Member Article

In response to efforts to curb the spread of the Coronavirus (COVID-19) outbreak, the Ministry of Health published regulations providing for the closure of various places including bars, schools and institutions of higher learning, bars, cinema halls, shopping malls, arcades, hardware shops, all shops and stores selling non- food items, salons, gymnasiums, massage parlours, hotels and lodging houses, motor repair workshops and garages, with a few exceptions. The regulations effectively place the country under a general lockdown.

The COVID-19 outbreak and the consequent lockdown will certainly have an impact on a number of commercial relationships, including that of landlord and tenant. In this article, we examine issues that are likely to arise.

Can the businesses that have been closed by the lockdown, successfully rely on force majeure to exit any leases or rental agreements they may have?

Yes, if the tenancy or lease agreement has aforce majeureclause with an interpretation wide enough to encompass current events. Aforce majeureclause typically excuses or suspends one or both parties from performance of all or part of their obligations under a contract following the occurrence of certain “force majeureevents” that is events which are beyond their control such as floods, natural disasters, epidemics and pandemics. A tenant desirous of invokingforce majeureto suspend its rental obligations must carefully review their tenancy agreement and ensure that COVID 19 and the lockdown fall squarely within theforce majeureclause provided for.

In a recent speech, the President of Uganda advised landlords to refrain from evicting their tenants during this period and to defer rentals due. However, this must be taken as advice only, with no force of law.

In the absence of aforce majeureclause, can they rely on the doctrine of frustration?

This is debatable. Discharge of contractual obligations by frustration is recognised by the Contracts Act, 2010 and automatically terminates a contract. Discharge by frustration requires that due to:

• unexpected event(s)
• beyond the control of either party
• a contract becomes impossible to perform or significantly changes the nature of the outstanding contractual rights or obligations from what the parties could have reasonably contemplated at the execution of the contract.

The occurrence of the aforementioned discharges the parties from further performance of the contract.

At first glance, it appears that a party can argue frustration to terminate lease or rental contracts due to the COVID-19 outbreak and the resulting lockdown on grounds that both were unexpected and not the fault of either party, however this may be challenging to prove that as a result of the outbreak and the lockdown it is impossible to perform the obligations under the contract or that there are significant changes to the outstanding obligations. Discharge by frustration has a high bar of success and from case law “difficulty to perform” or “inconvenience” is not enough.

Some guidance can be found in the Hong Kong case ofLui Ching Wing Vs Xuan Yi Xiong,which followed the 2003 Severe Acute Respiratory Syndrome (SARS) epidemic. In this case, the Plaintiff was the registered owner of an apartment which he let out to the Defendant for a fixed term of two years. Following the SARS outbreak, some of the residents on the apartment block became infected with the disease. The Department of Health of Hong Kong subsequently issued an order to isolate the apartment block for a period of 10 days (the “Isolation Order”). The Defendant returned to the premises after the expiry of the Isolation Order and sent a letter to the Plaintiff terminating the tenancy agreement. The Plaintiff responded by accepting the letter as a wrongful repudiation of the tenancy agreement and issued proceedings claiming the balance of the rent due under the tenancy agreement and damages. The Defendant defended the proceedings on the primary ground that the tenancy agreement had been frustrated by the Isolation Order.

The Hong Kong District Court held that the 10-day period in which the apartment was uninhabited following the Isolation Order was quite insignificant in term of the overall use of the premises. The outbreak did not significantly change the nature of the outstanding contractual rights contemplated by the parties at the execution of the tenancy agreement. Similarly, it may be challenging to prove that the lockdown significantly changes the contractual rights and obligations initially contemplated by the parties. A tenant should therefore take careful legal advice before relying on it.

What obligations do landlords and/or tenants have in reducing the spread of the COVID-19 virus at leased premises?

A common obligation in tenancy agreements is “to comply with all the requirements of any statutes, laws, bylaws and any other obligations applicable to the leased premises”. Both the landlord and the tenant must familiarise themselves with the requirements of the Directive and the Public Health (Control of COVID-19) Rules 2020 to ascertain whether they should remain open for business or close.

Related to this, under the Public Health (Control of COVID-19) Rules 2020, every owner, person in charge of, or occupier of premises, who becomes aware that any person who is residing on his or her premises, is suffering from COVID-19, must immediately notify a medical officer or a medical practitioner or take that person to a medical officer or a medical practitioner for treatment.

Additionally, most tenancy agreements obligate the parties “to keep premises safe and free from health hazards” Following the COVID-19 outbreak, the World Health Organisation (WHO) and the Ministry of Health of Uganda have embarked on an aggressive public awareness campaign to inform the public on, among others, measures to mitigate the spread of the virus. Such preventive measures include regular handwashing with soap or use of sanitizers, maintenance of social distancing where crowds are involved. Landlords and tenants whose premises are still open for business should ensure that they implement such preventive measures in honouring their obligations under the tenancy agreement.We would recommend that both landlords and tenants review the terms of their agreements to determine what rights and obligations are affected by the COVID-19 outbreak and or the lockdown and where performance of their obligations becomes difficult or unprofitable, the parties can have discussions to vary/renegotiate the agreements to try relieve the burden.

Reviewed by Phillip Karugaba, head of ENSafrica Uganda.

Rachel MusokePartner ENSafrica Uganda[email protected]+256 772 778 822

Sheila PacutoSenior Associate ENSafrica Uganda[email protected]+256 784 116 125

COVID-19, also known as the Coronavirus, is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) that was declared a pandemic by the World Health Organization on 11 March 2020. The disease has since been reported in over 190 countries.