Rent Concessions during the Enhanced Community Quarantine Period

Atty. Maria Melita Rae J. Fernandez

(Authors’ Note: This article has been updated as of May 5, 2020.)

On April 4, 2020, the Department of Trade and Industry (DTI) issued Memorandum Circular No. 20-12 (the “DTI Circular”) prescribing guidelines on the concessions on residential and commercial rents during the period of the Enhanced Community Quarantine (ECQ). This implements Section 4 (bb) of the Bayanihan to Heal As One Act (Republic Act No. 11469), empowering the President to adopt temporary emergency measures in order to respond to the crisis brought about by the COVID-19 pandemic. One such power is to:

“(bb) Provide for a minimum of thirty (30)-day grace period on residential rents falling due within the period the enhanced community quarantine, without incurring interests, penalties, fees, and other charges”.

The Philippine Ports Authority (PPA) likewise extended the rental and concession fee payments of PPA lessees and port terminal operators falling due within the ECQ period under Memorandum Circular No. 17, Series of 2020 (the “PPA Circular”), which was published on April 25, 2020.

DTI Circular

The DTI Circular covers only “residential rent”and “commercial rent of MSMEs”.

§ Residential rent refers to any amount paid for the use or occupancy of a residential unit (i.e., bedspaces, rooms, dormitories, apartments, houses, buildings, and/or land on which another’s dwelling is located used principally for residential or dwelling purposes), regardless of the mode and terms of payment. The DTI Circular does not appear to qualify with respect to eligible categories of lessees of residential units (whether individuals or corporates), unlike in respect of commercial rent.

§ Commercial rent, on the other hand, refers to any amount paid by MSMEs for the use or occupancy of a commercial space (i.e., land, offices, buildings, centers, shops. Facilities and any other property used principally for commercial purposes, which denote any activity for which profit is the main aim or revenue is received), regardless of the mode and terms of payment.

§ MSMEs (or Micro, Small and Medium Enterprises), as defined under the Magna Carta for Micro, Small and Medium Enterprises (MSMEs) (Republic Act No. 6977, as amended), refer to any business activity or enterprise engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative, partnership or corporation, 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 categories:

Micro : not more than P3,000,000.00

Small : P3,000,001.00 – P15,000,000.00

Medium : P15,000,001.00 – P100,000,000.00

Following are the guidelines on rent concessions provided under the DTI Circular:

What concessions are granted under the DTI Circular on residential rents?

A minimum 30-day grace period shall be granted on residential rents falling due within the ECQ period, without incurring interests, penalties, fees and other charges.

What concessions are granted under the DTI Circular on commercial rents?

A minimum 30-day grace period shall be granted on commercial rents falling due upon MSMEs that have temporarily ceased operations within the ECQ period, without incurring interests, penalties, fees and other charges.

In addition, lessors of commercial rents for MSMEs who wish to extend greater generosity may:

a. Totally or partially waive the commercial rents that fall due during the ECQ period;
b. Grant reprieve or discounted amount of commercial rents due after the ECQ period;
c. Open for renegotiation the Lease Term Agreements with the lessees; or
d. Use other recourse to mitigate the impact of the ECQ to the MSMEs.

Please note, however, that the language of the DTI Circular is couched in permissive terms; hence, the grant of such additional concessions to MSMEs would depend on the goodwill of the lessor.

What are the requirements for MSMEs to be eligible for concessions?

Only MSMEs that have temporarily ceased operations due to the ECQ are covered by the commercial rent concession.

To be eligible for the concessions, MSMEs must signify to their respective lessors their request for assistance by providing supporting documents, such as, but not limited to, financial statements as proof of enterprise size, and/or lease contract as proof of tenancy.

Do the concessions granted under the DTI Circular apply only to the island of Luzon?

No. The DTI Circular was issued pursuant to the Bayanihan to Heal As One Act, which is a national law, hence, the concessions apply to the entire Philippines.

What is the period of coverage of the ECQ?

The ECQ originally covers the period from March 17, 2020 to April 12, 2020. It was subsequently extended to April 30, 2020, and thereafter until May 15, 2020, unless earlier lifted or extended by the President as circumstances may warrant.

When does the minimum 30-day grace period start?

The mandatory 30-day grace period commences from the due date of the residential or commercial rent falling due within the ECQ period. For example, if the rent is due on April 10, 2020, then the lessee shall be entitled to a grace period of 30 days from April 10, 2020, making the extended due date May 10, 2020. Following the further extension of the ECQ, the new due date for the April rent is on June 10, 2020.

Can a lessor refuse to extend the 30-day grace period?

No. The 30-day grace period is mandatory for residential units and eligible MSME-lessees of commercial units, and the lessor may not refuse the extension thereof.

How will cumulative rents which fall due within the ECQ be paid? Is this subject to immediate repayment on the extended due date following the lifting of the ECQ?

The cumulative amount of rents which fall due within the ECQ shall be equally amortized in the six months following the end of the ECQ period, and shall be added to the rents due on those succeeding months, without interest, penalties, fees, and charges. It is, however, unclear how the amortized unpaid rents will be treated for short-term leases (e.g. month-to-month leases, or leases with a term of six months or less).

To illustrate:

The monthly rent due on March 30, 2020 is P

12,000.00. Applying the grace period, the extended due date for the March rent is on April 30, 2020, and in view of the extension of the ECQ, the further extended due date for the March rent is on May 30, 2020.

Now, the rental falling due on April 30, 2020 of P

12,000 shall likewise be subject to a 30-day grace period, so the new due date for the April rent is on May 30, 2020.

Assuming that the ECQ is lifted after May 15, 2020, the amount of rent due on May 30, 2020 shall be:

May Rent	P12,000.00
March Rent (P12,000 / 6 months)	P2,000.00
April Rent (P12,000 / 6 months)	P2,000.00
	P16,000.00

Can a lessee require the lessor to refund residential and commercial rents already paid during the ECQ period?

Lessors are not obligated to refund covered rents that have already been paid. However, should the lessor choose not to refund such rents, the lessor is required to grant a 30-day grace period for the next rent due without incurring interest, penalties, fees, and charges.

May a lessee be evicted from the rented unit or space if he/she/it fails to pay the rent due after the lifting of the ECQ?

No eviction for failure to pay the residential or commercial rent due may be enforced within a 30-day period after the lifting of the ECQ. For example, if the ECQ period ends on May 15, 2020, the lessee who has failed to pay rent due may not be evicted until after June 15, 2020.

What are the penalties imposable on lessors for violation of the provisions of the DTI Circular?

The DTI Circular states that, “as provided under the Bayanihan to Heal As One Act, lessors who shall refuse to provide 30-day grace period to lessees shall be penalized with imprisonment of not less than two months or a fine of not less than ten thousand pesos (P

10,000.00), or both, at the discretion of the court.”

Note, however, that under the DTI Circular and the Bayanihan to Heal As One Act, only the refusal to provide the 30-day grace period is punishable. The DTI Circular is silent as regards the penalties for other violations, such as the imposition of interests, fees, penalties, and charges on covered rents, and the eviction of defaulting lessees within the 30-day period following the lifting of the ECQ.

PPA Circular

Similarly, the PPA extended the rental and concession fee payments of PPA lessees and port terminal operators falling due within the ECQ period under its Memorandum Circular No. 17, Series of 2020 (the “PPA Circular). Under the PPA Circular, all PPA lessees and port terminal operators who are required to pay rental dues and concession fees under their lease contracts, agreements, guidelines or undertaking, are granted a minimum 30-day grace period on rental dues and concession fees falling within the ECQ period, without incurring interest, penalties, fees and other charges.

Likewise, the 30-day grace period starts from the last due date of the rental and concession fees falling due within the ECQ period. It imperative to note that under the PPA Circular, payment of rental and concession fees are only deferred for 30 days. Upon the expiration of the 30-day grace period, such deferred rental and concession fees must be paid immediately. Otherwise, a 12% interest and a 25% penalty charge per annum will be imposed on late payments.

Despite the issuance of the guidelines, several questions still remain unanswered. Are MSMEs which provide basic necessities but which voluntarily ceased operations during the ECQ also covered? Do the concessions only apply to areas that are declared to be under ECQ? Can the lessee be made to waive the applicability of the concessions granted? What happens if the lessor grants a 30-day grace period, but imposes interest thereon? How will cumulative unpaid rents be treated, especially in respect of short-term (e.g., month-to-month) leases? Will this result in the automatic extension of the lease term? These are just some of the issues that still need clarification. Further supplemental issuances are needed in order to fully clarify the implementation of the concessions on residential rents and commercial rents of MSMEs.