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Covid-19 - Impact On Rental Agreements Covid-19 - Impact On Rental Agreements

Bronze medal Reporter Gaurav Ahuja Posted 20 Jun 2020
Covid-19 - Impact On Rental Agreements

The current COVID 19 situation has opened up many questions, of which one of the most important is the performance of rental contracts Most of the landlords & tenants are confused about the legal validity of rental agreements already entered into. 

The question of waiver, suspension or any remission in the rental payments would operate differently for each category of agreements. Where there is a contract, whether there is a force majeure clause or any other condition that could permit waiver or suspension of the agreed monthly payment, would be governed by the contractual terms. If, however, there is no contract at all or if there is no specific force majeure clause, then the issues would have to be determined on the basis of the applicable law.

In circumstances such as the outbreak of a pandemic, like the current COVID-19 outbreak, the grounds on which the tenants/lessees or other similarly situated parties could seek waiver or non-payment of the monthly amounts, under contracts which have a force majeure clause would be governed by Section 32 of the Indian Contract Act, 1872.

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 the absence of a contract or a contractual term which is a force majeure clause or a remission clause, the tenant may attempt to invoke the Doctrine of Frustration of contract or `impossibility of performance’,. There are various conditions that have to be fulfilled to satisfy the conditions of `impossibility’ under Section 56. However, in the context of a tenant’s obligations, the Supreme Court had the occasion to consider this doctrine in the case of Raja Dhruv Dev Chand v. Raja Harmohinder Singh & Anr.,.The Court held that Section 56 does not apply to lease agreements. The Court drew a distinction between a `completed conveyance’ and an `executory contract’. It is clear that Section 56 of the ICA would not apply to a lease agreement and other similarly situated contracts which are `executed contracts’ and not `executory contract‘.

In the absence of contracts or contractual stipulations, the provisions of the Transfer of Property Act, 1882 (hereinafter, “TPA”) would govern tenancies and leases. The doctrine of force majeure is recognized in Section 108(B)(e) of the TPA. Section 108(B)(l) also enumerates the `Rights and Liabilities’ of the lessee. Court has held that temporary non-use by the tenant due to any factors would not entitle the tenant to invoke this section. Thus, for a lessee to seek protection under sub-section 108(B)(e), there has to be complete destruction of the property, which is permanent in nature due to the force majeure event. Until and unless there is complete destruction of the property, Section 108(B)(e) of the TPA cannot be invoked. In view of the above settled legal position, temporary non-use of premises due to the lockdown which was announced due to the COVID-19 outbreak cannot be construed as rendering the lease void under Section 108(B)(e) of the TPA. The tenant cannot also avoid payment of rent in view of Section 108(B)(l).

Delhi High Court has recently held that tenants cannot invoke Force Majeure and claim suspension of rent owing to the lockdown when they continue to occupy the rented premises.

However providing some relief to the tenants, the Court noted that some postponement or relaxation in the schedule of payment of rent can be granted owing to the lockdown.

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