The Delhi High court gave a very crucial judgment on May 21.2020. It stated that: “the tenants cannot claim force suspension of rent invoking force majeure clause owing to the lockdown. This is while occupying the rented premises.”
But, the single Bench of Justice Prathiba M Singh provided some relaxation. She did this considering the lockdown. She granted them some postponement in their rent payment schedule.
This order was a response to an application that raises issues about the suspension of rent. Many tenants seek suspension considering the COVID-19 lockdown. It raises diverse other legal questions on the issue as well.
Facts of the Case
The tenant has a shoe store called “Baluja” at one of Asia’s most elite streets Delhi’s Khan Market. The shop was on a commercial lease since 1975 for a paltry sum INR 300 per month from the landlord. The tenant under the Delhi Rent control law got evicted in 2017. Here, the tenant before the Delhi High Court challenged the eviction.
The Delhi High Court passed an interim order staying the eviction order. Meanwhile, it also directed the tenant to pay INR 3.5 lakhs. In this application, the tenant claimed for suspension of rent due to the lockdown.
Legal Analysis
The Court categorized the varied tenancy forms into two:
1. those with the presence of the force majeure clause.
2. those without the presence of the force majeure clause. The fundamental principle was that in the former category if force majeure clause implies then, the tenants could seek waiver or non- payment of the monthly rent.
The tenant sometimes may claim that the rental contract has become void. They then have to surrender the rented property. Considering this the Court stated that if “the tenant wishes to retain the premises, then in such case rent would be payable, and the contract could not be claimed to be void.”
The latter category could imply the Doctrine of frustration or impossibility of contract. The Court distinguished between executed and executory contracts. The Court held that the Doctrine of frustration did not apply to executed contracts. These refer to rental or lease agreements even though they involve monthly rent.
But, the Court stated that the tenant can avoid the lease under transfer of property law. This is only in cases of lack of contract or contractual obligations. There must also be complete destruction of property for this to apply. The permanent nature destruction caused should be due to the force majeure event. It stated that temporary abandonment of rental premises does not absolve the tenant from payment.
The most important decision of Court among all being a tenant can seek suspension of rent in cases of temporary abandonment of rental premises if not abided by any contract or contractual stipulation.
Exceptions Provided By The Court
The COVID-19 has had a great impact on various contracts. Considering this, the Court has contemplated some exceptions for some uncommon rental agreements. If a property provided on rent is attached to sales turnover, then the Court stated that: “The tenants would be entitled to seek waiver or suspension of rent strictly in terms of the contract itself”. The Court clarified that this is more related to sales or profits than the force
majeure clause.
In the above stated Baluja store case, the tenants were not abided by a written contract. Thus, they did not fall under the first tenancy category. The tenancy second form was also not considered as it is under the Delhi Rent Control Law. The tenants also did not file any plea of permanent destruction of property. Thus the avoidance of lease in cases of lack of a contract is also not considerable.
The Court also considered many factors to upfront justice, which includes:
1. rental properties nature,
2. rent amount,
3. financial or social status of the parties involved,
4. contractual obligations and
5. other factors.
Contemplating on the tenant’s intent to remain at the property, the Court rejected the rent suspension. But, because of the lockdown, the Court scheduled the deferred payment.
Future Effect
In this case, the judgment provided by the Delhi High Court was a commercial one. But the reasoning could be extended to residential rental contracts.
The essential takeaways from this case are:-
- In a rental deed, the force majeure clause could be used to pursue waiver or suspension of rent in some cases. But, complete avoidance of the deed will allow the tenant the right to leave the rental promises.
- Contracts without force majeure clause cannot invoke the Doctrine of impossibility. But, if the justice or equity factors affect the tenants, they could get a waiver.
- Contracts where profit sharing or sales turnover is the basis of consideration their rent waiver could be considered if sales or profits are not reported.
The judgment protected the interest of both occupants and landowners. It has offered big relief to the occupants and the landowners, through this dilemma. The Delhi High Court has denied the rights to the tenants with false claims. Having the intention to use the rented property without paying the rent. Yet it has allowed deserving cases carving special anomaly for equitable claims.
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