Rental Issues During COVID-19 and the possible solutions to that

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rental issues during covid 19

By Shweta Kaushik

Introduction

The whole world is witnessing an exceptional situation, which has disturbed all of us to a very great extent.  In the big cities where there is relatively more absorption of migrant workforce, a bubbling unease and disgruntlement is tangible in connection with the issue of non-payment of rent by tenants/lessees and the landlord/ lessor. 

Through this article, we aim at discussing the peculiar situation from the legal point of view to discuss the rental issues during COVID 19 and the possible solutions to that.

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The Legal Background

Speaking legally, a tenant-landlord/ lessee- lessor relationship is basically a contractual relationship based on the free will of the parties. This relationship is governed in the form of entering into a rent agreement or a lease agreement as the case may be. 

This Agreement/ Deed is largely governed by the various provisions of the Indian Contract Act, 1872, and particularly with respect to offer, acceptance, consideration, term, breach and frustration of contract. The parties to such contract are free to include and agree to all the possible present and foreseeable conditions and exceptions into the Agreement, which when arises, gives a legal right to any of the parties to perform or not to perform its undertaking.

Then comes the Force Majeure (FM) event. A FM event can be assumed as an extraordinary event or a circumstance beyond human control, which frees both the parties from contractual obligations, when prevented by such an event, from fulfilling their obligations under the contract. 

Force Majeure Clause (FMC) is one such standard clause which is merged in each and every Agreement and incorporates such FM instances or events as decided by the parties. It also entitles legally to suspend and or to not to perform an undertaking by a party for the duration of the FM event. 

However unfortunately most of the FMCs in already concluded Agreements do not have pandemic events like the present COVID-19 incorporated in it. 

What is most important thing to be noted is that the existence of a FM event in no manner excuses complete non-performance by a party or absolves entirely such non-performance by a party in all times to come. An event in order to be stated to be a FM event inter alia must 

(a) directly or by implication be an event which is beyond the reasonable control of any of the parties &

(b) must affect the ability to perform by any of the parties.

Now, observing from this perspective we all will agree that the first condition is satisfied- and this pandemic is beyond control of any of the parties and further the lockdown and various restrictions imposed by the Governments and Authorities are also beyond the control of any of the parties and particularly can be stated with proof, particularly by a lessee of a commercial premises. 

So comes the second condition i.e. whether such a FM event has affected the ability to perform by a party (tenant here)?

Supplementary if we try to take a lesson or guidance from the case laws and judgment from the Common law nations, during the Great Flu/ Swine flu of 1918, we will find that in the majority of the cases it has been held that the epidemic did not excuse a duty to be performed by the parties. 

The Present Scenario

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 provisions of the Code of Criminal Procedure, 1973 and the National Disaster Management Act, 2005 gradually putting minor to complete restriction on the movement of people and functioning of the industries and establishments across the country, leading to a crippling and stalling effect on business and normal life in the entire country.

Governments-both Central and State- have further directed all the employers (whether an industry of any establishment-shop etc.) to make the payment of the entire wages/salaries to all the employees- irrespective of their status as a workmen or a non permanent or a daily or contractual labour or a white collar employee or a blue collar employee, whether getting a package of a million rupees a month or five thousand rupees a month, so on and so forth, there arises an expectation in the minds of the landlords/ lessors- particularly of residential premises- that they are entitled to their rental as per the Agreement, as even though there is a pandemic/ FM event, the same has not affected the ability of the tenant/ lessee to pay the rent, as he/ she is entitled and must have got his/her entire wage/salary and therefore, why should he/she let go the rental. 

Any landlord/ lessor can validly say that since the Banks have also deferred payment of the EMIs there is absolutely no occasion for a tenant to not to pay the rent.

Unfortunately, this is something which does not pass the test on the ground. Almost no employer is adhering to the said sanctions, banks have only deferred the recovery of the EMIs in these months, however the Term of the loan (time to payback) has proportionately been extended and the banks are ruthlessly charging the interest for the period of such non payments/ deferment. So the situation of a tenant/lessee is not what the landlord/lessor thinks, it is.

Handling Legal Disputes

A FM event only suspends the performance of an undertaking, it does not eliminate or remove the requirement to perform even later on by a defaulting party who has defaulted during the operation of the FM event. The world economy in general and Indian economy in particular is going into deep recession and the things won’t be normal for a long time to come 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.

The Possible Solutions

Looking at the above peculiar factual situation and the settled legal position, the solution to these issues seems to lie with the parties themselves and not with the courts. 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. Since the economy is going into recession with little or no chance of recovery in the next 1-2 years, the earning and the general paying capacity- including rental, of residential premises and especially of the commercial premises, is going to be radically cut down. Further Work From Home (WFH) is going to be the new normal, which directly is going to hit the requirement for commercial space by organisations across the sectors- so there is almost no or at the maximum 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. The parties, particularly the landlords/ lessors, must not forget that in the times to come, to get a new tenant/ lessee that too at the rates at which the Agreements have already been executed with their present tenants/ lessee, is a pure and simple day dream. If a tenant/lessee is going to vacate and handover the possession to the landlord/ lessor, the possibility of the premises lying vacant for a long period of time in want of a tenant/ lessee even at a throwaway rental, is real.

It is therefore, advisable to follow the below mentioned tips to handle the rental disputes

  • Negotiate and agree to a reduced rental rate,
  • Don’t demand any rental till the covid situation is worse
  •  Services of trained Mediators and Conciliators and Organizations may be used by the parties, if agreement seems difficult to arrive at by and between the parties.

The Government of New Delhi has issued an order asking all landlords not to demand rent for one month from workers, including migrants, who have been devastated by the coronavirus-induced lockdown. Any landlord found violating the order will be booked under Disaster Management Act, 2005.
The order issued on April 22 states that action would also be taken if landlords are forcing students for immediate payment of rent and threatening them with eviction. The government has urged workers including migrant workers and students who are being forced by their landlords to pay house rent to call 100.

It is again made clear that the liability to pay rent has only been postponed and has not ceased at all. All the persons on rent will be liable to pay the rent once the situation subsidizes.

So for the need of help to solve your rental issue, please get in touch with one of our legal experts  at @ vakilnumber1@gmail.com or call at 9115892585.

Reference: Financial Express