Rental Contracts- Lessee liability
THE ONGOING PANDEMIC AND ITS EFFECT ON LONG TERM COMMERCIAL RENTAL CONTRACTS
Rental Contracts, Lease, lessee, lessor, long term lease
A lease contract is a contract whereby the lessor is obligated to enable the lessee to benefit from a certain property for a certain period in return for a known fee. Due to the pandemic the business activities have been already subdued which has largely incurred substantial businesses losses, so commercial and individual lessees were unable to fulfill the obligation of the rent payments which has been on continuous basis and resulted on legal liability on them.
RIGHTS OF THE LESSOR AND LESSEE IMPUNITY FROM CONSEQUENCES OF NON-PAYMENT
Lessor is not entitled to the rent in the absence of the benefit of the lessee even if lessor does not cause it, such as force majeure or the issuance of an act by the government that prevents the full use of the property. But if this partially affected the use, the lessee may stop paying the rent and terminate the contract after giving a notice to the lessor.
The decision of the ‘Supreme Committee tasked with control of Covid-19 in Oman’ is considered in the place of force majeure that entails the application of the provisions of Article (172) and (550) of the Civil Transactions Law Article )172(:
- In bilateral contracts, if force majeure occurs rendering the performance of the obligation impossible to complete, the corresponding obligation shall be extinguished, and the contract shall automatically be revoked.
- Where the obligation is partial, only the corresponding obligation to that part which becomes impossible to be performed shall be extinguished. Such provision shall also apply to temporary impossibility in permanent contracts. In both cases, the lessee may rescind the contract provided that a notice is served to the Lessor.
Moreover, according to Article (550) of the civil transaction law:
- If any matter is issued by the competent authorities that prevents the total enjoyment of the leased property without cause attributed to the lessee, the lease shall be cancelled, and the rent shall be extinguished from the date of prevention.
- If said prevention shall prejudice the enjoyment of the leased property in a manner that shall partially affect the receipt of the intended benefit thereof, the lessee shall rescind the contract and be discharged from the rent as of the date of the service of a notice to the lessor.
Furthermore, according to Section 2 Impossibility of Performance (Article 339) of the civil transaction law. The Obligation shall be extinguished if the debtor proves that the fulfilment thereof became impossible due to a foreign* cause beyond his will.
In conclusion, either the lessee file a commercial case in order to reduce the rent amount or evacuate the building after giving the lessor 3 months’ notice or lesser period but more than 1 months, with the expectation that a case might be filed by the lessor against the lessee where the lessee must make assure to the competent court that the impossibility of performance of the contract occurred due to the financial deterioration that the lessee went through which led to this situation. If a case if filed, the lessee needs to have in hand the Audited Financials if the lessee is a company/commercial wherein it is evident 3 years continuous losses and for individual she/he must have his/her financial statement.
Associate Lawyer – (Corporate & Commercial)