Of time, leases and lockdowns

By Atty. Eduardo T. Reyes III

 

When COVID-19 struck early this year, economists hastened to point out that the virus is a “Black Swan Event” – a metaphor for an event which common knowledge, experience or belief, and even experts, do not see coming.

Given that it is something that the world had not seen, even renowned experts in infectious diseases had been baffled and were hard-pressed to advise their respective governments on how to deal with the corona virus except to impose severe lockdowns which aim is actually merely to “buy time” until a vaccine is discovered and made available.

And as events unfolded over the past months, the Philippine government had handed down one of the toughest stay-at-home-edicts around the world.

For some who had been tucked inside their homes with sufficient provisions of food and other supplies to survive being on lockdown, perhaps what they had to deal with was only ennui or boredom. But for most who could hardly cough up some wherewithal for themselves and their family, listlessness was hardly their concern: they have had barely any time to entertain ennui into their homes.

Whichever economic spectrum a family belongs, the lockdowns and the many travails they brought, had caught many unaware that their lease contract or payment of rentals had fallen due in the midst.

Which now begs the question: If a lease contract expires at the height of the lockdown, may a lessor evict the lessee? Or will the unpaid rent during the period of lockdown incur interests and penalties?

First, if a contract of lease expires, and the lessor acquiesces or tolerates the lessee in the premises for fifteen (15) more days, Article 1670 of the New Civil Code provides that an “implied new lease” is established between the parties. This arrangement, however, pursuant to Article 1687, shall not be deemed a renewal of the lease contract for an entirely new term, but will depend on the mode of payment of rentals; (ie month-to-month, week-to-week or day-t0-day) to be reckoned from the stipulated frequency of payment of lease rentals in the original lease contract.

Thus, in San Miguel Foods, Inc. and James A. Vinoya v. Ernesto Raoul V. Magtuto, G.R. No. 225007. July 24, 2019 citing De Miranda v. Lim Shi,   it was held that “when there is no clear period of renewal agreed upon between the parties then the implied renewed contract is on a month to month basis”.

For the lessor, in order to obviate the application of Article 1670 that an implied new lease will be created, he/ she must not acquiesce or give implied consent. But how is he/ she to do that?  He/she has to perform a “categorical act that will negate the application of Article 1670 of the New Civil Code” like, for instance, immediately sending a written demand to vacate upon the expiration of the lease contract as explicated in the recent case of  Brig. General Marcial A. Collao, Jr. in his capacity as Commanding General, Headquarters and Headquarters Support Group, Philippine Army v. Moises Albania, G.R. No. 228905. July 15, 2020.  

Second, notwithstanding these decisions of the Supreme Court, the “Bayanihan to Heal as One Act” (RA 11469),in tandem with the Department of Trade and Industry (DTI) Memorandum Circular No. 20-12 entitled “Guidelines on the Concessions on Residential Rents; Commercial Rents of MSMEs” issued last April 4, 2020, -both of which, in a language which is mandatory in nature-, enjoin lessors to grant a 30-day grace period to all residential lessees plus a payment scheme that spreads out in six (6) monthly installments the rental payments due which fell and had accumulated during the period of the ECQ, viz:

“Section 3. Concession on Residential and Commercial Rent –

3.1. Concession on Residential Rents. – A minimum of thirty (30)-days grace period shall be granted on residential rents falling due within the period of the ECQ, without incurring interests, penalties, fees, and other charges. 

Where cumulative amount of rents falling due within the ECQ, shall be equally amortized in the six (6) months following the end of the ECQ, and shall be added to the rents due on those succeeding months, without interest, penalties, fees, and charges”. 

And more importantly, the violation of the dictates of the law and memorandum circular entails a penal clause of either fine or imprisonment, or both, thus: “Section 10. Penal Clause. – As provided under Section 6(e) of RA 11469, lessors who shall refuse to provide 30-day grace period to lessees shall be penalized with imprisonment of not less than two (2) months or a fine of not less than ten thousand pesos (Php 10,000.00), or both, such imprisonment and fine, at the discretion of the court”.

It is also provided that no eviction shall be made during the period of ECQ.

The pandemic had surely wrought havoc on the lives of many in more ways than one. For the lessors, the rental payments due could have already been computed in advance to answer for a subsisting loan or earmarked for some other business or personal purposes. While for the lessee, since he/ she was forced to stay-at-home, money had surely been hard to come by and paying his/ her lease rentals would not be very high in the list of obligations as food and groceries would surely outrank the rent. The “Bayanihan to Heal as One Act” (RA 11469), as well as the Department of Trade and Industry (DTI) Memorandum Circular No. 20-12 entitled “Guidelines on the Concessions on Residential Rents; Commercial Rents of MSMEs” are mandates that provide for the leverage of time. Time surely stood still during the lockdown and in order for the law to be relevant; it, too, had to command that the ticking of interests and penalties be stopped, while the payment of rent will be flattened through time.

And while the world awaits for a vaccine to become available, it will be realized that what the pandemic is teaching, is that time may not stand still so often; but when managed right and with enough nudge from the government, it can be made to work in some disadvantaged sector’s favor.

 

(Atty. Eduardo T. Reyes, III is the senior partner of ET Reyes III & Associates- a law firm based in Iloilo City. He is a litigation attorney, a law professor and a law book author. His website is etriiilaw.com).