Rent Freeze at the Time of Pandemic
In view of the rising number of confirmed cases posing serious threats and long-term adverse effects to the economy and security, among other things, Presidential Proclamation No. 922, s. 2020, was issued declaring a State of Public Health Emergency throughout the entire country. Republic Act (RA) No. 11469 or the “Bayanihan to Heal as One Act” was then enacted to grant the President additional powers to adopt temporary emergency measures to respond to the crisis. Recognizing that there are many tenants living from paycheck to paycheck and that jobs and operations are disrupted as a consequence of the community quarantine, one of the economic reliefs provided is the concession of residential and commercial rental fees.
Under Memorandum Circular (MC) 20-31 issued by DTI, which elaborated the amendment of the supplemental guide of the concession of residential and commercial rent, the concession only applies to rent whose due date falls within the period of Enhanced Community Quarantine (ECQ), Modified Enhanced Community Quarantine (MECQ), and General Community Quarantine (GCQ). This means that it will not cover rent due during the period of Modified General Community Quarantine (MGCQ). One of the salient amendments is when the grace period shall commence, which is now from the last due date of the rent or from the lifting of the ECQ, MECQ, and GCQ, whichever comes later.
Residential units include bedspaces, rooms, dormitories, apartments, houses, buildings, and/or land that is primarily used for residential purposes. Under Sec. 4(bb) of Bayanihan Act, the lessors shall provide a minimum of 30-day grace period on residential rents without incurring interests, penalties, fees and other charges. MC 20-31 also states that should the rent accumulate during this period, the cumulative shall be equally amortized or spread out in the next six (6) months following the end of the grace period without any further charges, and this shall be added to the rent due on those succeeding months.
MC 20-12 provides the guidelines on the concession of commercial rent, which, similar to residential, mandates a minimum of 30-day grace period without incurring penalties. This would cover rentals of land, offices, buildings, centers, shops, facilities, and any other property used principally for commercial purposes, which means that the main purpose of the activities held in the said property is to profit. Initially, this concession only applies to micro, small and medium enterprises (MSMEs), but MC 20-31 expanded this to cover sectors not permitted to operate during the ECQ, MECQ, and GCQ.
Under RA No. 6977, as amended by RA No. 9501, MSMEs are any business activity or enterprise whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, must have value falling under the following: a) micro – not more than P3,000,000; b) small – P3,000,001 to P15,000,000; c) medium – P15,000,001 to P100,000,000.
Unlike residential tenants, MSMEs have to signify their request for assistance to their respective lessors to be eligible for the rent deferral. They shall submit supporting documents, such as, but not limited to, financial statements and cash flow projections, which shall then be the basis of the lessor in considering the liquidity and capacity to pay as they negotiate the assistance they can provide. The accumulated rent shall also be amortized in the next six (6) months following the end of grace period, to be added to rent due on those months.
Duties of the lessor
The lessor is obligated to grant a minimum of 30-day grace period from the due date of the residential or commercial rent or from the lifting of the ECQ, MECQ, and GCQ, whichever comes later, without incurring interests, penalties, fees, and other charges. However, they do not need to return the rent already paid during the community quarantine. Moreover, providing a grace period for the payment shall not affect the existing agreement to waive the rent.
Sec. 7 of MC No. 20-12 also provides that no eviction due to pay rent may be enforced within the thirty (30)-day period following the lifting of community quarantine. While it is not mandated, it is encouraged that the lessors of MSMEs extend generosity by totally or partially waiving rent, granting discounts, opening renegotiation of the terms of the lease, or any other recourse that would mitigate the impact of the crisis to these business establishments.
Remedies and penalties
Should these provisions be violated, a complaint can be lodged personally or electronically before the DTI, which shall then issue a Notice of Violation to the lessor who will be required to submit a reply. Upon determination of violation, appropriate criminal charges shall be filed, without prejudice to the filing of other administrative cases. Those found guilty shall be penalized with imprisonment of not less than two (2) months, or fine of not less than ten thousand pesos (P10,000), or both, at the court’s discretion.