Risk Assessment and Tenancy Agreement Module 8 PDF

MODULE 8: Risk assessment and tenancy agreement 1 INTRODUCTION Managing risk may include [a] conducting due diligence on the party you are dealing with or [b] the subject matter of the transaction, The risk must be understood. This requires an understanding of both the risks posed...

MODULE 8: Risk assessment and tenancy agreement 1 INTRODUCTION Managing risk may include [a] conducting due diligence on the party you are dealing with or [b] the subject matter of the transaction, The risk must be understood. This requires an understanding of both the risks posed by the terms of the agreement documenting the transaction, risks that may arise in the conduct contemplated by the transaction. Terms of the Agreement affect Risk Risk can be allocated under an agreement in many ways, including through: The obligations undertaken by the parties; The warranties given by the parties; The extent parties exclude or limit the damages that would 2 otherwise be recoverable for breaching the agreement; For damage to property: The landlord needs to show proof of damage to property if he wants to set-off the security deposit against the alleged damage. 1] If there is a named sum that will be taken as damages example a percentage, need to show that it is not a penalty under the agreement as per S.75 Contracts Act 1950. 2] The landlord may also claim under S.74 CA if he can prove under the damage naturally arose from the tenant’s actions or tenant had imputed knowledge that damage will be caused from his actions to the property. 3] Landlord can also claim damages if Tenant had breach any one of the covenants under the Tenancy Agreement – 3 STIPULATION AS TO PENALTY / LIQUIDATED DAMAGES 4 methodology when assessing compensation under a liquidated damages clause: S.75 As of 2019 Federal Court Case. Cubic Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd. 1.If there is a stipulated sum as agreed damages, there is a presumption that it is a penalty. If the defaulting party agrees to the clause, there is no issue. 2. If the defaulting party objects to the clause, the innocent party has an obligation to prove loss and damages. 3 If the innocent party does not succeed wholly or partly, the courts have a statutory discretion to provide reasonable compensation as opposed to nominal damages. In addition, the sum awarded cannot exceed the stipulated sum. 4 In exercising discretion, the Courts can take into account market or industry practice. For instance, a LAD sum of 10% of the value of the property may be a reasonable compensation according to market practice. Or for standard forms contract pursuant to the Housing 5 Developers Act or reputable institutions such as PAM or CIDB, the Actionable debt – Where judgement can be taken State in the Tenancy Agreement that the arrears owed be deemed as actionable debt owed to the Landlord. That is because an action to recover such amount is not always framed in terms of breach of contract, but rather as a claim for a debt, which is technically asking the court to order the amount that is arrears of rent be paid as a form of specific performance in law rather than an 6 Indemnity and the Tenancy 7 8 Common Indemnities Three categories of indemnification commonly appear in Agreement: [a] infringement or other violation of an intellectual property or proprietary right [b] property damage [c] personal injury and death [d] Agreement may also include indemnification obligation for a party’s breach of the Confidential Information provision. The risks associated with the relevant clauses will determine what types of indemnification protection a party should seek, as well as what types of indemnification protection a party should provide. 9 Indemnification and Property Damage  If contract pose a risk of property damage either during the performance of contract or from use under contract, the Landlord can insist the Tenant provide a Property Damage Indemnity.  Finally, if the Tenancy requires the Tenant to regularly visit the Landlord’s facility or the Tenant to leave property at the Landlords’s facility, the Tenant should seek a Property Damage Indemnity from the Landlord. Personal Injury and Death Indemnity – Same if there is personal injury and death. 10 Damages v debt In a claim for damages, the damages awarded are limited to what was in the reasonable contemplation of the parties. The innocent party is also under an obligation to mitigate his loss by taking reasonable steps to avoid it. A debt claim on the other hand is for a definite sum of money payable under the terms of the contract. Common law rules of remoteness of damage and duty to mitigate do not apply. An indemnity should only provide a remedy against third-party liability of which the tenant is aware. 11 Capping the Indemnification Obligation Commonly used caps or limitations of liability are: (a) a simple amount (perhaps relating to the amount ordinarily received under a purchase order); (b) the amount of the purchase order (under which the defective products were delivered); (c) the amount actually paid under the agreement during a period of time preceding the claim; (d) a percentage of the amount under (c); 12 Breach of Contract  A Landlord can request Tenant to provide indemnification protection for damages incurred by the Tenant as a result of the Tenant’s breach of the Tenancy Agreement in any material respect.  A Breach of Contract indemnity is particularly useful when the Landlord knows the Tenant’s failure to preform its obligation as promised will subject the Landlord to liability.  With a Breach of Contract Indemnity from the Tenant in place, if Tenant fails observe the covenants other than breach of payment of rental and as a result Landlord suffers loss of revenue, Landlord can claim damages. 13