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COVID-19 and the lockdown that was a consequence of this global pandemic, not only created large-scale implications for different businesses all over the world, but also gravely affected contractual agreements relationships.
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Delhi High Court gives verdict on Force Majeure, Lockdown & Lease Rent COVID-19 and the lockdown that was a consequence of this global pandemic, not only created large-scale implications for different businesses all over the world, but also gravely affected contractual agreements relationships. One prime question that rises during these unusual times is whether this lockdown would grant the tenants to claim suspension of rent. Recently, the Delhi High Court in Ramanand & Ors. v. Dr. Girish Soni & Anr.1, has set out different parameters which should be considered while dealing with requests for waiver or suspension of rent. Image source: Google
Background of the case The tenants have a shoe store in the Khan Market, New Delhi i.e. the tenanted premises. This place was given on rent for commercial purposes through a lease dated 1st February, 1975 at the rate of INR 300 per month. In 2008, there was an eviction petition filed under Section 14(1) (e) of the Delhi Rent Control Act by the landlord. After that, on 18thMarch, 2017, a decree for eviction was passed by the Senior Judge-cum-Rent Controller. It came out that the tenants challenged the eviction order in front of the Rent Control Tribunal, which was thereby dismissed by way of the order on 18th September, 2017. Eventually, a petition was filed by the tenants before the High Court challenging the dismissal order. With regard to this, the High Court, by way of its order on 25thSeptember 2017, granted an interim order of stay of the eviction order while subjecting the tenants paying a sum of INR 3,50,000 per month. In accordance with the COVID-19 outbreak, an application seeking the suspension of rent was initiated by the tenants with the help of the best corporate law firms in India. It was claimed by the tenants that it’s a critical phase for them, as the pandemic had caused a complete disruption of all business activities in all the fields. They pleaded that the lockdown was a force majeure event which was beyond their control and therefore, the tenants prayed for a waiver of monthly rent. They also requested an alternative which suggested partial reliefs in terms of suspension, postponement or part-payment of the rent amount. Image source: Google
High Court Findings The High Court noted that the contracts of tenancy and leases could be of different kinds, including the following but not limited to them: 1.There should be oral tenancies with a month to month payment of rent. 2.Leases would be long term with force majeure clauses. 3.Lease agreements that are structured as revenue sharing agreements and; 4. Lease agreements that are in the nature of monthly payments as a percentage of the sales turnover. The court clarified that the question of waiver, suspension or any remission in rental payments would operate differently for each type of agreement. Along with that, the High Court extensively contemplated the applicability of Section 32 and Section 56 of the Indian Contract Act, 1872 (Contract Act) and Section 108(B)(e) of the Transfer of Property Act, 1882 (Property Act) to contracts of tenancy. Section 32 of the Contract Act According to the Section 32 of the Contract Act, the tenants/lessees or other similarly situated parties could seek waiver or non-payment of the monthly amounts under the contracts which have a force majeure clause. And force majeure here, had been defined as "an event or effect that can be neither anticipated nor controlled" and includes "both acts of nature like floods and hurricanes and acts of people like riots, strikes and wars. Section 56 of the Contract Act It was held by the High Court that in the absence of a force majeure clause or a remission clause, a tenant may try to invoke the doctrine of frustration of contract or the impossibility of performance, as encapsulated in Section 56 of the Contract Act. Thereby, they held that such invocation would not be applicable in view of the settled legal position.
Section 108(B)(e) of the Property Act It was observed by the High court that in the absence of contracts or contractual stipulations, the provisions of the Property Act will govern the tenancies. It was stated that the doctrine of force majeure and also the rights and liabilities of the tenancies are enumerated in Section 108(B)(e) and Section 108(B)(l) of the Property Act, respectively. Therefore, in case of occurrence of any of the stipulations stated in Section 108(B)(e) such as fire, tempest or flood or violence of an army or of a mob, or any sort of irresistible force, that renders the property substantially and permanently unfit to be used for the purpose for which it was leased, will make such lease void, at the option of the tenancies. What were the findings? With regards to this case, the High Court perceived that Section 32 of the Contract Act did not have applicability. Also, Section 56 of the Property Act did not apply to tenancies. Therefore, it was concluded that the case was to be governed by the provisions of the Property Act. The High Court observed that the tenants in this case did not urge that the tenancy was void under Section 180(B)(e) of the Property Act, instead they pleaded for the extension of the doctrine of suspension of rent which are covered by lockdown due to the pandemic. Thereby, the High Court has considered the below-mentioned factors as necessary to determine the question as to whether the tenants were entitled to any relief of suspension of rent: 1.Nature of the property. 2.Financial and social status of the parties. 3.The amount of rent. 4.Any other factors associated with the case. 5.Any other contractual conditions.
6.Any kind of protection under any executive orders. Image source: Google Key takeaways The High Court decision provided the much needed clarity during this critical phase of the global pandemic on all the questions pertaining to obligation of the tenant to pay rent. The Court has turned the spotlight on the applicability of Sections 32 and 56 of the Contract Act and Section 108(B)(e) of the Property Act in the present scenario. Also, they provided the factors which are necessary for determining whether the tenants were entitled to any relief of suspension of rent. 1. Section 32 of the Contract Act: Coming into play only if there exists a clause in the nature of force majeure providing for waiver or suspension of rent. 2. Section 56 of the Contract Act: Not applicable to lease agreements that are executed contracts and not executory contracts.
3. In the absence of contractual stipulations, the provisions of the Property Act will govern all the tenancies and leases. With this decision, the High Court makes it clear that it is not an inherent right of a tenant to seek waiver or suspension of rent from the landlord and it certainly does set the benchmark for consideration of requests for waiver or suspension of rent. After this decision, we assure you ‘The Right Lawyers’ for any of your Force Majeure claims. Our team of experienced corporate lawyers in India, that makes all the Intellectual property legal solutions, promises you that all your requests for waiver will not go in vain and will be considered. Give us a chance and change your life.
