War between tenants and landlords amidst Covid-19?

INTRODUCTION

With Coronavirus, uncertainty has become the new way of life. This deadly pandemic has stirred up a commercial turmoil making companies incapable of performing their contractual promises, causing a plethora of contractual disputes. The worst effect amongst all is the rental contracts. Tenants have come knocking the door of the Indian Judiciary to seek exemption from rental obligations for the period of the lockdown and further.

We must appreciate that any tenant-landlord/lessee-lessor relationship legally speaking is pure and simply a contractual relationship governed on the parties’ free will. The assurances provided by the landlord/lessor on the one hand and the tenant/lessee on the other, rule this relation. This Agreement is primarily regulated by the various provisions of the Indian Contract Act, 1872 (hereinafter ICA), including, but not limited to, offer, acceptance, consideration, term, breach and frustration of contract.

The parties to such contracts are free to include and agree to all possible present and foreseeable conditions and exceptions to the Agreement which, when arise, confer a legal right on any of the parties to honour the commitment.

LEGAL RECOURSE PRESENT

During such helpless times tenants are trying to seek shelter under the doctrine of Force Majeure. Force Majeure is a superior force unforeseeable and beyond the save of human intervention. It is a situation which incapacitates the party from performing the obligations stipulated in the contract. As far as the ICA is concerned, the principle of Force Majeure is missing from it but can be traced through Section 32 and Section 56 of the Act. Section 56 protects the contracts which de hors a Force Majeure clause, but in situations where the contract is embodied with the clause it will be governed by Section 32 of the Act. The performance of the contract will be discharged under Section 32, if the circumstances mentioned in the contract are met with. Whereas, the contract will be frustrated under Section 56 if the contract does not include a Force Majeure clause but an unexpected activity resulting in the incapability of the performance of the contract has occurred.

Howbeit, the mere occurrence of the Force Majeure event will not excuse tenants from paying their rental dues. “An Act of God does not operate as an excuse from the liability if there is a reasonable possibility of anticipating their happening”, as was held by the Supreme Court. Similarly, the tenants will not be able to take refuge under the clause on the mere ground of economical hardship if there are alternative methods available to the tenant through which the contract can be fulfilled.

Another defence available to the tenants is that mentioned under Section 108(e) of Transfer of Property Act, 1882. The section lays down certain circumstances which would allow the lessee to escape the liability stipulated within the contract. It surpasses doctrine of frustration which is a general law under the Contract Act whereas Section 108(e) is a special law only there to govern property disputes as was earlier held in the case of Kidar Lall Seal. However, Section 108(e) will also not be able to safeguard the tenants in the present scenario as the Indian jurisprudence lacks the inclusion of a pandemic under this section. The same has recently been reiterated by the Delhi High Court in the case of Ramanand & Ors. v. Dr. Girish Soni & Anr wherein the tenants have appealed against a decree of eviction passed against them in 2017 under Section 14(1)(e) of the Delhi Rent Control Act, 1958. The case has set out different parameters to be considered when dealing with waiver requests or rent suspensions as has been explained below.

FINDINGS

The court was of the view that the tenants can seek a waiver of rental obligations under Section 32 of ICA if the contracts contain a Force Majeure clause which was not incorporated in the present case. The court also rejected the application of Section 56 of ICA, as it does not apply to tenancy disputes. Rejecting the use of Section 32 and Section 56 of ICA, the court relied on Section 108B(e) of Transfer of Property Act, which mandates permanent destruction of property caused due to Force Majeure. Hence, this section was also unable to protect the tenant in the present case, as the lockdown only restricted the use of the property for a limited period. Furthermore, the court reiterated the Supreme Court’s finding that mere temporary non use of the property by the tenants due to any factors will not invoke the jurisdiction of this section.

The High Court considered the nature of the property, financial & social status of the parties and amount of rent as the primary factors determining the question as to whether the tenants were entitled to any relief of suspension of rent along with some other factors, other contractual conditions or any protection under any executive order.

The Court dismissed all the pleas requested by the tenants and held that mere business disruption could not exempt the tenants from making the monthly payments as the landlord also depended on the tenant’s income.

CONCLUSION

The High Court’s decision provides much-needed clarity on the issues pertaining to the lessee’s obligation to pay rent, particularly in this calamity. In the present situation, the High Court has set out the applicability of Sections 32 and Section 56 of ICA and Section 108(B)(e) of the Property Act. In doing so, the High Court has also provided the factors necessary for determining the question in hand. However, it must also be noted that these factors play a vital role in determining the suspension or waiver of rental obligations on case to case bases.

A situation like this has not occurred before and hence there is a need for developing a new jurisprudence in order to establish a law for rental fights during pandemic/epidemic. The onus will heavily lie on tenants in order to prove their incapacity to pay the landlord.

The whole world is figuring out methods to fight the issues faced due to this sudden outbreak and adopting methods to protect their economy. The High Court decision makes it clear that a tenant’s right to seek waiver or suspension of rent from the landlord is not an inherent one. While this decision is first in line with the many judgments that might be rendered in this regard by the courts, it certainly sets the benchmark for considering waiver or suspension of rent applications.


ABOUT THE AUTHORS

Punya Mehrotra

Punya

Punya is a fourth-year student of Dr. Ram Manohar Lohiya National Law University, Lucknow. She has a profound interest in reading up judicial developments, laws, and articles and mostly writes at the intersection of law and social issues.

Sanjica

Sanjica

Sanjica is a fourth-year student of Dr. Ram Manohar Lohiya National Law University, Lucknow. She has a profound interest in reading up judicial developments, laws, and articles and mostly writes at the intersection of law and social issues.

One thought on “War between tenants and landlords amidst Covid-19?

  1. Well researched and lucidly written blog!!!. Compliments to authors. Article brings out legal recourse available to tenants and landlords in Covid times..

    Like

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