With most offices, shops shut due to COVID-19 lockdown, it's imperative that Centre enacts appropriate law on payment of commercial rent

Unlike the UK Coronavirus Act, the US CARES Act or Singapore's COVID-19 Act, which provided some relief to businesses unable to pay rents on offices and shops in these countries due to lockdown, India has not enacted any such legislation to minimise the hardships of Indian business owners

Shrey Fatterpekar and SM Algaus May 28, 2020 22:24:47 IST
With most offices, shops shut due to COVID-19 lockdown, it's imperative that Centre enacts appropriate law on payment of commercial rent

Since 25 March when India went on a nationwide lockdown, all offices and shops engaged in businesses (other than essential services) have not been permitted to remain open. While some organisations allowed their employees to work from home and managed to conduct their work online, a large number of businesses have come to a complete or partial standstill due to the COVID-19-induced lockdown. Whilst certain restrictions were eased each time the lockdown was extended, the embargo on opening of offices and shops continued.

It is well known that a large number of businesses in India rent office spaces/shops. The slowdown faced in business has led to a situation where a lot of businesses are unable to pay the rent for their offices/shops. However, these businesses are bound by the terms of the lease or licence agreement which require rent to be paid in a timely manner. That being the case, an interesting question arises as to whether the occupants of such commercial premises can avail of either an exemption from or temporary suspension of payment of rent on account of the prevailing lockdown conditions.

With most offices shops shut due to COVID19 lockdown its imperative that Centre enacts appropriate law on payment of commercial rent

Representational image. AP

'Not exempted unless contract provides it'

The question of payment of rent in respect of commercial premises during the lockdown period came up for consideration recently before the Delhi High Court. In the case of Ramanand and Others versus Dr Girish Soni and Others, the Court was considering an application seeking either waiver or suspension or postponement of payment of rent during the lockdown period. The court noted that this question was bound to arise in thousands of cases across the country.

The court held that the question of waiver, suspension or remission in rental payments would operate differently depending on the arrangement between the landlord and tenant. The court noted that where there is a contract between the parties, it would be necessary to see whether such contract contained a force majeure clause or any other clause that would permit waiver or suspension of the rent in as much as the waiver or suspension of such rent would be governed by the terms of the contract.

‘Force majeure’ has been defined to mean ‘an event or effect that can be neither anticipated nor controlled and includes both, acts of nature and people’. The court further noted that in some cases, the force majeure clause, if worded appropriately, could be treated as a basis for the tenant to claim that the contract had become void and surrender the premises.

In the absence of a contract between the landlord or tenant, or, if the contract does not contain any force majeure clause or other term exempting payment of rent, the court observed that the tenant may attempt to invoke the doctrine of ‘frustration of contract’ which generally applies to situations where the performance of a contract has become impossible.

After reviewing the law laid down by the Supreme Court in earlier cases, the court arrived at a conclusion that the doctrine of frustration of contracts would not apply in the cases of leases or other rental arrangements which are in the nature of ‘executed contracts’, ie, a concluded contract. The court also held that the temporary non-use of premises due to the lockdown cannot be construed to render a lease agreement void under Section 108(B)(1) of the Transfer of Property Act, 1882.

To sum it up, the Delhi High Court has held that a tenant of a commercial space can avail of any suspension or postponement or remission of payment of rent only if the contract between the parties provides for the same.

Despite the same, the court while exercising its equitable jurisdiction considered the tenants’ plea for suspension of rent and formulated certain factors to be considered while deciding such a plea. The factors to be considered are nature of the property, financial and social status of the parties, amount of rent payable, contractual conditions and other relevant factors, and, if the tenants are protected by any executive order.

It is pertinent that one such executive order has been issued in India by the Ministry of Home Affairs which grants protection to some tenants such as students and labourers. In this case, the court, without deciding the legality of such an order passed in India, observed that the same does not apply to commercial premises.

Measures taken by other countries

Various countries have passed comprehensive legislations that envisage and extend various protections to its citizens and residents to meet the challenges of the COVID-19 crisis, including providing much-needed aid and relief in respect of the rent for commercial tenancies.

The United Kingdom passed a comprehensive legislation, Coronavirus Act, 2020, on 25 March, 2020, which prescribes various emergency protocols, restrictions and limitations on a broad number of subjects. These include a temporary embargo on eviction of tenants of commercial properties for non-payment of rent during the period starting from 25 March, 2020, till 30 June, 2020, or such extended date as may be notified.

A landlord cannot initiate any legal action to evict such a tenant during such period and no courts can pass an order dispossessing such tenants. Even orders passed before the UK Act came into force and requiring eviction during the period of lockdown, cannot be executed till such period expires. If any right to seek eviction accrued in favour of the landlord prior to the UK Act coming into force, the same can only be exercised after the lockdown period has expired.

One important change brought about by the UK Act is that the tenant’s failure to pay rent during the lockdown has been disregarded as a ground for termination of tenancy.

A couple of days after the United Kingdom passed the said Act, the United States passed the Coronavirus Aid, Relief, and Economic Security Act aka the CARES Act. The CARES Act has declared a 120-day moratorium during which a landlord may not initiate any legal action to recover the tenanted property due to non-payment of rent. In addition, the landlords are prohibited from charging any penalty for such non-payment. The CARES Act also provides for loans to small businesses to meet their rental obligations.

A short while thereafter, Singapore passed the COVID-19 (Temporary Measures) Act, 2020. Under this Act, a landlord cannot terminate tenancy or exercise his right to evict a tenant for a period of up to six months from 20 April, 2020, due to the tenant’s inability to pay rent, during the lockdown period. The Singaporean Act also provides for remission of property taxes to the landlords. The landlords are, in turn, required to transfer this benefit of property tax remission to their tenants and/or off-set it towards rent.

While other countries have also taken action in this regard, the aforesaid legislations are good examples of what steps can be taken to minimise hardships during the lockdown period. In India, however, no such legislation has been enacted yet.

As observed by the Delhi High Court, unless the contract provides otherwise, the law in force in India today requires tenants to honour their obligation to pay rent during the lockdown period. Keeping that in mind, and the fact that businesses have suffered during this lockdown period, it is imperative that the government expeditiously takes steps by enacting appropriate legislation to protect both the tenants’ and the landlords’ interests.

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