Rent Deference During the Pandemic

The Coronavirus pandemic has prompted the nation to its most jarring standstill in a long time, and most governments and companies are still figuring out different ways to deal with the sudden halt of global supply chains. The lockdown has slowed down markets, factory operations and several businesses, affecting employment and source of income of many.

Rental agreements in India are the most common types of agreements as India being one of the most populated countries, does not have enough resources and utilities per capita. People here work by renting places, and most of the outstation employees, workers and students who come to work and study also prefer to stay in a rented flat. It is important and always advisable that property-related deals shall be secured through legally binding agreements on the parties involved. It does not matter that whether you are an owner who is looking out to rent his property or a tenant who is looking for a property on rent, the important thing is that both the parties involved shall make use of a valid rent agreement format inclusive of all the clauses that shall be beneficial to both the parties and at its best shall protect the interest of both the parties. The agreement should work as a reference document for the parties involved. The rent agreement should be made keeping in mind all the legalities and legislation so that it is an error-free agreement and can be presented as collaborative evidence in the scenario when a dispute arises among the parties.

These agreements are simple contracts which are legally enforceable in the court of law and is therefore made under the Indian Contracts Act, 1872. Any rental agreement which is made in keeping the mind, the essentials of a valid contract, is considered as a valid rental agreement.

Rental agreements are right now the centre of attraction, as its position in the time of Covid-19 is highly unstable. There are circumstances, under which, an individual is not using a place, but is still liable to pay the rent as per the agreements. Though there have been schemes and offers by the Indian government, still the relaxation policy for such agreements is unclear. 

A majority of the Indian middle class lives in rented accommodation, and so do many migrants, students, out of station employees etc. and for all of them, nothaving enough savings left to meet their utilities and needs is a stark and immediate reality. In that light, the central government, along with a few state governments, that have cities with sizeable migrant, and floating populations have put in place regulations to help the middle class in need of financial respite.

This paper talks about one specific aspect of the measures governments have taken to aid people financially; rent control. Since rent is a purely a contractual obligation between parties to the agreement, it is rarely infringed upon.

In understanding the provisions of rent deference, it is essentialfirst to understand the importance of the Force Majeure Clause. A Force Majeure Event can be understood as an extraordinary event or a circumstance beyond human control, which frees both the parties from contractual obligations, when prevented by such an event, from fulfilling their obligations under the contract. Force Majeure Clause is a standard clause which is invariably incorporated in every agreement. It also entitles legally to suspend and or not to perform an undertaking by a party. Unfortunately, most of the Force Majeure clauses in already concluded agreements do not have a pandemic like event incorporated in it. An event in order to be stated to be a Force Majeure event must contain,among other things, the following:

• directly or by implication be an event which is beyond the reasonable control of any of the parties; and
• must affect the ability to perform by any of the parties.

The central government and the respective state governments have drafted these orders and notifications, relaxing the rent payment requirements under their jurisdiction. It needs to be kept in mind that not all states have taken measures in this vein since no other form of financial relief except loan payment has been mandated in the act.

The central government in consonance with their policies for migrant labourers and workers stranded has mandated that no landlord shall collect rent for the next few months due to the pandemic. Other measures, including arranging special trains for transit have been arranged but for the sake of this paper, the notification dated 29th March is the sole focus since it relaxes rent collection obligations and places the same under the purview of Sec, 57 of the Disaster Management Act, mandating a year of imprisonment or fine.

Around the same time, the state governments of Karnataka and NCT Delhi have announced a similar measure, with the notable difference being the scope of application of the notification. In both these states, the notification extends protection to all tenants and halts payment of rent for atleast one month in Delhi and a similar length of time in Karnataka. These notifications do not signify whether they will be deferring the payments, or requiring landlords to forgo the rent for the one-month period commencing on the day of the issuance of the notification. This lack of clarity be as it may, the NCT Delhi government has, through an advisory announced that they would be providing assistance to those residents that are unable to meet their rent obligations. While there is no official notification signifying the same, it can be assumed that the same will be carried out as a local level scheme.

While the Delhi and central government notifications have made provisions for action in the event of a violation of the same, the Maharashtra government notification, which wasn’t properly available on the website, and whose only public domain copy was a twitter post, where a Marathi language copy of the order was found, makes no such mention. This notification is more explicit about the aim, where the time period of non-recovery is three months, the notification clearly states that the scheme merely provides for deferment of rent payment, rather than forgiveness; allowing landlords to recover three months of rent at the end of the notification period.

These measures have no bearing on the rental contracts and do not derail the status of sub-letters, most of that is to be extrapolated from the barebones construction of the notification. In sum, these notifications apply to all landlords that, at the time of publication are letting out a property in rent and to the best of my knowledge (except for Maharashtra where it is specified) defer the payment of rent.

There are other ways through which the rent is reduced or waived off in these hard times. One of the ways is by directly convincing the owner of the property for some concession in the monthly payments of the rent till the nationwide lockdown is over. This is an unofficial method, and it entirely depends upon the decision of the owner whether he wants to give the concession to the tenant or not. There yet no official notice from the government which allows concession to such agreements. It is vital to note that such arrangements are being used by the students, outstation employees, etc. Also, such policies only apply to those agreements that have been executed before the nationwide lockdown, that is, before 25th march.

The parties may execute an Addendum with the help of a legal entity or try to negotiate and put in writing and execute the Addendum. The strict requirement of compulsory registration of such pandemic time Addendums or novation of contracts, during these hard times, must be dispensed with by the governments so that there is no unnecessary hassle.

Changes in legal System post COVID-19

Once the lockdown is over, and things become normal, one of the most prominent change, that the legal system will witness shall be the making of the legal enforceable agreements. People will not consider the importance of making a contract and will execute such contracts with utmost diligence. The clauses like “force majeure” and “doctrine of frustration” will be considered essential, and would be taken into consideration in future contracts.

A “force majeure” clause when present in a contract, gives the opportunity to not perform legal obligations under some circumstances. Such scenarios could be when an activity becomes impossible to perform. If a rental agreement, contains this clause, there are high possibilities that the rent is waived or reduced of the tenant, as due to the lockdown staying in the rented flats have become an impossible activity. However, such clauses are not added in the rental agreements. Therefore, the layman will make sure that such a clause is given a place in the agreement.

The covid-19 lockdown has also made people aware about the clause of “doctrine of frustration”. This clause frustrates the tenancy even when either party involved in the agreement is not at fault, and the legal obligations, become impossible to fulfil due to the unforeseeable circumstances. Tenancy, as the main element of the contract, will terminate automatically, when a frustrating event occurs that is one which is unforeseeable and unexpected or beyond the control of the parties. Section 56 of the Indian Contract Act, 1872 deals with “doctrine of frustration”. Here again, the important point is the presence of such a clause in the valid rental agreement.

Services of trained mediators and conciliators and organizations that provide additional dispute resolution may be used by the parties, in order to conclude issue rising due to these rental agreements in the time of the lockdown.

Therefore, if we talk about the changes in the legal system, drafting of the rental contracts would see a new world with much more important clauses.

Post Covid-19 there are significant changes that the country would witness. Similarly, the rental agreements will have to go through their own changes. The agreements would amend not only with the addition of newer clauses but also the way through which the rents are paid. The rent in the future might be paid through instalments etc. However, it is important to understand that the basic structure of a rental agreement would not change. It might go under some amendments, but its validity and the way they are made shall remain the same. It is advisable that once the things become normal, execution of such agreements shall be only made with the help of an experienced legal person to reduce such ambiguity in the future outcomes of the agreement.

The author of this blog/Article is Kishan Dutt Kalaskar, a Retired Judge and practising advocate  having an experience of 35+ years in handling different legal matters. He has prepared and got published Head Notes for more than 10,000 Judgments of  the Supreme Court and High Courts in different Law Journals.  From his experience he wants to share this beneficial information for the individuals having any issues with respect to their related matters.

The author can also be reached at kalaskarnetra@gmail.com