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Impact of COVID-19 on the Landlord and Tenant issues

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A nationwide lockdown was imposed by the Central Government from March 25 to curb the spread of Covid-19 disease. It has significantly affected the relationship of the landlords and tenants. If the tenant has funds available with him then its obligation to pay rent is not impacted.  

By Kiran Bhardwaj

Although the COVID-19 pandemic was not an anticipated event, if does not fulfill the requirement of a tenant to be entitled to suspend payment of rent. The Delhi government had put curbs on citizens’ movement in the city from March 23, owing to Covid-19 cases coming up in the Capital around that time. Many tenants are facing financial crisis due to Coronavirus and are not able to pay rent. When the tenant default on rent, the landlords suffer and might not be able to meet their own financial obligation such as making the mortgage payments on the rental property, electricity and water charges, insurance, maintenance, property tax, etc. During Covid-19 it is necessary that landlords not to give notice or seek for possession during this challenging time and unprecedented circumstances to keep each other safe and  without a very good reason to do so and further should ease measures like health and safety during lockdown time. Tenants should continue to pay rent and abide by all other terms of their tenancy agreement to the best of their ability.

In a normal situation when tenant don’t pay rent, the  landlords have the option of terminating the tenancy in accordance with applicable laws and  landlords can then file an eviction case to have the tenants physically removed from the rental. But due to COVID-19, having health and safety concerns have led every place even courts to place temporary ban on eviction.  A landlord can file eviction case in a court, but the case might not be heard as only urgent matters are listed for hearing. However, even if the landlords remove tenants right now, the landlords are going to be faced with lots of problems liked getting new tenants,  sign a new lease or rental agreement, and get the new tenants moved in with taking all measures to abide by emergency guidelines and health and safety measures passed by the Government. A Landlord can take some measure like waiver of rent for a month, postpone rent or give discount on rent or reduce rent amount. The Landlord can have a word with the tenant about the situation and circumstances and try to accommodate their suggestions. The Tenant might do everything they can to hold up their end of the bargain and be sure to put any agreements in writing preferably as an addendum to your current lease or rental agreement including all the details of the agreed arrangements and can take help of the options given under the COVID-19 reliefs, schemes etc. or collect funds or vouchers to help the tenants.

While the old Rent Control Act mandated registration of the tenancy agreements exceeding 11 months or over Rs. 50,000 in value, the new law mandates all tenancy agreements to be registered with the Rent Authority, irrespective of the term and value of the tenancy. It includes both commercial and residential tenancies; including the use of premises for educational use but does not include the premises registered under the Factories Act, 1948. Landlord can take only two months rent as security. If landlord feels that illegal activity is going on in rented premises or there is negligence on the part of tenant or nuisance created by the tenant and damage is caused to the neighbours then he can go to the Court to get the premises vacated. The landlord cannot enter the tenanted premises as and when he wants to.  The landlord has to give 24 hours notice to enter the tenanted premises to the tenant and any repair or maintenance to be done to the rented property has to be done by the landlord.

Measures during Coronavirus, 2020:-

  1. On 23 March 2020, the Government announced a freeze of rent increases and protections against tenancy terminations. This has been applied as law through the COVID-19 Response (Urgent Management Measures) Legislation Act, which came into effect on 26 March 2020. This means that landlords can’t increase rent for their rental properties. This will apply for an initial period of six months, from 26 March 2020 until 25 September 2020.
  2. The restrictions on ending a tenancy apply from 26 March 2020 to 25 June 2020. From 26 June 2020, landlords can give notice to terminate a tenancy under the normal Residential Tenancies Act provisions. Normal notice periods from the day it is given will apply.
  3. Landlords and tenants should adhere to physical distancing, personal hygiene and surface cleaning guidance and should keep records for contact tracing purposes. They have to follow Government health advice on  COVID-19.
  4. On March 29, Hon’ble Delhi Chief Minister had appealed to landlords not to force tenants for one or two months to give rent and accept payments in instalments if the tenant is short on money. Later, in April, an order by the Delhi Disaster Management Authority had called for “strict compliance” of directions that landlords will not demand rent from migrant workers and students for a month. It required respective district magistrates to spread awareness about this directive and, in case of non-compliance, take legal action.
  5. As a advisor, the Delhi Government announced and requested the landlords to forgive rent for the next 3 months and the Hon’ble CM also went to state that the government will pay rent is the tenant fail to do so. 
  6. In Uttar Pradesh, the Government also issued a magisterial order to imprison or fine landlords who fail to postpone rent collection by a month. Furthermore, the Maharashtra Housing Department advise the landlords to defer rent for at least three months and not to evict tenant for non payment of rent or arrears.
  7. there is already a helpline to monitor the situation and persons aggrieved can approach the authorities concerned.
  8. The RBI also announced a 3 months EMI holiday on various loan types. But such forbearance programs only defer mortgage payments. The interest continues to accrue on the outstanding loan amount, rather then completely waiving off or discontinuing it.

However, mere announcement in the absence of Government ordinances for deference of rent do not legally absolve tenants from rental dues. Being advisor in nature, it should not be misconstrued as absolute or legally enforceable by tenants. The rationale behind the order was to provide some breather to tenants who are unable to pay rent during this crisis period. Landlords with full pockets and in good intention such as the Lodha Group’s announced a full waiver for over 200 commercial tenants until normalcy returns. However, not all landlords can afford rental waivers or deferrals, especially senior citizens whose survival largely depends on rental income.   

The Hon’ble Delhi High Court has recently passed a Judgment dated 21-05-2020 in Ramanand and Others vs. Dr. Girish Soni and Anr., where the Court rejected the Application filed by Appellant-Tenants for suspension of payment of rent, owing to the Covid19 Lockdown situation. A single-judge bench of Hon’ble Justice Ms. Pratibha M Singh said tenants cannot invoke the doctrine of suspension of rent on the basis of “a force majeure event as they (the applicants) do not intend to surrender the tenanted premises and continue to occupy it”. Force majeure is an event that is beyond the control of the parties and includes both acts of nature such as earthquake, floods, etc and acts of people such as riots, strikes and war, etc. In such a case, the parties have to abide by the contractual stipulations of the force majeure clause, in order to determine whether the tenant is liable to pay rent or is entitled to suspend the rent. That there is no contractual stipulation related to force majeure condition or about suspension or waiver of rent in case of occurrence of a force majeure event. Further, Section 32 and 56 of the Contract Act are not applicable in this case, as the Delhi Rent Control Act 1958 is applicable. “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 the 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,” the court said. The Court also observed that  if the tenant was in possession of the premises which was in habitable condition, the tenant was bound to pay the rent. It further held that since the Lease Agreement was an executed contract, the Tenant was bound by the terms of the said Contract and had to fulfil his contractual obligations and pay the rent that had accrued during the Covid-19 period.

In a recent case, on 30th April, the Hon’ble Supreme Court had passed an order in the case of Pawan Pathak Prakash v Bar Council of IndiaWrit Petition (Civil) No. 10949 of 2020 which stated that

“The application for permission to appear and argue in person is allowed. Having heard the petitioner-in-person and taking into consideration the grievance of the petitioner, we are of the opinion that the best course is that the Bar Council of India should consider assisting its brethren, keeping in view the prevailing situation. With the above observation, the writ petition stands disposed of.”

On 5th May, in another case of Pawan Pathak Prakash v Union of India, Writ Petition No.  11005 of 2020, the Court held that

‘We are not inclined to entertain this petition under Article 32 of the Constitution. The writ petition is accordingly dismissed’

In this case, the Court dismissed the petition requesting for waiver of rent for lawyers during the lockdown period.  The Court order does not mention that paying rent is mandatory for tenants of all properties whether residential, industrial or commercial.  The  Hon’ble Supreme Court has rejected the demand for concession in paying the rent of the Chamber-Office to the lawyers of the Supreme Court Bar Association. The court says that no special exemption can be granted to lawyers.

In the circumstances it will be difficult for most of  the landlord until 30th September 2020, to start possession proceedings unless they have given their tenants three-months’ notice.

The Force majeure clause provides temporary reprieve to a party from performing its obligations under a contract.The phrasing of the clause decides whether a particular event falls within the clause and what consequences to follow. A question that may arise is whether a Lessee can invoke the Doctrine of Frustration in the absence of a Force Majeure Clause for Non-Payment of Lease Rent? Typically, the Doctrine is invoked in circumstances where the purpose of their contract is held to be frustrated under Section 56 of the Indian Contract Act. However, the Hon’ble Supreme Court in Raja Dhruv Dev Chand v Raja Harmohinder Singh, (1968) 3 SCR 339, AIR 1968 SC 1024, has  observed “Authorities in the courts in India have generally taken the view that Section 56 of the Contract Act is not applicable when the rights and obligations of the parties arise under a transfer of property under a lease’’. Thus, it is unlikely that a lessee can claim frustration of contract in the absence of a Force Majeure clause under a lease agreement and seek waiver of lease rental as consequence of a Force Majeure event. However, most tenancy agreements don’t have the provision of ‘force majeure’ and cannot invoke the doctrine of frustration and so unless announcements are backed by ordinances, the uncertainty of its enforceability remains. Regardless of the Government efforts, individual circumstances could lead to foreclosure proceedings across the country.  Fortunately, the Hon’ble Supreme Court in its judgment in Vishal N. Kalsaria Vs. Bank of India & Ors. (2016) 3 SCC 762 and in the case of Bajarang Shyamsunder Agarwal Vs. Central Bank of India, (2019)9SCC 94,  has held that “the rights of a rightful tenant cannot be compromised under the SARFAESI Act proceedings. However, the operation of Rent Control Act cannot be extended to a “tenant-in-sufferance”.  

Conclusion

The economic devastation due to the spread of the Corona virus has forced private parties and advocates to look through the fine print copy to future proof contracts. Amid the pandemic, the much forgotten and the invisible hands of the “force majeure” provision in contracts and lease is affecting contractual obligations throughout. However, Force Majeure events are not exhaustively laid out under the law and applicability of this provision depends on the language of the rental agreement and interpretation of the Courts. The effect of this virus on the lease will depend on the final determination made by the Courts. An ideal scenario for a tenant and landlord would be to negotiate and discuss the situation and re-negotiate the terms of the agreement for waiver of rent or alternative solution to avoid litigation and complexities. All the terms of agreement should be in writing to provide breathing room to both the parties. Further, in the absence of any clarity by the authorities on rental obligations under commercial lease agreements, businesses are left struggling with zero sales coupled with salary and rental obligations. 

The Author is Advocate-on-Record, Supreme Court of India.

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