Malaysia has passed the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Act 2020 (“COVID Act”) which takes effect retrospectively from 18 March 2020 (Gazette Date: 23 October 2020). COVID Act intended to provide businesses and individuals in Malaysia temporary reliefs from the impact of COVID-19 pandemic.

Inability to Perform Contractual Obligation

Section 7 of the COVID Act sets out a list of contracts where a party can seek relief due to inability of the party to perform any contractual obligations arising from any measures prescribed under the Prevention and Control of Infectious Diseases Act 1988 (“Prescribed Measures”). The Prescribed Measures include the imposition of the Movement Control Order and implementation of guidelines and Standard Operating Procedures (“SOPs”) issued by the relevant Ministries for various economic sectors.

The operation period of Section 7 is 18 March 2020 to 31 December 2020 (now extended to 31 March 2021) (“Relief Period”). The categories of contracts include:-

1. construction work contract, construction consultancy contract, supply of construction material, equipment or workers in connection with a construction contract
2. performance bond or equivalent granted pursuant to a construction contract or supply contract
3. professional services contract
4. lease or tenancy of non-residential immovable property
5. event contract for the provision of any venue, accommodation, amenity, transport, entertainment, catering or other goods or services including, for any business meeting, incentive travel, conference, exhibition, sales event, concert, show, wedding, party or other social gathering or sporting event, for the participants, attendees, guests, patrons or spectators of such gathering or event
6. contract by a tourism enterprise as defined under the Tourism Industry Act 1992 and a contract for promotion of tourism in Malaysia
7. religious pilgrimage-related contract

The COVID Act effectively suspended, temporarily, actions for contractual breach where the non-performance was due to the Prescribed Measures. The reality is that other than the initial, all-closed Movement Control Order implemented in mid March 2020, many industries have been permitted to return to work progressively with strict compliance of SOPs. It will not be easy for the non-performing party to justify that their inability to perform were due to the Prescribed Measures.

Even though the enforcement actions have been prohibited, the COVID Act does not affect the parties’ obligations under the contracts such as charging of late payment interest on payment delayed once the Relief Period expires.

Recovery of Rental for Residential Tenancy

Rental of residential properties are not accorded the temporary relief under Section 7 of the COVID Act and therefore, tenants will still need to pay rental even though loan moratorium have been granted for 6 months from 1 April to 30 September 2020. However, the COVID Act does provide that any warrant of distress issued shall not include arrears of rental for the period from 18 March to 31 August 2020.

Modifications to the Housing Development (Control and Licensing) Act 1966

COVID Act provides that developer shall not impose any late payment charges of unpaid instalment for the period from 18 March to 31 August 2020. Time for delivery of vacant possession and computation of liquidated damages shall exclude the period from 18 March to 31 August 2020. Defects liability period and the time period for developer to carry out defects work shall exclude the period from 18 March to 31 August 2020.

Other Amendments

Other amendments made by the COVID Act include the following :-

1. Any limitation period specified in Section 6 of the Limitation Act 1953 which expires during the period from 18 March 2020 to 31 August 2020 (“Suspended Period”) shall be extended to 31 December 2020. Therefore, legal suits can still be pursued up to 31 December 2020 even though the limitation may have set in during the Suspended Period.
2. Limitation period specified in Section 2(a) of the Public Authorities Protection Act 1948 which expires during the Suspended Period shall be extended to 31 December 2020.
3. No bankruptcy petition shall be presented during the period from the publication date of the COVID Act to 31 August 2020 against a debtor unless the debt owing amounts to RM100,000. The earlier threshold was RM50,000 before the COVID Act comes into place.
4. No owner shall take possession of goods under hire-purchase agreement under the Hire Purchase Act 1967 for any default of instalment payment during the period from 1 April 2020 to 30 September 2020.
5. Where there is payment default for two consecutive instalments provided in the credit sale agreement under the Consumer Protection Act 1999 during the Relief Period, the purchaser may now opt to terminate the agreement and surrender the purchased goods to the credit facility provider.

Other Contractual Obligations

For contractual obligations not within the statutory prescribed list above, parties to a contract may have no choice but to resort to good faith negotiations, indulgence and force majeure provision within the contracts to resolve any hardship or non-performance during the pandemic period. At the time of publication of this Article, the author have been informed of landlords who totally waived rental of residential properties for tenants who have reduced income or totally lost their jobs. There are also property vendors who automatically granted extension of time to purchasers to complete their property purchase transactions.