The disruption brought about by the COVID-19 pandemic seems boundless. Businesses, either because of government action or by their own initiative due to safety concerns, were forced to close shop. However, with the easing of quarantine restrictions, some businesses, whether as lessors or as lessees, are asking what their rights and obligations are during the period of non-operation. What is the prevalent rule on rent? Are lessors allowed to collect rent even when the lessees’ operations have ceased during the period of quarantine?
DTI Guidelines for Residential and Commercial Rent
The Department of Trade and Industry (“DTI”) issued Memorandum Circular No. 20-12, series of 2020, or the Guidelines on the Concessions on Residential Rents and Commercial Rents of Micro, Small, and Medium Enterprises (MSMEs) on 4 April 2020. This was subsequently amended by DTI Memorandum Circular No. 20-29, which was issued on 2 June 2020 and DTI Memorandum Circular No. 20-31 issued on 04 June 2020 (Amendment to the Supplemental Guidelines on the Concession on Residential Rents and Commercial Rents).
The guidelines were issued to address rent concerns during the period of community quarantine. According to Trade Secretary Ramon Lopez in his agency’s press release last 2 April 2020, these measures are intended “[t]o provide economic relief to Filipinos and MSMEs during the COVID-19 public health emergency… [and] to ensure their survival during the ECQ.”
Treatment of Rent under the DTI Guidelines
Under the amended guidelines, a minimum grace period of 30 days applies to residential and commercial rent falling due within the declared community quarantine, whether Enhanced Community Quarantine (ECQ), Modified Enhanced Community Quarantine (MECQ), or General Community Quarantine (CGQ). Residential rents shall mean any amount paid for the use or occupancy of a residential unit (bedspaces, rooms, dormitories and other buildings and/or lands principally used for dwelling purposes), regardless of mode and terms of payment, and commercial rents shall mean any amount paid for the use or occupancy of a commercial space (land, offices, buildings, and any other property used principally for commercial purposes), regardless of mode and terms of payment for MSMEs that have ceased operations.
This minimum grace period is counted from the date of the lifting of the ECQ/MECQ/GCQ period without incurring interests, penalties, fees, and other charges. More importantly, the cumulative amounts of rent that fall due within the ECQ/MECQ/GCQ period shall be equally amortized in six (6) months following the end of the 30-day minimum grace period, again without interest, penalties, fees and charges, which amount shall be added to the current monthly rent due.
What this means is that if the rent for a commercial unit in Cebu City (which has just been downgraded to GCQ) was due on 1 April 2020, the lessor can only demand payment after 30 days of the lifting of GCQ (if GCQ is lifted in Cebu City on 15 August 2020, then the lessor can demand payment on 15 September 2020), and he cannot impose any interest, penalties, fee and other charges. Moreover, the cumulative amount of rent shall be equally amortized in six (6) months following the end of the 30-day grace period, which amount shall be added to the current monthly rent due.
Other Effects
The guidelines as amended also provide for the following:
1. Lessors are not obligated to refund residential and/or commercial rents paid before or during the period of the community quarantine.
2. Existing waivers on rental payments due provided by lessors shall continue to be honored.
3. No eviction for failure to pay the residential or commercial rent shall be enforced within the 30-day period after the lifting of the ECQ.
4. The DTI also encourages lessors of commercial units to adopt any of the following measures to eligible MSMEs out of the spirit of fair play and generosity by:
a. Totally or partially waiving the commercial rents which falling due within the ECQ/MECQ/GCQ period;
b. Grant reprieve or discounted commercial rents after the ECQ/MECQ/GCQ period;
c. Open for renegotiation the Lease Term Agreements with the lessees; and
d. Use other recourse to mitigate the impact of the ECQ/MECQ/GCQ to the MSMEs.
It should be emphasized that the foregoing concessions provided by the guidelines are applicable to residential rents and commercial rents for MSME’s only. Moreover, only those MSME’s that have been forced to temporarily cease operations are entitled to the privileges above. If the MSME-lessee, by the nature of its business, continued to operate despite the lockdown, then it cannot claim the minimum grace period.
While no waiver of rent is mandated by the DTI - possibly in recognition also of the business needs of the lessor and out of deference to the non-impairment of contracts clause of the Constitution – the agency nevertheless encourages the measure as a way to ensure survival of the lessee’s business. After all, we are all in this fight together. What is ultimately important is for the business community to survive collectively.
The foregoing article is for general informational and educational purposes only. It should not be treated and is not to be considered as legal advice or opinion. The views expressed in this article are those only of the author.
Eric M. Menchavez, Jr. is a Partner at Cokaliong Menchavez & Senining-Judilla Law Offices (CMS LAW), Cebu.
+63 32 342-8201
menchavezjr@cmslawph.com
