Know Your Tenancy Rights In The Time Of Force Majeure (Covid-19)

12th June, 2020 - 4:34 am Categories: Covid 0 Comments

In exercise of the powers, conferred under section 10(2)(I) of the Disaster Management Act, the National Executive Committee, had issued an order on 29^th March, 2020 urging State / Union Territory Governments and Authorities to implement lockdown measures. This was primarily passed as a large movement of migrant workers was taking place in several parts of the country. The order clearly stated that

a. Where ever the workers, including migrants, are living in rented accommodation, the landlords of those properties shall not demand payment of rent for a period of one month.

b. If any Landlord is forcing labourers and students to vacate their premises will be liable for action under the act

The order clearly mentioned that District Magistrate / Deputy Commissioner and Senior Superintendent of Police / Superintendent of Police / Deputy Commissioner of Police will be personally liable for implementation of the said guidelines in the order.

Delhi and several parts of Bengal and Maharashtra witnessed a mass exodus of labourers. A majority of the labourers were migrant workers. It was an utter failure of implementation of the order by the aforestated authorities.

They failed to urge property owners in the city not to force tenants, especially migrant workers to pay their monthly rent during the lockdown. The truth shall never resurface but the very fact that migrants left their homes in such cities was also due to the fact, that greedy landlords demanded rents and provided no relief as mandated by the Government. In India, the poor are often forced to fend for survival. I am not being a cynic, there were several such instances where both students and labourers benefitted out of the said order.

However, the question is, what about the rights of the ones which were forced to vacate their residents and left to fend for themselves. Even the Apex Court refused to entertain a plea seeking direction to the Centre to ensure compliance with the MHA order directing landlords to neither ask students and labourers to vacate the premises nor to seek rent for a month during the COVID-19 lockdown. A bench headed by Justice Ashok Bhushan, which was hearing the matter through video-conferencing, dismissed the plea and said the apex court cannot implement the orders of the government.

It is not the first time the Supreme Court has shown such utter disregard to a National Cause. The petitioners, advocate Pawan Prakash Pathak and A K Pandey, had sought action against the alleged “arbitrary and unlawful action” of landlords demanding rent from students and labourers during the COVID-19 lockdown despite a government order to the contrary. However, the Apex Court showed no inclination to their cause.

However, the Delhi High Court was generous enough in the case of Ramanand & Ors vs Dr Girish Soni & Anr to shed some light on applications raising various issues relating to suspension of payment of rent by tenants owing to the COVID-19 lockdown crisis and the legal questions surrounding the same.

The issues discussed in the judgment related to the large-scale implications of Covid -19 on human life. It discussed the disruption of the various contractual relationships and jural relationships between parties. Most importantly it discussed whether the lockdown would entitle tenants to claim waiver or exemption from payment of rent or suspension of rent.

The High Court held that there can be no standard rule that can be prescribed to address these cases, however, it stated that, some broad parameters can be kept under consideration, in order to determine the manner in which the issues that arise can be resolved.

The facts of the case have been omitted as the same bear little relevance to the analysis of this article. What is important is the segregation and classification by the Hon’ble court which shall help either a tenant or a land lord to answer the queries cropping in its mind.

To begin with the Hon’ble High Court held that the relationship between a Landlord and Tenant, a Lessor and Lessee and a Licensor and Licensee can be in multifarious forms. These relations are primarily governed either by contracts or by law. In the realm of contracts, the respective rights and obligations of the parties would be determined by the terms and conditions of the contract itself.

Contracts of tenancy and leases could be of different kinds including-

• Oral tenancies with a month to month payment of rent;
• Short term tenancy agreements with a monthly rent payable;
• Long term leases with force majeure clauses;
• Lease agreements which are structured as revenue sharing agreements and;
• Lease agreements which are in the nature of monthly payments as a percentage of the sales turnover.

The court held that even though the above list is not exhaustive, 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 (hereinafter, “ICA”).

Thus, in agreements providing for a force majeure clause, the Court would examine the same in the light of Section 32. The said clause could be differently worded in different contracts, as there is no standard draft, application or interpretation. 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 judgement held further held that in the absence of contracts or contractual stipulations the provisions of the Transfer of Property Act, 1882 (hereinafter, “TPA”) would govern tenancies and leases. As per the TPA, the doctrine of force majeure is recognised in Section 108(B)(e) of the TPA. Section 108(B)(l) also enumerates the `Rights and Liabilities’ of the lessee.

As per the judgment based on several cases dealing with the term “substantially and permanently unfit” the court concluded that if the leased premises is rendered substantially and permanently unfit for the purpose for which it was let, the lessee has the option to avoid the lease. Unless the lessee so avoids the lease, he cannot avoid his obligation contained in clause (l) of Section 108, which states that “the lessee is bound to pay or tender, at the proper time and place, the premium or rent to the lessor or his agent in this behalf;”.

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 a complete destruction of the property, Section 108(B)(e) of the TPA cannot be invoked.

The Hon’ble Court concluded that 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).

Lastly, whether the suspension of rent ought to be granted or not would depend upon the facts and circumstances. In relation to some contracts which are not classic tenancy or lease agreements, where the premises is occupied and a monthly pre-determined amount is paid purely as `Rent’ or `Lease amount’, the manner in which pandemics, such as COVID-19, can play out would depend upon the nature of the contract. In contracts where there is a profit-sharing arrangement or an arrangement for monthly payment on the basis of sales turnover, the tenant/lessee may be entitled to seek waiver/suspension, strictly in terms of the clause. Such cases would purely be governed by the terms of the contract itself, and the tenant’s claim could be that there were no sales and no profits and thus the monthly payment is not liable to be made. Thus, the entitlement of the client in such a situation is not governed by any overriding force majeure event but by the consequence of the said event, being that there were no sales or profits.

Conclusions:
(i)In light of the above legal position, the Tenants’ prayer for suspension of rent or a Landlords demand for rent being justified will depend upon the factors whether there is a lease agreement whereby section 32 of the ICA.

(ii) Second whether the tenant has urged the tenancy to be void under section 108 of the TPA.

(iii) Lastly, the Tenants’ plea for extension of the doctrine of suspension of rent to cases which are covered by lockdown due to COVID-19 such that protection is provided  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.

Author: Vibhor Gupta, Senior Associate, at Khurana & Khurana, Advocates and IP Attorneys.  In case of any queries please contact/write back to us at vibhor@khuranaandkhurana.com.