The entire globe is seeing an extraordinary scenario that has greatly distressed all of us. In the major cities, where there is a higher absorption of migrant labor, there is a palpable sense of anxiety and dissatisfaction with the issue of non-payment of rent by tenants/lessees and the landlord/lessor.
The purpose of this essay is to analyze the unusual scenario from a legal standpoint to address rental concerns during COVID 19 and possible remedies.
The Legal Situation
Legally, a tenant-landlord/lessee-lessor relationship is essentially a contractual partnership based on the parties’ free choice. This connection is controlled by entering into a rent agreement or a lease agreement, depending on the situation. This Agreement/Deed is regulated in large part by the different articles of the Indian Contract Act, 1872, notably those about offer, acceptance, consideration, term, breach, and frustration of contract.
The parties to such a contract are free to add and agree to any conceivable current and anticipated conditions and exceptions into the Agreement, which, if they exist, provides any of the parties a legal right to fulfll or not perform its obligation. Then there’s the Force Majeure (FM) incident.
An FM event is defned as an unusual occurrence or a condition beyond human control that releases both parties from contractual duties when such an event prevents them from executing their contractual commitments.
The Force Majeure Clause (FMC) is one such common clause that is incorporated into every Agreement and incorporates such FM occurrences or situations as the parties determine. It also gives a party the legal right to suspend or refuse to fulfll an obligation for the period of the FM event. Unfortunately, most FMCs in previously completed Agreements do not include pandemic situations such as the current COVID-19.
What is most essential to notice is that the presence of an FM incident in no way excuses or absolves a party’s full failure to perform in the future. To be designated as an FM event, an event must, among other things,
- directly or indirectly by an occurrence beyond any of the parties’ reasonable control &
- must impair any of the parties’ capacity to execute.
Now, looking at it from this angle, we can all agree that the frst condition is met: the pandemic is beyond the control of any of the parties, and the lockdown and various restrictions imposed by governments and authorities are also beyond the control of any of the parties, as can be demonstrated with proof, particularly by a lessee of commercial premises.
The second criterion is if such an FM incident has damaged a party’s (tenant’s) capacity to perform.
Furthermore, if we try to draw a lesson or advice from the case laws and judgments of the Common law nations during the Great Flu/ Swine fu of 1918, we will discover that in the majority of cases, the pandemic did not absolve the parties from performing a duty.
The Current Situation
The various State Governments and the Government of India have been issuing advisories, guidelines, and orders under the provisions of the Epidemic Disease Act 1897, the Code of Criminal Procedure, 1973, and the National Disaster Management Act, 2005, gradually imposing minor to complete restrictions on the movement of people and the operation of industries and establishments throughout the country. Governments-both central and state-have also directed all employers (whether industry or any establishment-shop, etc.) to pay all wages/salaries to all employees regardless of their status as a workman or a non-permanent or a daily or contractual laborer, a white-collar or blue-collar employee, whether or not receiving a million rupees every month
There is an expectation in the minds of landlords/lessors—particularly of residential premises—that they are entitled to their rental as per the Agreement because even if there is a pandemic/FM event, the ability of the tenant/ lessee to pay the rent has not been affected, as he/she is entitled and must have received his/her entire wage/salary, and therefore, why should he/she let go of the money.
Any landlord/lessor can legitimately claim that because the banks have likewise deferred payment of the EMIs, there is no reason for a tenant to fail to pay the rent.
Unfortunately, this does not stand up to scrutiny on the ground. Banks have just deferred the recovery of the EMIs in these months, but the term of the loan (time to payback) has been proportionately extended, and the banks are brutally charging the interest for the period of such non-payment/deferment. So, contrary to what the landlord/lessor believes, the condition of a tenant/lessee exists.
Resolving Legal Disputes
An FM event just suspends the performance of an undertaking; it does not abolish or remove the necessity for a defaulting party who defaulted during the operation of the FM event to perform even afterward. The world economy in general, and the Indian economy in particular, are in a deep recession, and things will not return to normal for a long time. As a result, the tenant/ lessee’s capacity to repay the total outstanding rents accrued during the FM length (suspension term) appears to be seriously impacted in the future.
Given the unusual factual scenario and the known legal position, the answer to these concerns appears to belong with the parties themselves, rather than with the courts. The parties (landlords/lessors and tenants/lessees) must become realistic and look at the present and emerging future scenarios practically. Since the economy is entering a recession with little to no possibility of recovery in the next 1-2 years, earning and general paying capacity—including rental of residential and especially commercial premises—will be drastically reduced.
Furthermore, Work From Home (WFH) will become the new normal, directly impacting the need for commercial space by organizations across industries—so there is almost no, or at most, a very bleak probability.Lessors/landlords can expect to fnd a new tenant/ lessee for the same monthly rental/yearly lease amount, or even less, that their current lessee/tenants are paying for a long time. The parties, notably the landlords/lessors, must remember that in the future, fnding a new tenant/ lessee at the rates at which the Agreements have already been made with their current tenants/ lessees is a pipe dream. If a tenant/lessee vacates and hands over control to the landlord/lessor, the prospect of the premises remaining empty for an extended length of time, even at a throwaway rental, exists.
As a result, it is advisable to follow the suggestions listed below to resolve rental conficts.
- Negotiate and reach an agreement on a lower rental fee.
- Don’t ask for a rental till the covid situation worsens.
- If an agreement appears to be difcult to reach by and between the parties, the parties may engage the services of skilled mediators, conciliators, and organizations.
Negotiate and reach an agreement on a lower rental fee.
If an agreement appears to be difcult to reach by and between the parties, the parties may engage the services of skilled mediators, conciliators, and organizations.
The directive published on April 22 stipulates that action will be taken if landlords force students to pay rent immediately and threaten them with eviction.
The government has advised workers, particularly migrant workers and students, who are being forced to pay housing rent by their landlords to dial 100.
It is made plain once more that the obligation to pay rent has simply been postponed and has not been eliminated. When the situation improves, all renters will be required to pay their rent.