May 23,2020 | 6 min read

Lease Rent During COVID-19 Period, Obligation Or Exemption?

Author - Sanjiv Dagar

As I clearly understand that the payment of Monthly rent is a Contractual Obligation. The same cannot be avoided unless there is a clause in the contract. There is a huge myth, that based on various advisories by Govt. (primarily State Govt.) the payment of rent is suspended during the lockdown period. I have not come across any such order, notification or guidelines by the Govt. confirming this myth.

The deferment (not waiver/exemption) can be made on reasonable grounds. Even if I apply to force majeure situation, then also benefit cannot be given to tenants. In force majeure situation, generally, one party is unable to perform contract whereas other is continuing availing services; e.g. a Lease Situation, where Landlord is unable to provide usable building, but the tenant is willing to take over possession if the situation is normal. The rent for that disruption period is suspended. But, in COVID-19 situation, the Landlord has provided possession and has therefore performed his obligation, it is the tenant who is barred to utilise possession.

I am expecting multiple litigations on this aspect. We, at Legajoist - Advocates & Solicitors have been advising our client accordingly, to avoid litigation to the extent possible. One way could be to re-negotiate the contract and cover all those aspects which were previously not considered and captured. The Tenant can even serve termination Notice, well in accordance with the Contract. This termination notice may lead to renegotiating the contract. But, sitting ideal just on the pretext that Govt/Courts will come to their rescue will not help. The parties have to be vigilant.

No obligation on payment of rent can be suspended automatically. The tenant is under the obligation to pay entire rent for the period for which he remained in possession. Similarly, the landlord is also entitled to recover rent, including past rent. The landlord can enforce clauses such as penalty, interest for the delayed period, in accordance with the contract. It is advisable to seek professional advice based on the executed contract.

The tenant can claim benefit only in accordance with the clause/s of the Contract. While advising our clients, we would consider provisions of Section 32 of the Indian Contract Act (‘ICA’). The tenant can also take a plea that the contract has become void, and can accordingly surrender the premises. The notice can be sent electronically, on WhatsApp, e-mail etc., failing which it is difficult to say that a tenant can claim any respite on monthly charges or rent. It is difficult to apply provisions of Section 56 of ICA. I hesitate to understand whether S/56 would apply to a lease agreement, and other similar contracts which are `executed contracts’ and not `executory contracts’. The performance has already been over, and now it is just an obligation of one party, and right of the Other Party. While doing our research we did not find any provision even under Section 108 of the Transfer of Property Act.

Recently Delhi High Court in RAMANAND & ORS v/s DR. GIRISH SONI & ANR has also supported the above view. The court observed the following kinds of leases/contract of Rent: 

(i) Oral tenancies with a month to month payment of rent;  ii) Short term tenancy agreements with a monthly rent payable; (iii) Long term leases with force majeure clauses; (iv) Lease agreements which are structured as revenue sharing agreements and; (v) Lease agreements which are in the nature of monthly payments as a percentage of the sales turnover. The above list is however not exhaustive. The question of waiver, suspension or any remission in the rental payments would operate differently for each category of agreements. Where there is a contract, whether there is a force majeure clause or any other condition that could permit waiver or suspension of the agreed monthly payment, would be governed by the contractual terms. If, however, there is no contract at all or if there is no specific force majeure clause, then the issues would have to be determined on the basis of the applicable law. 

The court said “The Tenants’ application for suspension of rent is 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.”


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ABOUT THE AUTHOR


Sanjiv Dagar

We have privilege to serve big brands in various sectors like e-commerce, Banking & Finance, Software, Technology, Food & Beverages, Pharma & Hospitality. Our Law Firm is backed by a collective Legal experience of more than 60 years. Our team, after having worked in the industry, is able to provide practical solutions to vexed problems within the framework of the laws of the land. We have shown successful delivery to Corporate giants.

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