Help! I closed a business this pandemic, what are my rights as a commercial lessee?

Published October 7, 2020, 6:11 AM

by Johannes Chua

We live in the best and worst of times. It’s not surprising as a crisis of this magnitude is bound to bring out the best and worst in people. On one side, there are those who would help the best way they can, even with limited resources. On the other end, there are those who would take advantage of the crisis, profiteering from those with limited resources.

This is the issue facing a lot of lessors and lessees. Like two sides to a coin, each one exists because of the other. But in the prolonged crisis, the two are now at odds with each other. A lot of lessors of land, building, or commercial space are faced with delinquent lessees because of rent payment defaults. On the other side, lessees whose businesses were affected by the quarantine are finding it hard to pay their lessors who have not given them any form of discount or amnesty on their rental payments. Two sides have their stories to tell. And each party blames the other one for their “misery.”

Go around the metro and you would see many signs of “For Rent/ For Lease” on commercial spaces that, during the pre-pandemic era, were a restaurant, restobar, gym, barber, spa, computer shop, or billiard hall. It was not surprising that these businesses went bankrupt during the lockdown as they were not allowed by the government to operate. Months of no operations dried up their funds to continue paying rent.

ECONOMIC CRISIS The pandemic has affected a lot of businesses that there are now a lot of properties and commercial spaces ready for lease

Closing a business this pandemic is doubly hard because lessor-lessee contracts and agreements are breached. Questions are circulating online and it seems the government has not been too reliable with regard to this issue. It depends, it seems, on the “compassion” of each party to understand one another.  

Manila Bulletin Lifestyle reaches out to Earthauz, a company that has been helping real estate brokers and salespersons by offering them a platform to sell and network with one another. It also has a social networking platform, like LinkedIn, but purely about real estate. 

We checked online for questions related to the lessor-lessee relationship when it comes to commercial spaces, which is a timely issue considering that the economy is facing a recession. Earthauz’s attorney, Margarita N. Gutierrez, a real estate lawyer and licensed real estate broker, answers frequently-asked questions about this. She says that “these legal opinions are solely based on my appreciation of the problems that were provided. The opinion may vary when other facts are included or elaborated on.”

Atty. Margarita Gutierrez

I wasn’t able to pay my rental lease for three months because we were closed during the lockdown. The lessor, however, still wants me to pay in full or he would forfeit my three-month deposit. What should I do? 

You may write a letter to your landlord citing Department of Trade and Industry (DTI) Memorandum Circular No. 20-29 issued on June 2 and DTI Memorandum Circular No. 20-31 issued on June 4 (Amendment to the Supplemental Guidelines on the Concession on Residential Rents and Commercial Rents), which sets guidelines regarding residential rent and commercial rent for micro, small, and medium-sized enterprises (MSMEs) that have temporarily ceased operations during the ECQ/ MECQ/ GCQ period.

Based on this memorandum, landlords and lessors are not allowed to evict their tenants, particularly those with small businesses, who are unable to pay commercial rent as they are given a 30-day grace period from the last due date or from the lifting of the ECQ/ MECQ/ GCQ, whichever is longer, to pay the rent due, without incurring interests, penalties, fees, and other charges.

I’m negotiating for a lower rental fee since we are operating at 50 percent capacity. The land owner is not agreeing to it. What can I do?

The lease rental should still be paid in full and on time as agreed upon. You may look at the contract for a provision involving amendments of its provisions, which can serve as a basis for renegotiation as to the rate of rental. In the absence of such provision, you may pre-terminate the contract in accordance with the conditions set forth therein.

GLOBAL PROBLEM With no sales, small businesses all over the world couldn’t afford to pay rent

The lease agreement is for three years. But business is so bad that I’m thinking of closing down after one year. The landowner says he will forfeit the deposit since I didn’t finish the contract. Can that be done?

Yes, if the contract provides a stipulation that forfeits the deposit in case of pre termination of lease. This kind of provision is in the nature of a penal clause to ensure lessee’s faithful compliance with the terms and conditions of the lease contract, including pre termination.

The building where we have our office is not practicing any health protocols as I’ve seen people just come and go without screening, contact tracing, etc. What can I do? 

You may write a letter to the building administrative officer/ property manager of your building regarding observance of health protocols within the building premises. If the building administrative officer/ property manager does not do anything to help in stemming the spread of Covid-19 and protecting the tenants/ workers/ employers in the building, you may ask the assistance of the barangay to deal with the concerned building officer for the building to employ health and safety measures in the premises.

I was about to open my restobar so we already completed renovations and retrofitting the space, spending over a million. But the IATF is still not allowing restobars to open. Can I back out of the contract and charge the landowner for the improvement of the space?

In view of the pandemic and the uncertainty on the opening up of restobars, you may terminate the lease contract but you cannot oblige the landowner to pay for the costs of the improvements you have made on the leased space, unless the contract provides so. You may opt to remove the improvements so long as it will not cause any damage to the leased premises and in accordance with the lease contract.