By Chirag Gupta And Kumar Sumit

The unprecedented prevalent times hit by the novel virus poses the big question of “whether to pay or not to pay the rent?” The pandemic has caused a number of big businesses to shut their operations in the last few months owing to the nation-wide lockdown. India, being one of the growing economies has seen a great influx of international brands, both in the F&B and Retail sector, in the last decade and half. But the influx brings a number of Capital Expenditure (‘Capex’) that these brands incur in order to do business, which cannot be compromised owing to their brand name and quality of product/service that they offer.

 The nationwide lockdown has posed great challenges for the business owners, which has caused them to revaluate their business models or even evaluate the viability of their business thereby taking the drastic step of shutting the business entirely. One such important challenge that is before the business owners is their inability to pay the monthly rent on the premises. Hence, such compellingcircumstances in the business environment areforcing tenants to invoke non-prevalent force majeure clauses of their rental agreements. This article is an attempt to provide clarity upon the way forward for the tenantswith respect to suspension/waiver of rent under the current market scenario. 

Waiver / Suspension of Rents 

The outbreak of the Coronavirus has affected jural relationships across sectors, since, the tenants are expecting waiver of accrued rent for the months under which the lockdown was imposed.They also intend to seek suspension of the monthly guaranteed rent that is payable under the Rent Agreement(s) for the upcoming months until the business does sales equal to or close to what it was before the spread of the novel virus. The business owners, going forward, are now demanding a full waiver of the rents from landlords and are proposing a revenue sharing structure of payment as rent which would be computed on the basis of the gross sales they do in the upcoming months. The proposed structure has been widely defied by the landlords, as their contention is that they do not want to indulge in a contract of revenue sharing.The landlord considers it to be totally out of the scope of the rent agreement and also does not guarantee the payment of agreed rent every month. 

It can be said that there can be no straightjacket approach that can be adopted whilst dealing with the cases that are expected to be flooded in the near future. Hence, every case will have to be dealt by referring to the peculiar facts and circumstances of each case. 

What do courts have to say? 

Recently the Delhi High Court has dealt with the question of waiver/suspension of rent in the matter titled “RAMANAND & ORS. v. DR.GIRISH SONI & ANR.1” wherein the Hon’ble court has discussed the parameters to be considered while dealing with such a situation. The court whilst considering the submissions of the parties, observed that there can be multifarious relationships between a tenant and a landlord and the same can of following types: 

*Authors are advocates practicing before the High Court of Delhi 1 RC. REV. 447/2017 

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a. Oral tenancies with a month to month payment of rent; b. Short term tenancy agreements with a monthly rent payable; c. Long term leases with force majeure clauses; d. Lease agreements which are structured as a revenue share agreement; e. Lease agreements, which are in the nature of monthly payments as a percentage of  the sales turnover.

The Hon’ble court while enumerating the above-mentioned non-exhaustive list of different types of contractual relationship observed that the question of waiver/suspension or remission of rental payments would differ for each category of contract of lease. 

The Hon’ble Court has further discussed various provisions under the Transfer of Property Act and the Indian Contract Act in relation to the disputes arising under the agreements of leases by evaluating certain situations, which are: 

What happens when Force Majeure clause is a part of the Lease Agreement? 

The court stated that, if a contract expressly or impliedly contains a clause of Force majeure, it will be subject to & governed by section 32of the Indian Contract Act, 1872 (‘ICA’)2. The Force Majeure (‘FM’) clause allows a tenant to claim that the contract has become void and surrender the premises if an unforeseeable event has occurred which has made the performance of the contract impossible. In cases, where the demised premise is not surrendered by the tenant and there is no respite of any such clause, the tenant would be liable to pay monthly rent. It is of essence to note that even mere existence of a FMclause does not entitle a tenant to seek waiver or suspension of rent under the contract of lease, as the specific wording of the FM clause is to be taken into consideration.If, the FM clause specifically provides for waiver or suspension of rent in case of happening of an uncertain event, only in such case the lessee can avail such relief. 

What happens when contracts do not have an express Force Majeure Clause? 

The Hon’ble court observed that in the absence of a FM clause, the lessee mayattempt to invoke Section 56 of the ICA i.e. the Agreement to do impossible act or doctrine of frustration. However, in agreements of leases, the doctrine of frustration will not apply as per the settled position of law held in- Raja Dhruv Dev Chand v. Raja Harmohinder Singh & Anr.3 in which the apex court has drawn a distinction between ‘completed conveyance’ and an ‘executory contract’ and has held that Section 56 of the ICA, which lays down a positive rule relating to frustration of a contract, and states that it will not apply to lease agreements, since lease agreements are instances where there is a completed transfer. 

What are applicable laws? 

The Hon’ble Court held thatin view of the above discussion it is apposite to state that in absence of an express FM clause giving respite/waiver/suspension of rent, the applicable law will govern the contract of lease. The applicable law will be Transfer of Property Act, 1882(‘TPA’). In the given scenario, the provisions relating Rights and liabilities of a lessor and lessee as enshrined under the TPA4 would be referred. As per the stated provisions, on the occurrence of any stipulations stated in section 108(b)(e) such as fire, tempest, or flood or violence, of an army or of a mob, or other irresistible force, which renders the property substantially unfit to be used for the purpose for which it was leased, will make such lease void, at the option of the lessee. However, the Hon’ble court has 

2 Energy Watchdog v. CERC & Ors., (2017) 14SCC 80 3AIR 1968 SC 1024 4 Section 108 Transfer of Property Act, 1882 

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held that, the temporary lockdown does not render the property substantially unfit for use or results in complete destruction of the demised premises, hence, shelter cannot be availed under the TPA. 

Way forward& possibilities:

In view of the judicial stand discussed in the foregoing paragraphs, it is apposite to hold that the courts have adopted a rational interpretation of law on tenancies and leases. But what still subsists from the perspective of the tenants is what can be the way forward so as to curb their rentals in times where businesses have been cut down to half or zeroed down a minuscule. In our considered view, the landlords will have to structure & remodel their leases with the lessee’s and give them payment holidays for the preceding months of the lockdown. 

Recently, a luxury mall developer, which owns number of malls in Delhi NCR region, has come out with a strategy to retain their tenant base by offering rebates to monthly guaranteed rents for the upcoming month till the end of this fiscal year. The mall developer has proposed to waive of Minimum Guaranteed lease rent for the entire period of lockdown and he has reduced rents to 50%, 24% and 10% for every upcoming 3 month bracket until March,2021. Further, the proposal also provides that, if by the end of the year, the tenant’ssales reach 80% of last year sales, then 100% MG lease rent will be applicable. 

There has to be a comprehensive effort by the landlords and tenants in order to arrive at a plausible solution. The relief cannot be biased, for instance, providing moratorium over the rent payment will come as a predicament for the landlords. Moreover, such a measure is bound to be challenged before courts, which will further delay and complicate the issue. There is a need to provide a middle ground for both the parties i.e. a tenant and a landlord. For instance, the tenants and landlords can also resort to mediation in order to arrive at a plausible solution. One would argue that mediation is not binding upon the parties but the genesis behind having the rental disputes mediated rest in the fact that an unbiased third party would facilitate the parties to foresee certain contingencies and to arrive at a reasonable solution, which the parties might fail to do so otherwise. The parties are anyway free to move before the courts for appropriate remedy, so, taking recourse of mediation would not prove futile in our considered opinion. 

From the perspective of lease & tenancy agreements, the current problem at hand and the Ramanand (supra)of the Hon’ble High Court paves way for structuring lease agreements in a more prudent manner which will take into account the FM clause and its wording more comprehensively.Moving further, it will definitely provide for clauses relating to remission/suspension/waiver in the event of an uncertain or unprecedented happening. Furthermore, the landlords will be more cautious in times to come while drafting their leases which will provide for adjustment of securities in the event of such unprecedented times which is creating great confusion thereby may result in complex litigations. 

(The article is based on the interpretation and understanding of the Authors and shall not be construed as legal advice.) Published in Article section of Published in Article section of 

(The above article is written by Authors)  

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