisis. Therefore, it may be advisable to enter negotiations on possible (temporary) adjustments to the lease at an early stage. However, landlords also have to fulfil their obligations towards banks and their contractual partners, and are dependent on rental income for this purpose. Therefore, any adjustments to the lease agreement must be formally documented by means of amendments to the lease agreement through an addendum to the existing lease.

Is there a claim to reduce or defer the rental payment obligation?

Most residential and commercial leases allow for the landlord to recover possession of the premises and terminate the lease on breach of a tenant covenant including, specifically, non-payment of rent. Therefore, the pandemic is no reason for you to stop paying rent without proper communication with and agreement from your landlord. There is no claim that a tenant can make by law to have the rent reduced or deferred because of COVID-19.

Can the leases be terminated because of delayed payment under these circumstances?

Force majeure clauses — which typically operate to excuse one party from performing their obligations following the occurrence of a specified event such as a war, a natural disaster or an epidemic — are not usually seen in leases because of the unique mutuality of the landlord and tenant relationship.

A contract is deemed 'frustrated' and therefore terminated if something that is not the fault of either party occurs after the contract has been entered into – thus rendering the contract impossible to fulfil – or if the contractual obligation becomes something radically different.

Frustration has a narrow application, and although each case would be assessed on its facts, it is unlikely the courts would rule in favour of a tenant claiming frustration due to COVID-19.

Landlords or tenants procuring the carrying out of works to premises prior to a lease being granted will typically be subject to an obligation to complete the works within a certain time frame. As the COVID-19 crisis escalates, parties may seek to rely on force majeure mechanisms to extend deadlines.

MORTGAGORS

Mortgagors are anxious and have been questioning whether now is a good time to invest in the real estate market and how COVID-19 will affect their mortgage payments.

Recently the Government of Jamaica provided a stimulus package for mortgagors of the National Housing Trust (NHT) in a bid to help to cushion the possible economic hardships caused by COVID-19.

Here are a few of the benefits included in the package: Effective April 1, 2020, the NHT will reduce interest rates on all new loans by one percentage point. All existing NHT loans will be reduced by 0.5 percentage points.

Interest rate discounts currently offered to special groups, such as mortgagors aged 55 years and over, people with a disability and public sector workers, will continue. The interest rate discounts for disabled people will be effective April 1, 2020 and will also be extended to include the parents of disabled children.

In addition to the government stimulus package, several financial institutions have recently announced that they will grant a moratorium to their customers. A moratorium in this situation is where a lender legally authorises a period of delay in the payment of a debt.

Before the effects of COVID-19 result in financial hardship, you should make an application to your bank to ensure you receive the necessary reprieve to cushion any financial impact arising from COVID-19.

It is important to note that each financial institution has its own requirements, so you should not delay in contacting your bank to obtain all necessary information on how the moratorium will work, the extra time granted, and most importantly, how this will be calculated.

Failure to make these arrangements with your financial institution will be taken as indication you are still able to make your usual mortgage payments. Therefore, any default may lead to forfeiture or unpleasant visits to your financial institution.

Venice Williams-Gordon is a partner/attorney at Lewis, Smith, Williams & Co. She can be contacted on: vwilliams@ lswlegal.com.


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