In the backdrop of this  Pandemic,  business continuity has become a challenge with rising overheads and lack of revenue. Tenants by far are hit, as the Lockdown does not facilitate a shift in premises even if they desire with a concern of mitigating payment of rent till the crisis is over. Question was whether the lockdown would entitle the tenants to claim waiver or exemption from payment of rent or suspension of rent.

Seeking reprieve tenants have sought courts to invoke  Indian  Contracts  Act, 1952 thereby trying to use Force Majeure and Doctrine of Frustration as a contingent clause under Section 32 and one such order passed by Delhi High Court will serve as a precedence to this subject.

The Honourable Delhi High Court in the case Ramanand and ORS. Vs Dr. Girish Soni and ANR. (RC. REV. 447/2017) vide decision made on: 21st May, 2020 dealt with Section 32 and 56 of the Indian Contracts Act and held:

“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 force majeure clause in the contract could also be a contingency under Section 32 which may allow the tenant to claim that the contract has become void and surrender the premises. However, if the tenant wishes to retain the premises and there is no clause giving any respite to the tenant, the rent or the monthly charges would be payable.”

The court also held that it is clear that under Section 56 of the Indian Contracts Act, would not apply to a lease agreement and other similarly situated contracts which are `executed contracts’ and not `executory contracts’.

The court then considered the doctrine of force majeure as recognised in Section 108(B)(e)  of  the Transfer of Property Act and held “A perusal of the above shows that the provision itself would apply only in the absence of a contractual stipulation.” 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 tenant 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  court  concluded  this  issue  by  holding  “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 Transfer of Property Act.”

The Tenants’ application for suspension of rent was thus liable to be rejected inasmuch as while invoking the doctrine of suspension of rent on the basis of a force majeure event, it is clear from the submissions made that the tenants do not intend to surrender the tenanted premises. While holding that suspension of rent is not permissible in these facts, some postponement or relaxation in the schedule of payment can be granted owing to the lockdown.

What should come down to reason is that, this Pandemic has also affected the landlords so much as the tenants, they continue to pay taxes on the property, they continue to pay their equated monthly instalments on their loans etc. There is a cyclic business activity here and providing rent waivers will only break the cycle to add more chaos is this rather grim scenario.