COVID-19, Lease Agreements and Force Majeure Clause.

'Force Majeure’ is defined by Black’s Law Dictionary as “an event or effect that can be neither anticipated nor controlled”. As per the dictionary, “The term includes both acts of nature (e.g. floods and hurricanes) and acts of people (e.g. riots, strikes and wars)”. The same definition has been upheld by the Hon'ble High Court of Delhi in the case of Ramanand & Ors. v. Dr. Girish Soni & Anr.[1]

Can a tenant/lessee invoke a Force Majeure Clause to suspend rentals of their leased/rented properties when the rent/lease agreement contains a Force Majeure Clause?

The Hon’ble Supreme Court in Energy Watchdog v. CERC & Ors.[2] has held that in case the contract itself contains an express or implied term relating to a Force Majeure condition, the same shall be governed by Section 32 of the Indian Contract Act, 1872 which includes a provision for “enforcement of contracts contingent on an event happening”.

Therefore, in agreements providing for a Force Majeure clause, the Court shall examine the same with respect to Section 32. The underlying 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.

Seeking of suspension of rent by tenants/lessee through invoking the Doctrine of Frustration of Contract or impossibility of performance in the absence of a Force Majeure clause.

Section 56 of the Indian Contract Act 1872, which deals with the 'impossibility of performance' of a contract, would not apply to leases. Section 108 of the Transfer of Property Act, 1882 shall apply as it deals with Rights and Liabilities of Lessor and Lessee.

The Hon’ble Apex Court, in the case of Raja Dhruv Dev Chand v. Harmohinder Singh & Anr.,[3] has held that Section 56 of the Contract Act is not applicable when the rights and obligations of the parties arise under a transfer of property under a lease. It was further held that where the property leased is not destroyed or substantially and permanently unfit, the lessee cannot avoid the lease because he does not or is unable to use the land for purposes for which it is let to him.

In T. Lakshmipathi v. P. Nithyananda Reddy,[4] the Supreme Court referred to the Raja case (supra) and held that Doctrine of Frustration belongs to the realm of the law of contracts and it does not apply to a transaction where not only privity of contract but privity of the estate has also been created since a lease is a transfer of an interest in immovable property within the meaning of Section 5 read with Section 105 of the Transfer of Property Act. In such a case, the lessee cannot continue to hold on to the premises or say that the lease continues but he will not pay the rent. If the lessee does not exercise the option to treat the lease to be void, he will remain liable to pay the rent.

The Hon’ble High Court of Delhi in Airport Authority of India v. Hotel Leelaventure Ltd.[5] held that Section 56 of the Contract Act is not applicable to leases. It was further held that in case of destruction or rendering the subject premises unfit for use by fire, tempest, flood, violence or other irresistible force, Section 108(e) gives the option to the lessee to treat the lease as void. However, if the lessee does not exercise the option, the lease continues, and the lessee remains liable to pay the rent to the landlord.

In the absence of contracts or contractual stipulations, the provisions of the Transfer of Property Act, 1882 would govern tenancies and leases. The Hon’ble High Court of Delhi vide its Judgement in the case of Ramanand (supra) has held that: “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).”

Seeking of suspension of rent by Tenants/Lessee by invoking the equitable jurisdiction of the Court due to temporary non-use of the premises due to COVID-19 Lockdown.

The question regarding the fact that whether the suspension of rent should be granted or not, is dependent on the facts and circumstances of each case as held by the Hon’ble Supreme Court in Surendra Nath Bibran v. Stephen Court.[7]

In a similar context, in the case of Raichurmatham Prabhakar and Ors. v. Rawatmal Dugar,[8] the Hon’ble Supreme Court held that the tenant may claim suspension of rent if the lessee has been dispossessed.

In furtherance to the same, the Hon’ble High Court of Delhi vide its Judgement in the case of Ramanand (supra) has held that:

"In relation to some contracts which are not classic tenancy or lease agreements, where the premises is occupied and a monthly predetermined 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".

The Hon’ble Delhi High Court in the case of Ramanand (supra) rejected the Tenants’ application for invoking the doctrine of suspension of rent on the basis of a force majeure event, considering that the Tenants do not intend to surrender the tenanted premises. Further, while holding that suspension of rent is not permissible in these facts, the Hon’ble Court observed that some postponement or relaxation in the schedule of payment could be granted owing to the lockdown. Accordingly, the Hon’ble Court directed the Tenants to pay the use and occupation charges for March 2020 on or before 30th May 2020 and for April 2020 and May 2020 by 25 June 2020.

Further, in P.R. Ramanujam v. Vice Chancellor (IGNOU) and Ors.,[10] the Hon’ble Delhi High Court relied on the judgment passed in Ramanand (supra). The High Court held suspension of rent is governed predominantly by the contract and solely on the basis of extreme circumstances, complete suspension of rent can be granted. In the present case, the respondents had already granted one month’s extension – by allowing the petitioner to overstay in the University’s accommodation – that went over and above 8-months of overstay permissible under the Rules of the University. This one month’s extension was granted by taking the petitioner’s disability into account. Further, such benefits of extension of overstay in the University’s accommodation was being given before the outbreak of COVID-19, i.e. from August 2019. Thus, the Hon'ble High Court was of the view that the present case was not of suspension of rent wherein the respondents had already given sufficient benefits to the petitioner by taking the petitioner’s disability into consideration for which, the petitioner cannot invoke the Force Majeure clause.

Did any Government agencies waive any rentals by treating Covid-19 as a Force Majeure event?

The Ministry of Finance, Government of India vide Office Memorandum dated 19.02.2020 to Secretaries of all Central Government Ministries / Departments clarified that disruption of the supply chains due to spread of Corona Virus in China or any other country will be covered in Force Majeure Clause.

In view of COVID-19 outbreak and consequent lockdown, the Ministry of Electronics and Information Technology (MeitY) has announced a four-month rental waiver to IT companies operating from STPI (Software Technology Parks of India) for the period beginning 01.03.2020 and running till 30.06.2020.[11]

Similarly, Ministry of Shipping, Government of India, vide Office Order dated 21.04.2020 asked major Indian ports to defer the lease rentals and licence fees-related charges for April, May and June.[12]

[1] Ramanand & Ors. v. Dr. Girish Soni & Anr., RC. REV. 447 of 2017. [2] Energy Watchdog v. CERC & Ors., (2017) 14 S.C.C. 80. [3] Raja Dhruv Dev Chand v. Harmohinder Singh & Anr., A.I.R. 1968 S.C. 1024. [4] T. Lakshmipathi v. P. Nithyananda Reddy, (2003) 5 S.C.C. 150. [5] Airport Authority of India v. Hotel Leelaventure Ltd., (2016) 231 D.L.T. 457. [6] Ramanand & Ors. v. Dr. Girish Soni & Anr., RC. REV. 447 of 2017. [7] Surendra Nath Bibran v. Stephen Court, A.I.R. 1966 S.C. 1361. [8] Raichurmatham Prabhakar and Ors. v. Rawatmal Dugar, (2004) 4 S.C.C. 766. [9] Ramanand & Ors. v. Dr. Girish Soni & Anr., RC. REV. 447 of 2017. [10] P.R. Ramanujam v. Vice-Chancellor (IGNOU) and Ors., 2020 S.C.C. OnLine Del. 1081. [11] PIB Delhi, Government of India Gives 4 Months’ Rental Waiver to the IT Companies Operating from Software Technology Parks of India (STPI) Centers, Press Information Bureau (Sept. 10, 2020, 7:48 AM), https://pib.gov.in/PressReleasePage.aspx?PRID=1615052. [12] Ministry of Shipping, No. PD- t4033t412020-PD VII, Government of India (Sept. 10, 2020, 7:50 AM), http://www.shipmin.gov.in/sites/default/files/21april.pdf.

(This article is authored by Pushpit Singh, B.B.A. LL.B., 2nd Year Student of Symbiosis Law School, Hyderabad during his internship with S&D Legal Associates)

(Image Source: themachienemaker.com)