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“Force majeure - Landlord’s Worst Nightmare”

Updated: Apr 11, 2020

                                 By Akash Swami 



COVID-19:








COVID-19[1] is a mild to severe respiratory illness that is caused by a coronavirus (Severe acute respiratory syndrome coronavirus 2 of the genus Betacoronavirus), is transmitted chiefly by contact with infectious material (such as respiratory droplets), and is characterized especially by fever, cough, and shortness of breath and may progress to pneumonia and respiratory failure.



And this pandemic has completely changed the dynamics of the world. With the Covid-19 pandemic engulfing the entire world, the legal eagles all over the world are occupied with the interpretation of the old forgotten concept of contractual law namely “Force majeure”.


Concept of Force Majeure:


Force majeure is a French term that literally means "greater force." It is related to the concept of an act of God, an event for which no party can be held accountable, such as a hurricane or a tornado. Force majeure also encompasses human actions, however, such as armed conflict. Generally speaking, for events to constitute force majeure, they must be unforeseeable, external to the parties of the contract, and unavoidable. These concepts are defined and applied differently by different jurisdictions. The concept of force majeure originated in French civil law and is an accepted standard in many jurisdictions that derive their legal systems from the Napoleonic Code. In common law systems such as the U.S. and the U.K., force majeure clauses are acceptable but must be more explicit about the events that would trigger the clause.



Force Majeure and Commercial Lease:



In the context of a commercial lease, the force majeure provision generally provides a mechanism to postpone or suspend the performance of a duty under the lease due to unforeseeable circumstances that are beyond the control of a party. A landlord and tenant will include a force majeure provision in a commercial lease as a means to allocate risk among them in case an unforeseeable event makes it impossible or impracticable for a party to perform.

In an unprecedented move, the Ministry of Home Affairs (MHA) passed[2] a order using the powers conferred under section 10(2)(I) has asked the landlords not to force their tenants to vacate the premises in the light of the lockdown being faced by the country and several other orders in order to safeguard the migrants and destitute in this testing times.

The onset of SARS Covid-19 pandemic in India has spooked Central and State Governments into ordering a 21-day country-wide lockdown starting 25th March 2020. Invoking Section 144 of the Code of Criminal Procedure, 1973, orders have been issued directing closures of restaurants, offices, and all retail establishments barring pharmacies, groceries and other essential services. As a consequence, while business has come to a halt, the outflow of rentals may continue, causing losses in the process.

With the closures of restaurants and retail establishments, a major question arises – how to pay the rent? If the force majeure clause of the rental agreement contains a force majeure clause, then the tenant is likely to invoke it and suspend the rent payment. In the event that a commercial lease does not contain a force majeure clause, the impacted party will not have a contractual basis to claim an excuse for delay or non-performance; however, it may have an equitable claim under the doctrines of frustration or impossibility.



Point of Reliance by Tenants:



The corporate giants namely PVR Cinemas and Reliance Retail [3]who are the first to inform the landlords and mall owner that they are invoking the clause of Force majeure and won’t be paying the rent during the period of the lockdown.

The tenants are placing major reliance on the countrywide lockdown imposed by the Central Govt and the prohibitory order placed under Section 144 CrPC due to which the source of income for these tenants and commercial lease holders have become virtually nil and there stands no source of revenue for the respective tenants and commercial lease holders. All these unprecedented events completely falls within the pandemic of SARS COVID-19 which will absolve the tenants from the legal liability arising out of the contractual agreement with the landlord.

Moreover the Section 3 of the Epidemic Act [4]sets out a penalty clause which states that any person disobeying any regulation or order made under this Act shall be deemed to have committed an offence punishable under section 188 of the Indian Penal Code (45 of 1860 ) and also the Section of 4 of the act also safeguards the tenant as the language of the Section 4 of the Epidemic Act[5] says that no suit or other legal proceeding shall lie against any person for anything done or in good faith intended to be done under this Act. The section of the Epidemic Act read with Section 73 of the National Disaster Act[6] would safeguard the tenant from the legal contractual liability of paying the rent during the course of the lockdown issued by the Central Government.




Arrow in the quiver for Landlord(s):


For all those landlord(s) who only rely on the rental income as their only source of income have found them in a highly tight spot where there seems to be no road ahead. Some of the arrows in the quiver for landlord(s) may be:

Paradine v. Jane[7]


Under the English common law the earlier case laid down the rule of “absolute contract” that when a duty was cast upon a person who bound himself by contract absolutely to do a thing, he could not escape liability for damages for breach by proof that as events turned out performance was futile or even impossible.


Simper v. Coombs[8]


The position at common law is plain. She had a contractual tenancy, and that tenancy has never been determined by due notice to quit. It, therefore, continues in existence. The destruction of the house by a bomb did not determine the tenancy. It is well settled that the destruction of a house does not by itself determine the tenancy of the land on which it stands.It was with reference to such a lease the learned Judge has stated that the destruction of the house does not by itself determine the tenancy of the land on which it stands.

George J. Ovungal vs Peter[9]


The similar view was reiterated by the court in the present judgement, where the court was posed with the question of determining does any unforeseen circumstance will render the relationship of the landlord and tenant as void. The Court categorically held that the relationship between the tenant and landlord will not come to an end simply as till the the time possession lies in the hand of the tenant irrespective the land is used for the purpose it was leased for or not as the courts stated that the land is still being used to store the furniture and fixtures forming a part of the working capital of the tenant.

RAJA DHRUV DEV CHAND Versus RAJA HARMOHINDER SINGH AND ANOTHER[10]


Where the property leased is not destroyed or substantially and permanently unfit, the lessee cannot avoid the lease because he does not or is unable to use the land for purposes for which it is let to him.


T.Lakshmipathi & Ors vs P.Nithyananda Reddy & Ors [11]


We are, therefore, of the opinion that in the event of the tenancy having been created in respect of a building standing on the land, it is the building and the land which are both components of subject matter of demise and the destruction of the building alone does not determine the tenancy when the land which was site of the building continues to exist; more so when the building has been destroyed or demolished neither by the landlord nor by an act of nature but solely by the act of the tenant or the person claiming under him.



CONCLUSION


The road ahead is very shaky and patchy as how the courts will deal with the present situation is yet to be ascertained as such cases which are sure to spike due to prevalent pandemic situation arising out of COVID-19 in the coming days. There are various ways to tackle the situation of rift arising out of contractual liabilities between the tenant and landlord. One way of amicable settlement can be renegotiation of the existing contracts and lease between the parties which would be only time saving and cost effective method. The other most sorted way out would be the Arbitration.

Courts would be posed to act on such hard situations once the pandemic ends.

How will Indian Court deal with this unprecedented changing socio-economic relationship arising out of contractual obligations in view of the pandemic of COVID-19 will be an interesting move to look forward.



(Author is a Litigation Associate working with Subodh K. Pathak & Associate, Supreme Court of India. View(s) of the author are personal).










 
 
 

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