The Department of Trade and Industry (DTI) released the guidelines on the concessions on residential rents, and commercial rents of Micro, Small and Medium Enterprises (MSMEs) that have ceased operations due to the Enhanced Community Quarantine (ECQ). Memorandum Circular No. 20-12 aims to provide Filipinos and businesses, particularly MSMEs, economic relief during the Coronavirus Disease 2019 (COVID-19) public health emergency (see Amended Supplemental Guidelines under DTI Memorandum Circular No. 20-31).
Note: IATF Resolution No. 33 dated 6 May 2020, and the Revised Omnibus Guidelines (as approved in Resolution No. 37 dated 11 May 2020) contains three revisions:
- The grace period is available in ECQ, MECQ and GCQ areas;
- In addition to residential and MSME rental payments, “sectors not permitted to operate during the said period” are now entitled to the 30-day grace period; and
- The grace period is: (a) 30 days from the last due date; or (b) until such time that the community quarantine is lifted, whichever is longer.
The minimum grace period is thirty (30) calendar days following the last due date of the rent which fell due within the ECQ (added: updated quarantine classifications). This is in accordance with Republic Act No. 11469, also known as the Bayanihan to Heal as One Act, authorizing a 30-day grace period for both loans and rents. In the Implementing Directives earlier issued by the President, the Department of Finance (DOF) was tasked to implement the 30-day grace period for loans (see DOF Implementing Rules and Regulations), while the DTI was tasked to implement the 30-day grace period for rents. MC 20-12, issued by the DTI on 4 April 2020, covers two types of rental payments: (a) residential; and (b) commercial.
A. 30-day Grace Period for Residential Rent
“Residential rent” means any amount paid for the use or occupancy of a residential unit, regardless of the mode and terms of payment. “Residential unit” refers to bedspaces, rooms, dormitories, apartments, houses, buildings, and/or land on which another’s dwelling is located used principally for residential or dwelling purposes.
A grace period, for a minimum of 30 days, is granted on residential rents falling due within the period of the ECQ, without incurring interests, penalties, fees, and other charges. The cumulative amount of rents falling due within the ECQ shall be spread out or equally amortized in the six (6) months following the end of the ECQ, and shall be added to the rents due on those succeeding months, without interest, penalties, fees, and charges.
[See also: COVID-19 Lockdown: Fortuitous Event or Force Majeure Exemption from Obligations]
B. 30-day Grace Period for Commercial Rent
“Commercial rent” means any amount paid for the use or occupancy of any other property used principally for commercial purposes, which denote any activity for which profit as the main aim or revenue is received. RA 11469 explicitly mentions only residential rent, and to cover commercial rents for MSMEs, the DTI cited the law’s declared policy on the “provision of safety nets to all affected sectors” and Republic Act No. 6977, otherwise known as the “Magna Carta for Micro, Small and Medium Enterprises (MSMEs)”.
A grace period, for a minimum of 30 days, is granted on commercial rents falling due upon MSMEs that have temporarily ceased operations within the period of the ECQ, without incurring interests, penalties, fees, and other charges. The cumulative amount of rents due within the ECQ shall be spread out or equally amortized in the next six (6) months following the end of the ECQ, and shall be added to the rents due on those succeeding months, without interests, penalties, fees, and charges. In summary, a business enterprise is entitled to the 30-day grace period if ALL the following are present:
- (1) The lease contract must principally be for commercial purposes, which denote any activity for which profit as the main aim or revenue is received.
- (2) The rent must fall due within the period of the ECQ.
- (3) The lessee must have temporarily ceased operations because of the ECQ.
- (4) The business enterprise must be a MSME, which refers 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 by exclusive of the land on which the particular business entity’s office, plant and equipment are situated, must have value of not more than P100 Million. To be specific: (a) micro enterprise – not more than P3,000,000; (b) small enterprise – P3,000,001 to P15,000,000; and (c) medium enterprise – P15,000,001 to P100,000,000. [See also: Micro, Small and Medium Enterprises: What Businesses are Considered MSMEs]
- (5) The MSMEs must have signified 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 contracts as proof of tenancy.
The commercial rent for MSMEs is not waived even if they are not doing business during the ECQ. The payment period is merely extended, spread out over six months. Nevertheless, the lessors of commercial rents for MSMEs may, purely on a voluntary basis, extend greater generosity by:
- a. Totally or partially wave the commercial rents that are falling due during the ECQ.
- b. Grant reprieve or discounted amount of commercial rents due after the ECQ.
- c. Open for renegotiation the Lease Term Agreements with the lessees.
- d. Use other recourse to mitigate the impact of the ECQ to the MSMEs.
Lessors shall consider the liquidity and capability to pay rent of MSMEs in negotiating assistance to be granted. MSMEs may present their financial statements, cash flow projections, among others, as supporting evidence.
Common Provisions
No Refund on Rents Already Paid. Lessors are not obligated to refund residential and commercial rents paid by the lessees during the period of the quarantine. In such case, the lessor shall grant a minimum of 30-day grace period from the next due date of the residential/commercial rents without incurring interest, penalties, fees, and charges. [See discussion on post-dated checks: Bouncing Checks, Grace Periods and the Enhanced Community Quarantine]
Recognition of Voluntary Waiver from Lessors. Existing waivers on rental payments due provided by lessors, such as those in recognition of the closure of their lessees’ businesses during the ECQ, shall continue to be honored.
Non-Enforcement of Evictions. No eviction for failure to pay the residential or commercial rent due may be enforced within the 30-day period after the lifting of the Enhanced Community Quarantine.
Investigation and Penalties. Lessors who shall refuse to provide 30-day grace period to lessees shall be penalized with imprisonment of not less than 2 months or a fine of not less than P10,000, or both.
The DTI, through the Fair Trade and Enforcement Bureau (FTEB) or DTI Regional Offices, motu propio or upon complaint, shall issue a Notice of Violation against a lessor. The process may be initiated by a complaint filed before the DTI, either in person or electronically. The complaint shall contain the following information: (1) Complete name, residence address, and contact number of the lessor and the lessee; (2) Complete address of the residential or commercial unit concerned; (3) Date when the rental payment became due; (4) Narration of the relevant and material facts; and (5) Submission of documentary evidence, if any.
If the DTI finds merit in the complaint, it shall issue the Notice of Violation to the lessor, who will be required to submit a written reply within five (5) working days from receipt of notice, containing the following: (a) An explanation why or how the violation occurred or, if contested, the basis for disputing the violation; (b) Corrective actions that have been taken and the results achieved; (c) The date/s of when corrective action/s was/were fully achieved; and (d) Corrective actions to be taken to prevent recurrence.
Upon determination of the violation, appropriate criminal charge/s shall be filed against the lessor with the Department of Justice (DOJ), without prejudice to the filing of other administrative cases. [Full text of Memorandum Circular No. 20-12]
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Our apartment Lessor refuse to provide 30-day grace period. They insist that we pay our due now since this only applies on government owned properties. Where can I report this?
The DTI. The article above has been revised to include the process of investigation and filing of complaint.
My lessor requires a security bond in the contract for the year. But unfortunately i cannot continue my operations due to lack of funds. I have a balance rent which is still debatable before ECQ. Can the security bond bail me out if i will stop operation after the Quarantine is lifted? I have no money to pay for the remaining balance which is around 60k the security bond is worth 168k.
Hi Robert. Please check your lease contract. Check the provisions on pre-termination, security deposit, and events of default. Normally, the contract provides that the security deposit is forfeited in case pre-termination is not allowed. Also, the usual provision provides that the security deposit cannot be used to pay for rents. Still, the lessor and the lessee are not prohibited from agreeing that the security deposit will be used to pay the remaining rent. You may also want to read this post: https://pnl-law.com/blog/covid-19-lockdown-fortuitous-event-or-force-majeure-exemption-from-obligations/
Good luck.
What about leasee(s) who are not updated in rent?
If the leasee(s) is behind by more than three months, can the lessor request that the 30 days grace period be denied?
This is for residential/ commercial property
The grace period applies to the ECQ period, that much is clear. It is demandable as a matter of right, so long as the requisites are present. The issue on previous arrears is different, which is probably why the guidelines also prohibit the enforcement of evictions within 30 days from lifting of the ECQ.
I have a question regards to this: “The cumulative amount of rents falling due within the ECQ shall be spread out or equally amortized in the six (6) months following the end of the ECQ, and shall be added to the rents due on those succeeding months, without interest, penalties, fees, and charges.”
Residential/Commercial lessees are allowed to amortized their due payment for 6 months without penalties/interest etc. but how about Loan Borrowers & Credit card billings etc. Can we also do that?
Because I’ve read the regulations issued by DOF for Banks & Loans but there’s no such thing for borrowers.
Example: I’m a landlord. I will follow the grace period and after that I will allow our tenants to staggard their payment for 6 months, however, my loans were just extended and I may incur interest/penalties after that ECQ period if don’t pay in full.
The period for loans is actually much longer. The amortization covered by the grace period cannot be lumped in the next month’s amortization, for this runs counter to the intent of the law. Perhaps you missed the discussion in the previous post, here: https://pnl-law.com/blog/grace-period-for-loans-already-in-effect-implementing-rules-and-regulations-issued-by-dof/
I have a lessse, who have 2 months over due from jan to feb 29, 2020. This is after the quaratine law was implemented. Can I still ask for the payment within quarantine period for this over due accounts. How will I request them the paymen after the extended quaratine.
Hi Abel. Please see the answer to Eileen’s question, above. Good luck.
Yes, i missed it. Thank you for clarifying!
“The IRR explicitly provides that the ACCRUED INTEREST — without interest on interest, penalties, fees and other charges — shall be paid by the borrower on staggered basis over the REMAINING LIFE OF THE LOAN. “
Hi po! Question: If there is still payment of Student Dormitories or Apartment that falls on Quarantine Period up to April 30 , since these Dorms were not actually utilized/occupied because of the suspension of classes and falls under the implementation/duration of Enhance Community Quarantine?
This is a question frequently asked by parents being affected on their livelihood and the means of cost of living.
Hi Rey. The government policies try to strike a balance between giving amelioration programs and respecting private contracts. If the lease contract does not provide for rent payments during “vacations” (no classes), then there should be no problem. If the lease contract provides for lease payment even during vacations, then the general rules applies — the payment is merely spread out in the next months, as discussed in the article. Good luck.
Pano po yon pag nangungupahan kayo, then pinagbayad parin kayo kahit due to ECQ. Pwede po ba e.report yon? QC po kami resedential rent.
Hi Shena. Nakasaad sa regulations na pwede i-report sa DTI. Baka kulang lang sa paliwanag. Good luck.
What if the contract of the lessee is only good for 3 months? Can the landlords only allow to stagger lessee’s rents falling due within the ECQ for three (3) months instead of equally amortizing their due rent for six (6) months following the end of the ECQ,
Hi Julita. Tough question because there’s no express provision for past overdue rents.Subject to interpretation. Perhaps you can make that inquiry with DTI to make it official. Nevertheless, by way of general information, here’s a theory: overdue rents are also considered “due” together with the rent for the period falling during the ECQ. In other words, all those rents (including overdue) fall “due” during the ECQ period, which means that the entire amount is covered by the 6-month staggered payment terms. Good luck.
Hi! Hope this can add to the information listed here. As per your suggestion, I already asked DTI regarding my question, here’s their response: “On short term leases, said MC is still applicable po. DTI has no prescribed mode of payment, so long as lessor is paid. As for payment period, we leave it to your internal arrangement, but we advise to have a signed contract for this so we can side with aggreived party should the need arise. Thank you.”
Hi Julita. Thank you for sharing the information.
Question po,on the basis of the Force Majeure event,can a tenant lawfully seeks suspend payment of rent under a lease (like Jolibee Corporation) during COVID-19 pandemic? Please advise.
Thank you.
Hi Cris, that question was raised before, a really good question. A bit tricky; we were thinking of discussing it in a future post. Let’s see if we can find time to write that post.
Hi Cris. Please see this related discussion on force majeure and the lockdown: https://pnl-law.com/blog/covid-19-lockdown-fortuitous-event-or-force-majeure-exemption-from-obligations/
Good luck.
Are HOA and Condo Association dues included in the moratotorium?
Thank you.
Hi Rick. Please see our discussion (in the Comments section) of this post: https://pnl-law.com/blog/grace-period-for-rents-residential-and-msmes-during-the-enhanced-community-quarantine/
Good luck.
1. Rent of 12k is Due on the 1st of every Month. So w/ the 30d grace period plus the 6 mos. amortization, for the April 1 Rent, Lessee will only be obliged to pay 14k starting on May 1 until October 1?
2. What if the Lease is expiring between May 1 and September 30 and they don’t renew? Are we Lessor’s still obliged to pro rate to (6) months?
3. Now that the ECQ is extended to May 15, back to above pt.1 example, is the May 1 Rent also to be extended 30d and divided to (6) Months, so that only a Total of 2k will actually be due on May 1?
Kindly clarify, Thank you.
Hi Lydia.
1. Note that the ECQ has been extended to May 15. The 30-day grace period is counted after that date.
2. The scenario is obvious not provided in the guidelines, so there’s no way of knowing how the DTI will resolve the issue. Nevertheless, we can look at the analogous situation for loans, under the rules issued the BSP. The prorating is spread out for the remaining term of the loan. If the remaining term is only for 3 months, then the pre-rating is limited to that period.
3. See item no. 1.
Good luck.