To Pay Rent, or Not During Lockdown Covid-19
By Advocate Shefali Gupta
Shefali Gupta has been practicing before the Delhi High Court and District Courts and Tribunals in Delhi NCR.
She has dealt with cases involving various areas of law including Matrimonial laws, Arbitration – Mediation, Land, and Criminal laws.
Force Majeure clause in Covid-19 pandemic
Definition and meaning of Force Majeure
Force Majeure has been defined in Black’s Law Dictionary, as ‘an event or effect that can be neither anticipated nor controlled.
Force majeure is not specifically defined in Indian statutes. However, reference of Force Majeure can be found in Section 32 of the Indian Contract Act, 1872 which says that if a contract is contingent on the happening of an event which event becomes impossible, then the contract becomes void.
The Supreme Court in Energy Watchdog v. CERC & Ors., (2017) 14SCC 80 has clearly held that in case the contract itself contains an express or implied term relating to a force majeure condition, the same shall be governed by Section 32 of the Indian Contract Act. Section 56 of the Indian Contract Act, which deals with impossibility of performance, would apply in cases where a force majeure event occurs outside the contract.
A force majeure clause in a contract provides a temporary excuse to a party from performing its obligations under a contract upon the occurrence of a force majeure event.
Applicability of Force Majure Clause
For force majeure clause to become applicable there must be an occurrence of such events which should be beyond the control of the parties and the parties will be required to prove that they have made attempts to mitigate the impact of such force majeure event.
If event fulfils the conditions for applicability of the Force Majure clause then the parties would be relieved from performing their respective obligations to be undertaken by them under the contract during the period/ till the period such force majeure events continue.
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Force Majeure clause and lease/rent agreement
During the Covid-19 pandemic many people has question regarding rent of tenanted property. People wants to know Whether they are liable or bound to pay rent to the landlord? Whether landlord can ask for rent or not?
Supreme Court of India and High Courts has passed various judgement and order with respect to the liability of the tenant to pay rent to the landlord.
On 21st May, 2020, Hon’ble Justice Pratibha M. Singh, High Court of Delhi has passed judgement in a case titled as Ramananda & Ors Vs. Dr. Girish Soni & Ors. The case raised a question as to whether the lockdown would entitle tenants to claim waiver or exemption from payment of rent or suspension of Rent?
Analyses and Observation:
In agreements providing for a force majeure clause, the Court would examine the same in the light of Section 32 of Indian Contract act. The fundamental principle would be that if the contract contains a clause providing for some sort of waiver or suspension of rent, only then the tenant could claim the same. The force majeure clause in the contract could also be a contingency under Section 32 which may allow the tenant to claim that the contract has become void and surrender the premises. However, if the tenant wishes to retain the premises and there is no clause giving any respite to the tenant, the rent or the monthly charges would be payable.
In adjudicating the case the Court considers the following factors for determining the question as to whether the Tenants herein are entitled to any relief of suspension of rent. The court stated as:
“
- Nature of the property: The tenanted premises are located in the prime commercial area of Khan Market for running of a shop. It is well-known that the commercial area of Khan Market is a sought-after location for business purposes.
- Financial and social status of the parties: The Landlord is a dentist who wishes to use the tenanted premises and has sought eviction on the ground of bonafide use under Section 14(1)(e) of the DRC Act. The Tenants, on the other hand, run a footwear shop on the tenanted premises, which they have been in possession of since 1975 at a monthly rental of merely Rs.300/-.
- Amount of rent: The monthly payment of Rs.3.5 lakhs has been fixed by this Court, as a condition for grant of stay for continued use and occupation, after the decree of eviction was passed. The Tenants do not wish to vacate the property due to the lockdown but wish to continue to occupy the property. The amount being paid, when compared to the prevalent market rent in the area, is on the lower side. This is clear from a perusal of the lease deed of a neighbouring property placed on record by the Landlord. Even if the said lease deed is to be ignored and not taken on record, judicial notice can be taken of the fact that the prevalent rent in Khan Market is amongst the highest in the whole of Asia. The amount being paid by the Tenants, though substantial, is on the lower side as compared to other properties in Khan Market.
- Other factors: The Tenants are `unauthorised occupants’ of the tenanted premises as a decree of eviction has already been passed. The monthly payment of rent being made has been fixed by this Court vide the interim order dated 25th September, 2017 in view of the judgment of the Supreme Court in Atma Ram Properties (P) Ltd. v. Federal Motors (P) Ltd., (2005) 1 SCC 705. The use and occupation charges have to be determined in a manner so as to fully compensate the Landlord as if the Landlord had let out the property to a third party. The Tenants are continuing to occupy the premises and do not intend to vacate the same. In any case, the compensation ought to be reasonable and should make up for the loss caused to the Landlord due to delay in execution of the eviction decree. These factors completely tilt the balance in favour of the Landlord.
- Any contractual condition(s): There is no contractual condition that permits non-payment or suspension of rent.
- Protection under any executive order(s): There are cases where the central and state governments may have, from time to time, given protection to some classes of tenants such as migrants, labourers, students, etc. These include Order No. 40-3/2020-DM-I (A) dated 29th March, 2020 issued by the Ministry of Home Affairs (MHA), Government of India and Order No. F/02/07/2020/S.1/PT. File/81 dated 22nd April, 2020 and Order No. 122-A F/02/07/2020/S.I/9 dated 29th March, 2020 both issued by the Delhi Disaster Management Authority (DDMA), Government of NCT of Delhi. Without going into the legality and validity of such Executive orders, suffice it to say that the present case is not covered by any of these executive orders.”
Held:
The Tenants’ application for suspension of rent was rejected inasmuch as while invoking the doctrine of suspension of rent on the basis of a force majeure event, as Tenants did not intend to surrender the tenanted premises. While holding that suspension of rent is not permissible in these facts. The Court held that some postponement or relaxation in the schedule of payment can be granted owing to the lockdown.
Conclusion:
Tenants are liable to pay rent for the period of lockdown. However, some relaxation in the form of postponement of rent can be granted.
Author – Advocate Shefali Gupta
Shefali Gupta has been practicing before the Delhi High Court and District Courts and Tribunals in Delhi NCR.
She has dealt with cases involving various areas of law including Matrimonial laws, Arbitration – Mediation, Land, and Criminal laws.
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