Rent dispute in lock down

By Team Legal Helpline India, June 19, 2020

A brief write up on rent dispute in lock down by our legal expert, explaining the issue in details through legal provisions.

The ongoing lock down due to COVID-19 has  created unprecedented circumstances wherein all economic activities are at a standstill. The Contractual  as well as the jural relationships between parties is severely affected due to the lock down. The question  of payment of the rent or the lease rent has become a moot point. This has lead to rent dispute in lock down between the tenant and the landlord.

The moot question is  whether the lock down would entitle tenants to claim waiver or exemption from payment of rent or suspension of rent. This may lead to rent dispute in lock down.  Under the existing framework of Indian laws,  there can be no standard law defining the situation which can be prescribed to address  the issue of rent dispute in lock down. 

To understand the rent dispute in lock down, we have to first understand the relationship between landlord . The relationship of landlord and the tenant is  governed either by contract when there is a lease agreement or by the general law when there is no lease deed or rent agreement between the parties. The following conditions may emerge:

  • Rent dispute in lock down in oral tenancy
  • Rent dispute in lock down in tenancy containing force majeure clause
  • Rent dispute in lock down in written lease deed without any force majeure clause
  • Rent dispute in lock down in lease or rent agreements with revenue sharing agreements
  • Rent dispute in lock down in the lease agreements with share in sales
  • Rent dispute in lock down in lease or rent agreements with some rent and some sharing on sale

The question of waiver, remission or postponement of the rent as well as the rent dispute in lock down is based primarily on these types of lease arrangements. Any type of Rent dispute in lock down can be decided within the for-corners of such arrangements as describe above.

UNDERSTANDING THE RENT DISPUTE IN LOCK DOWN LAW:

FORCE MAJEURE CLAUSE:  `Force Majeure’ is defined by Black’s Law Dictionary as “an event or effect that can be neither a dictionary, “The term includes both acts of nature (e.g. floods and hurricanes) and acts of people (e.g. riots, strikes and wars)”.

It describes the sudden events which are beyond the control of the parties such as natural calamities, riots, wars and other such eventualities which create a standstill or disruption of the activities. In legal parlance it is the condition that could permit waiver or suspension of the agreed monthly payment.  

 In most of the written contracts, lease agreements, lease deeds, rent deeds the clause of force majeure is included. The event of force majeure is however not in absolute terms, it is conditional and for a limited period of time meaning thereby that it can continue for few months and then the tenant will have the option to terminate or rescind the lease and come out of it. The wordings of the lease determine such force majeure and the construction of the clause as contained is crucial and important in any such rent dispute in lock down.

The concept of Force Majeure under the Indian laws to determine rent dispute in lock down would be governed by Section 32 of the Indian Contract Act, 1872.  This section reads as under:

“32. Enforcement of contracts contingent on an event happening. — Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened.  If the event becomes impossible, such contracts become void.”

In case the contract between the parties contains an express or implied term relating to a force majeure condition, the same shall be governed and interpreted in its terms and in the light of Section 32 and Section 56 of the Indian Contract Act of 1872. These sections deal with impossibility of performance, would apply in cases where a force majeure event occurs outside the contract. The Supreme Court has observed:

“Insofar as it is relatable to an express or implied clause in a contract, such as the PPAs before us, it is governed by Chapter III dealing with the contingent contracts, and more particularly, Section 32 thereof. Insofar as a force majeure event occurs dehors the contract, it is dealt with by a rule of positive law under Section 56 of the Contact Act.”

Thus, in agreements providing for a force majeure clause, the Court would examine the same in the light of Section 32. The said clause could be differently worded in different contracts, as there is no standard draft, application or interpretation. 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. In such kind of rent dispute in lock down, 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.

FRUSTRATION OF CONTRACT: Another important provision of law visualising such eventualities is Section 56 of the Indian Contract Act, 1872. In the absence of a contract or a contractual term which is a force majeure clause or a remission clause, the tenant may attempt to invoke the Doctrine of Frustration of contract or `impossibility of performance’, which however would not be applicable in view of the settled legal position set out below. The said doctrine of `impossibility of performance’ is encapsulated in

Section 56 of the INDIAN CONTRACT ACT OF 1872, which reads as under:

“56. Agreement to do impossible act. — An agreement to do an act impossible in itself is void. Contract to do an act afterwards becoming impossible or unlawful. — A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. Compensation for loss through nonperformance of act known to be impossible or

unlawful. — Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.”

There are various conditions that have to be fulfilled to satisfy the conditions of `impossibility’ under Section 56. However, in the context of a tenant’s obligations, the Supreme Court had the occasion to consider this doctrine in the case of Raja Dhruv Dev Chand v. Raja Harmohinder Singh & Anr., AIR 1968 SC 1024. The Supreme Court, after considering the law on `impossibility of performance’ from various jurisdictions, held that in the Indian context Section 56 “lays down a positive rule relating to frustration of contracts and the Courts cannot travel outside the terms of that section”.

The Court held that Section 56 does not apply to lease agreements. The Court drew a distinction between a `completed conveyance’ and an `executory contract’ and observed:

“9. We are unable to agree with counsel  for the appellant in the present case that the relation between the appellant and the respondents rested in a contract. It is true that the court of wards had accepted the tender of the appellant and had granted him a lease on agreed terms of lands of Dada Siba Estate. But the rights of the parties did not after the lease was granted rest in contract. By Section 4 of the Transfer of Property Act the chapters and sections of the Transfer of Property Act which relate to contracts are to be taken as part of the Indian Contract Act, 1872. That section however does not enact and cannot be read as enacting that the provisions of the Contract Act are to be read into the Transfer of Property Act. There is a clear distinction between a completed conveyance and an executory contract, and events which discharge a contract do not invalidate a concluded transfer.

By its express terms Section 56 of the Contract Act does not apply to cases in which there is a completed transfer. The second paragraph of Section 56 which is the only paragraph material to cases of this nature has a limited application to Indian Contract Act of 1872 to covenants under a lease.

A covenant under a lease to do an act which after the contract is made becomes impossible or by reason of some event which the promisor could not prevent unlawful, becomes void when the act becomes impossible or unlawful. But on that account the transfer of property resulting from the lease granted by the lessor to the lessee is not declared void.

THE EVENTS OF LOCK DOWN DESCRIBED:

We can discuss the point wise events of the lockdown to visualize the various events of Rent dispute in lockdown . As given above, we can now describe these events and try to throw some light on such rent dispute in lockdown for understanding of the common man.

  • Oral tenancy on the month to month basis

In an oral tenancy on the month to month basis without any lease deed, rent deed or any document stipulating the terms of the lease. The rent dispute in lockdown would be decided by the common law of the land as describe above under Section 32 and Section 56 of the Indian Contract Act, 1872. If the tenant is able to prove the circumstances compelling the waiver of the lease rent due to the contingent events happening or impossibility or frustration of contract, he can claim some benefit. These all matters will be decided on the basis of the oral terms between the parties and the nature of the property, nature of occupation and several related factors.

It is however important to state that in such eventualities, the tenant or the lessee  is at disadvantageous position to prove the conditionality’s as described under Section 32 and Section 56 of the Indian Contract Act. He may be burdened with the lease rent under these circumstances or may be required to vacate the property under these circumstances due to non payment of rent.  

  • Tenancy with force majeure clause

The tenancy with written agreement of with force majeure clause will be regulated by the terms of the force majeure stipulated. A careful reading of the force majeure clause would determine the eventualities but it largely depends upon the nature of property, location of property, nature of business being carried and various government orders related to the lockdown. The tenant may thus claim remission from the lease rent for the period during which the force majeure clause is operative. It is always better to issue a communication or a notice to this effect or to put the invocation of the force majeure clause on records.

  • Written Lease deed without any force majeure clause

In such lease deeds, the Rent dispute in lockdown would be determined on the basis of the complete reading of the entire lease deed . The issue would be totally governed by the Indian Contract Act, 1872. Section 32 and Section 56 will determine the liability of the tenant or the lesse to pay the rent. It also depends upon the nature of the business of the tenant, the nature of the property and the various government orders, notifications issued from time to time during the lockdown.

  • Lease or rent agreements with revenue sharing agreements

Such lease rent agreements based on the revenue sharing . In most of the cases, the definition of revenue is fixed as the profit generated . During the lockdown there are no sales or there are no chances of sales hence the profit constituting the revenue sharing is bound to come down but the tenant has no liability as such to pay any amount over and above the lease rent. 

  • Lease agreements with share in sales

During the lockdown, the sales are reduced hence the lease agreement stipulating the share in sales is bound to create Rent dispute in lockdown  but the same shall be decided only on the basis of the lease rent agreement and the Section 32 and Section 56 of the Indian Contract Act, 1872. The doctrine of frustration of contract or impossibility of contract will come into play and the Rent dispute in lockdown and the Rent dispute in lockdown will be determined accordingly.

  • Lease or rent agreements with some rent and some sharing on sale

In such lease deeds or rent deeds, the sharing of sales can be determined on the basis of the sales , if any happened but the liability to pay the rent would not arise if there are no sales. In any case the terms of the lease deed and the wordings of the lease rent agreement would be very important.

Spread the legal knowledge

Leave a Reply

Your email address will not be published. Required fields are marked *

Recent Post