Delhi High Court has set out the parameters to be considered while dealing with requests for waiver or suspension of rent on behalf of the lessee/tenant.
On 24.03.2020, the Government announced a 21-day nation-wide lockdown with effect from 25.03.2020. Following suit, the Ministry of Home Affairs (MHA) and various state governments issued orders/notifications which provided for a complete lockdown in the entire country. The lockdown had an impact across most sectors and tenants started approaching owners of offices, shopping malls, commercial complexes, shops etc. seeking suspension/waiver of the lease rentals till the time the lockdown subsists. The Delhi High Court in its judgment dated 21.05.2020 in Ramanand and Others v. Dr. Girish Soni and Others (RC Rev. 447/2017), has dealt with this issue specifically and has set out the parameters to be considered while dealing with requests for waiver or suspension of rent on behalf of the lessee/tenant.
Facts The tenant was occupying a shop in an upmarket commercial area in New Delhi, and ran a shoe shop in such property (Property). There had been a series of litigation relating to the Property, as the landlord had filed for eviction of the tenant under the Delhi Rent Control Act, 1958 and the eviction order passed in favour of the landlord, was stayed by the High Court, subject to certain terms including the tenants paying a sum of Rs. 3,50,000 per month with effect from the month of October, 2017.
Pursuant to the COVID-19 situation, an application seeking suspension of rent was moved by the tenants in the same proceedings, during the lockdown period before the Delhi High Court. The tenants claimed that the lockdown had caused a complete disruption of all business activities, including the business of the tenants. It was pleaded that the lockdown was a force majeure event, which was beyond the control of the tenants and therefore, the tenants prayed for a waiver of monthly rent, or inthe alternative, partial reliefs in terms of suspension, postponement or part-payment of the rent amount.
Ruling
The Court addressed the provisions of the contract and various statutory laws relating to a tenant and landlord relationship, given that the such contracts of tenancy and leases can have multifarious forms. Given that the question of waiver, suspension or any remission in the rental payments would operate differently for each category of agreements, the Court observed that where there is a contract, the existence of a force majeure clause /condition that could permit a waiver or suspension would be governed by contractual terms and in the absence of a contract or a force majeure clause, the applicable law would be attracted for consideration by Courts.
No rent agreement or lease deed existed between the parties and hence Section 32 of the Contract Act did not apply.
The Court observed that where the agreements provided for a force majeure clause, the same could be examined in the of section 32 of the Indian Contract Act, 1872 (Contract Act). A force majeure clause, could be differently worded in different contracts, and 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. Also, the force majeure clause in the contract could also be a contingency under section 32 of the Contract Act, which may allow the tenant to claim that the contract has become void and surrender the premises. 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.Given that no rent agreement or lease deed existed between the parties, section 32 of the Contract Act did not apply.
Section 56 applicability to `executed contracts’ and not `executory contracts’.
The Court also dealt with section 56 of the Contract Act, and relied on various judgments to examine its applicability on lease agreements. The distinction between ‘complete conveyance’ and ‘an ‘executory contract’ was observed in Raja Dhruv Dev Chand v. Raja Harmohinder Singh & Anr., (AIR 1968 SC 1024) wherein it was categorically held that a lease is a completed conveyance though it involves monthly payment and hence, section 56 cannot be invoked to claim waiver, suspension or exemption from payment of rent. A similar proposition was dealt with by Delhi High Court in Hotel Leela Venture Ltd. v. Airports Authority of India, 2016 (160) DRJ 186.
On examining these rulings, the Delhi High Court also ruled against the applicability of section 56 to the tenancy of the Property, as section 56 would not apply to a lease agreement and other similarly situated contracts which are `executed contracts’ and not `executory contracts’.
Provisions of the Transfer of Property Act, 1882 (TP Act) governing landlord- tenant relationships qua Force Majeure
Section 108 of the TP Act, deals with the rights and liabilities of lessor and lessee, in the absence of contracts. Section 108 B(e) of the TP Act, envisages situations which would render the property `substantially’ and ‘permanently unfit’ to be used for the purpose for which it was leased, and in such cases, at the option of the lessee, the lease would be void.
The Delhi High Court has examined the applicability of section 108, and also analysed judgments on this issue, and it has been observed that for a lessee to seek protection under sub-section 108(B)(e), there has to be complete destruction of the property, which is permanent in nature due to the force majeure event. Until and unless there is a complete destruction of the property, section 108(B)(e) of the TP Act cannot be invoked.
In view of this legal position, temporary non-use of premises due to the lockdown which was announced due to the COVID-19 outbreak cannot be construed as rendering the lease void under Section 108(B)(e) of the TPA. The tenant cannot also avoid payment of rent in view of Section 108(B)(l). Further, the tenants also in the proceedings did not urge that the tenancy is void under section 180B(E). Also the tenants were really not `Lessees’ as an eviction decree had already been passed against them.
Invoking equitable jurisdiction of the Court due to temporary non-use of the premises
In the absence of a contract or a contractual stipulation, the last straw available to the tenant could have been the invocation of the equitable jurisdiction of the court, however, where under the question as to whether the suspension of rent ought to be granted or not, would only depend upon the facts and circumstances of each case.
In view of this, the High Court considered the following factors as necessary for determining the question as to whether the tenants were entitled to any relief of suspension of rent like the nature of property, financial status of the parties, quantum of rent, and factors like the status of the tenancy. The High Court also considered that the tenants were not covered under protective government orders and therefore could not claim relief on the basis of such orders.
Based on the findings, the High Court rejected the tenant’s application for suspension of rent. However, a certain degree of relaxation was allowed by the High Court in the schedule of payment of rent, owing to the lockdown. Accordingly, the Court directed that
“the Tenants shall now pay the use and occupation charges for the month of March, 2020 on or before 30th May 2020 and for the months of April, 2020 and May, 2020 by 25th June, 2020. From June 2020 onwards, the payment shall be strictly as per the interim order dated 25th September 2017. If there is any default in payment, the interim order dated 25th September, 2017 would be operational. The said interim order is very clear i.e., if there is any non- payment, the decree would be liable to be executed.”
In the wake of COVID-19 pandemic, tenants are finding it difficult to honour their commitments for lease rents and are seeking rent holidays. The nature of the contract and surrounding factual situation are extremely relevant to see the legality of a request for ‘rent holiday’. It has definitely, given a window to potential tenants to invoke the equitable jurisdiction of courts, in cases of hardship. Although this decision is first in line of the many judgments that will possibly be rendered by courts in this regard, it certainly does set the benchmark for consideration of requests for waiver or suspension of rent.
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