Emerging Issues: Landlord-Tenant Conflict in Times of COVID-19

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In March 2020, the powers of the Disaster Management Act, 2005 were thereupon invoked. The Ministry of Home Affairs made this decision. This was through Section 10(2)(I). It directed all subordinate governments for waive off rent for the working class. This was for a period of one month.

What is the Current Situation?

Many states such as Maharashtra, Delhi, UP, Karnataka have issued circulars on the same. The circulars spoke about the deferment of rent for at least 3 months. Besides, the tenants should not be even expelled from the premises for non-payment of rent. But these circulars were advisory in nature. It was a breather to tenants who are unable to pay rents during this pandemic.

However, they are not absolute or enforceable by the tenants. The government has shown a lack of lucidity on the obligations to pay rentals. As a result, many landlords and tenants are struggling. As landlords continue to make the mortgage payment, maintenance, electricity bills and EMI’s, the “Force Majuro” provision is being imputed by tenants under their respective contracts.

What is the Legal Skeleton for this Matter?

One must understand that the landlord-tenant relationship is a simple contractual relationship. It lays its bases on “consensus id idem”. In other words between landlord and tenants, the mutual agreement governs the relationship. This mutual assurance/agreement when written down forms the lease deed or rent agreement. The Indian Contract Act, 1872 covers the various provisions related to contracts. This includes the offer, acceptance, consideration, breach and frustration. It is the decision of the parties to agree to include any present conditions into the agreement. Thus when the need arises, it gives them a legal right to perform or abstain from performing the promises. 

The Latin phrase ‘Force Majuro’ means superior strength. A Force Majuro event is a circumstance beyond reasonable control. It frees both the parties from their contractual obligations. A Force Majuro Clause (FMC) is a standard clause which is a part of more or less every agreement. An FMC is not implied under Indian law. It needs explicit mentioning and agreement by the parties to the contract. It does not give blanket protection. Hence, it does not absolve the tenants their liability to pay the rent it only suspends them.

The Apex court in the past has also ruled about the doctrine of frustration. It said that it too can only come into play when there is no FMC in the contract. The recent case being Energy watchdog vs CERC (2017) 14 SCC 80.

What are its Legal Limitations?

In this situation, even if the landlord goes to court for the recovery of the outstanding rent, the outcome of such a case is difficult to predict.

Factors like the cost of going to court and the pendency of cases make this situation difficult. One can only imagine the time it will take for a Court of Law to give an acceptable verdict. Various landmark judgments have interpreted an FMC. The interpretation binds the parties to the contract or to their undertakings. Hence for a tenant, it is often interpreted to release a party from its obligations on grounds of an FM event.

Further, according to the Commercial Courts Act, 2015, the plaintiff can file such commercial suit for recovery of the lease amount. But this can be done only after a certificate stating pre institution mediation has failed. Legal service authority according to section 12A issues the certificate. It aims to resolve the conflict during the mediation itself. This is so that the conflict does not need the intervention of a court of law.

What is the Way Forward?

According to the given situation, the need is for both the parties to become more realistic. The solutions to this conflict lie with the parties themselves. It is advisable for the parties to come forward and negotiate. Reduced rental for the period of the pandemic as an interim measure is advisable. This can be implemented for at least 3-4 months, if not till December 2020.

In the absence of FMC, the only option seems to be for tenants preferring notice to seek waiver or deferment. The landlord also cannot ignore the rise in work from home culture. The demand for commercial and residential housing spaces will decrease. If the lessee vacates the premises, the possibility of the premise lying vacant for a long time is high. Any unilateral resolution to refrain from paying will result in termination. This is also followed by further liability for damages. Hence, as mentioned above it’s a two-way street and there needs to be trust between the landlord and tenant.

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