We are now months into the pandemic that has brought the world to its knees. By now, everyone knows how catastrophic the health crisis is. But we are only beginning to understand the economic crisis.
Mass unemployment, stock market crashes are only the tip of the iceberg. Where do you think the economy is going to go from here? In the short run, the economy is going down the tubes. Millions of citizens are struggling to pay for necessities. But the most prominent financial stress hanging over people is how they are going to keep their roof over their head. Right now, tenants are way more vulnerable than homeowners. Even if you have enough savings, at some point, you are going to wonder “what happens if I don’t pay rent?”
Are you having rent issues? You’re not the only one!
Rent issues are not only being faced by families and workers, but students too! The Students Tenant’s Union surveyed 1,069 students in Delhi. 69.3 percent of students said that they are being forced and threatened to pay the rent during the lockdown. Around 28.1 percent of students are being threatened with eviction for non-payment of rent. About 34.3 percent threatened with forfeiture of their security deposit. You must know what to expect and what rights you or do not have. You are not the only one. Even giant corporations aren’t paying the rent. But they have the leverage to negotiate with their landlords, but you don’t. People have to choose between paying rent or buying food for their families.
What is the legal aspect in this case?
The first thing we need to understand is that any lessor-lessee/ tenant-landlord relationship is a contractual relationship. Before taking any step, both parties must review their rent Agreement/Lease Deed (Agreement). These agreements are based on the Indian Contract Act, 1872, particularly concerning the proposal, offer acceptance, consideration, term, breach, and frustration of contract. Now comes the role of Force Majeure. “Force majeure” is defined by Black’s Law Dictionary as an “event or effect that can be neither anticipated nor controlled.”
A force majeure (FM) clause allocates risk among the contracting parties if performance becomes impossible or impracticable because of such an event. But the question which comes in here is what is “foreseeable” in the legal sense and what isn’t. Usually, the FM Clause invoked is for one or more parties to be excused from its obligations and/or liability under the contract, without any damages being payable. FM clauses also sometimes provide for an extension of time, suspension of time, or termination in the event of continued delay or non-performance. A right of termination could be significant, as it may provide leverage to renegotiate contractual terms.
Essential Case Laws
A few essential case laws, on the issue of force majeure clause and the doctrine of frustration of contract, are Satyabrata Ghose v. Mungneeram Bangur & Co. [1954 SCR 310]; M/s Alopi Parshad & Sons Ltd. v. Union of India [1960 (2) SCR 973]; and the most recent Energy Watchdog v. CERC (2017) 14 SCC 80. In the case, Energy Watchdog v CERC, the court applied the principle in Satyabrata Ghosh that a contract with an implied or express ‘force majeure’ clause is outside the purview of Section 56 and that the application of the doctrine of frustration must always be within narrow limits. The FM does not apply if alternate modes of performance were available.
This situation has many possibilities for legal disputes arising between the tenants and landlords. FM event only suspends the performance of an undertaking; it does not obliterate or removes the requirement to perform even later by a defaulting party who has defaulted during the operation of the FM event. Therefore, the ability of the tenant/ lessee to repay the entire outstanding of rental accrued during the FM duration (suspension period), to be objectively seen, in the future too seems to be severely compromised.
What can you do right now?
The need of the hour for the parties (landlords/lessors & the tenants/ lessees) is to become realistic and to look at the present and emerging future scenario practically. In the present situation, the solution seems to lie with the parties themselves and relatively not the judiciary. Both parties should come forward and come on the same page. Be it postponing the rents or reducing the rental. Understanding the situation, both parties can take a call whether to continue with this temporary arrangement till the time the dust settles.
Work From Home (WFH) is going to be the new normal, which is directly going to take a hit on the commercial space. Therefore, there seems to be a very bleak possibility, for the lessors/ landlords, of getting a new tenant/ lessee at the same monthly rental/ yearly lease amount or even at a lesser amount which their present lessee/tenants are paying, for a long time to come. If a tenant/lessee is going to vacate and handover the possession to the landlord/ lessor, there is a possibility of the premises lying vacant for an extended period in want of a new tenant/ lessee.
Seek legal assistance and demand out of Court settlements if required like Alternative Dispute Resolutions. Arbitration, mediation, conciliation, and negation should be your remedy seeking methods right now as the courts have their limitations.
Tenants are likely under stress. Thus, both parties need to review their leases to ensure they understand their rights in these unusual times, but also be prepared to have those rights limited by law, or by social pressure. The current legal climate may become challenging as governments are taking extraordinary measures to help businesses and people survive the financial impacts of the COVID-19 outbreak.
Looking at the circumstances, to prevent a wave of homelessness, the government of India announced several rent relief measures looking out for the interest of the tenants. A magisterial order was issued by the Uttar Pradesh government to imprison or fine those landlords who fail to postpone rent collection by a month. Moreover, the landlords were advised to defer rent for at least three months and not evict tenants for on-payment by the Maharashtra Housing Department. Why did the government do this? What was the rationale behind the orders? It was to provide some breather to tenants unable to pay rents during a crisis. No doubt that cancelling rents will, in turn, impact the economy. We need to realize that the world economy in general and the Indian economy particularly, is going into a deep recession and the things might not get back to normal for a long time.
Cancelling rent is great for tenants. But it has a lot of downstream effects. When you pay to your landlord, he uses that money to pay the mortgage of the building, as well as insurance, utilities, repairs, but most importantly, property tax. Cancelling rent is like a game of dominoes that will end up hurting us. Postponing the payment of rent acts as a band-aid because rent is still piling up and when it’s all over, it will be due.