Expert Speak | Can tenants skip paying rent citing COVID-19 pandemic?
A layman may logically say it is unfair to expect the tenant to fulfill his/her obligation in 'unexpected', 'extraordinary circumstances' such as the COVID-19 pandemic, but where does the law stand?
As the world battles one of the deadliest pandemics ever in the history of mankind, the global economy has been left severely crippled. In these troubled times, the 'payment of rent' appears to be 'the challenge' for commercial/business entities and for the common man. Here, we break down in simple terms the position of law, remedies or defenses in this matter in the light of the judgment passed in the Ramanand Case by the Delhi High Court.
A layman may logically say that it is unfair and unjust to expect the tenant to fulfill his/her obligation in 'unexpected', 'extraordinary circumstances' such as the COVID-19 pandemic, where he/she could be already under extreme monetary stress.
Law often leans on logic. Under the law, the Doctrine of 'Force Majeure' stipulates that the duty of a party is suspended temporarily or waived permanently when a supervening event beyond the control of the parties that renders performance of a contract impossible happens.
In other words, a party whose responsibility it is to discharge a duty - pay his/her monthly rent in this instance - is protected even if they fail to do so once the event is considered by law to be unexpected and beyond their control.
Is the lockdown due to the COVID Pandemic such a 'Force Majeure' event that will help tenants who seek suspension of their rent?
On a case-to-case basis
Well, whether or not a tenant or lessee will be entitled to exempt themselves from the payment of rentals by invoking the grounds of 'Force Majeure' and citing the COVID pandemic is subject to the contractual agreement executed between the parties and can be ascertained only on a case-to-case basis.
The Delhi High Court in the case of Ramanand and Others v Girish Soni and another rejected a tenant's application for suspension of rent claimed on the basis of 'Force Majeure' but granted deferment, postponement of rentals, which is significant relief in situations wherein the landlord refuses any concession.
But the "waiver of rentals" would depend on the facts and circumstances of each case. Mere non-usage or inability to use the property cannot be treated as an event rendering the property "substantially or permanently unfit". These judgments help answer several situations which a tenant or landlord can face depending on whether or not a contract carried an adequate 'Force Majeure' clause.
On reading the judgment, it is also safe to say that the mere existence of a 'Force Majeure' clause in an agreement would not entitle a tenant to a waiver. That is except and until a scenario of inability to use or access the premises for reasons as prevalent during the COVID pandemic is stipulated contractually between parties.
(i) What if the Tenancy Agreement does not have a 'Force Majeure' clause?
As per the law laid down by the Delhi High Court, if the tenancy agreement is silent and does not contemplate a 'lockdown' scenario, a suspension of rent during the lockdown period cannot be sought merely because of the lockdown or non-use of the premises.
(ii) If there is no 'Force Majeure' clause and if the landlord does not agree for deferment, what is the relief which a tenant or lessee can seek?
If the contract does not have a 'Force Majeure' clause contemplating a 'lockdown' scenario, the parties can at best approach the Courts to seek a breather on payments and seek that the same be scheduled if the landlord does not agree for any waiver or deferment. Such a relief is purely at the equity and discretion of Court and the circumstances of each case and would not be a rule of law. The judgment of the Delhi High Court would definitely be of use and be relied on by several litigants.
(iii) When it is agreed between the landlord and the tenant that the rent would be paid in proportion to the sales/profit?
In certain cases, there may be an arrangement for monthly payment purely on the basis of sales turnover. In such cases, the tenant/lessee may be entitled to seek waiver/suspension stating that there were no sales and no profits and thus they are not liable to make the monthly payment. This is purely contractual and the same has been affirmed by the Delhi High Court.
However, most agreements have the basic rentals guaranteed/assured supplemented with a profit-sharing on the sales. However, this would be of great relevance, as the parties may seek the waiver of the basic guaranteed rent from the landlord or through Courts and would insist payments purely on business activities.
(iv) If the Tenancy or Lease Agreement contains a 'Force Majeure' how should the said clause be read?
Mere existence of a 'Force Majeure' clause does not secure the waiver for a tenant or lessee. The circumstances/contents of the clause do! It is required and mandated that the contract between the parties encapsulates such a scenario as a possible 'lockdown' for waiver to be granted.
Most of the contracts between parties contemplate suspension of rent only when the premises are permanently or partially destroyed/damaged rendering the same not usable or accessible. It does not contemplate waiver for any reasons which are beyond the control of the parties, more so, the present 'lockdown' scenario.
Therefore, the tenant or lessee cannot contractually seek a waiver of rent. On the flip side, if the agreement does contemplate a scenario like the 'lockdown' rendering the premises unusable, only then would the waiver be binding on the parties.
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Legal summary of the Delhi High Court Judgment:
Going by the Delhi High Court Judgment, if a contract contains a "Force Majeure" clause, wherein the payment can be waived, it shall be governed by the provisions of section 32 of the Indian Contract Act, 1872 (Enforcement of Contract contingent on an event). If the terms of the contract do not provide for "Force Majeure conditions" or if any of the Force Majeure conditions are beyond the contract clauses, section 56 of the Indian Contract Act, 1872 (Agreement to be an impossible act) can be invoked generally. However, the law of the land is very clear to say that section 56 of the Indian Contract Act, 1872 cannot be invoked for the purposes of lease agreements. Further, in the event the lessee seeks protection under the provisions of section 108 of the Transfer of Property Act 1882, he can do so, and only in the case of the property being wholly destroyed rendering the premises permanently and substantially unfit for use. Therefore, nothing favours a tenant or lessee except and unless, the contract saves their interest.
Law leans in favor of the landlord
Despite the fact that the ongoing pandemic may have resulted in great hardship to the tenants and despite governments also requesting landlords to adopt a lenient view, in ordinary circumstances, in the absence of anything to the contrary in the tenancy agreement, the 'lockdown' as a result of the novel coronavirus cannot be used by the Tenant to excuse himself from payment of the rent under law. It is based purely on his/her contractual arrangement.
An ideal scenario, would be for the Tenant to negotiate and discuss waiver, deferrals with the landlord avoiding complexities, litigation.
It is only failing this that a tenant/lessee should be constrained to approach the Court of Law to seek postponement or deferment or relaxation or part payment, not as a matter of right, but solely on the principles of equity.
Pawan Jhabakh and Salai Varun are Madras High Court advocates. The views expressed are personal.