DELHI HIGH COURT SUPPORTS LANDLORDS DURING COVID-19 LOCKDOWN

The #DelhiHighCourt is the first High Court that has decided on the issue of #rent to be paid during the #Pandemic. It has recently passed a Judgment dated 21-05-2020 in Ramanand and Others vs. Dr. Girish Soni and Anr., where the Court rejected the Application filed by Appellant-Tenants for #suspensionofpaymentofrent, owing to the #Covid19 #Lockdown situation.

Facts-

In this case, the Respondent-#Landlord and the Appellant-Tenants executed a Lease Deed dated 01-02-1975, where the premises of Shop No. 30-A, Khan Market, New Delhi (#RentedProperty) was given on rent/lease. Later in 2008, the Landlord filed a Suit for Eviction before the Ld. Senior Civil Judge-cum-Rent Controller under the provisions of Delhi Rent Control Act 1958.

The Rent Controller passed an Order for Eviction dated 18-03-2017 (Eviction Order), which was challenged by the Tenants in the Rent Control Tribunal. The Tribunal also allowed the said Eviction Order. Thus, the Tenants filed a Revision Petition before the Delhi High Court in 2017 and challenged the said Eviction Order (Petition).

The Delhi High Court passed an Interim Order dated 25-09-2017 and stayed the execution of the Eviction Order, on a condition that the Appellant-Tenants pay a rent of Rs. 3.5 Lakhs per month with effect from October 2017 to the Respondent-Landlord, for continued use and occupation.

Thereafter, the Petition remained pending for hearing. Meanwhile, the Appellant-Tenants filed an Urgent Application in the Delhi High Court, seeking suspension of payment of rent, owing to the Covid-19 Lockdown situation (Application).

Issue-

Whether the Lockdown would entitle the Appellant-Tenants to claim waiver/suspension/ exemption from payment of rent to the Respondent-Landlord?

Judgment-

The Delhi High Court made the following observations, vide Order dated 21-05-2020:

1- Force majeure is an event that is beyond the control of the parties and includes both acts of nature such as earthquake, floods, etc and acts of people such as riots, strikes and war, etc.

2- Generally, the rights and obligations of lessor and lessee can be determined in the following manner:

i) If there is a contract between lessor and lessee-

a) And if the said contract contains a force majeure clause- Then, a force majeure clause may provide for any of the following options to the parties:

i. That the tenant may #waive/suspend the payment of rent, till the force majeure continues; or

ii. That the #tenant may claim that the contract has become void due to the force majeure event and that he may surrender the tenanted premises; or

iii. That the tenant may choose to retain the premises, but continue to pay rent or monthly charges even during the force majeure conditions.

In such a case, the parties have to abide by the contractual stipulations of the force majeure clause, in order to determine whether the tenant is liable to pay rent or is entitled to suspend the rent.

Further, Section 32 of the Indian Contract Act 1872 (Contract Act) governs such contracts that have clauses related to force majeure conditions.

b) If the said contract does not contain a force majeure clause-

Section 56 of the Contract Act governs contracts that do not have a force majeure clause and that have become impossible to perform, due to the occurrence of a force majeure event, in the following manner:

(i) The parties may plead frustration of contract, on the ground of impossibility of performance, destruction of the subject-matter of the contract, etc, due to the occurrence of a force majeure event, under Section 56 of the Contract Act.

(ii) But Section 56 applies only to executory contracts[1] and not to concluded transfers. This principle was discussed by the #SupremeCourt in Raja Dhruv Dev Chand v. Raja Harmohinder Singh & Anr., AIR 1968 SC 1024.

Thus, tenants are not entitled to claim waiver/suspension of rent, in case of executed contracts, such as lease agreements, under Section 56 of the Contract Act.

c) If the contract is in the nature of profit-sharing arrangement or based on sales turnover-

Then, the tenant may seek suspension/waiver of rent on the ground that there is no profit or sales turnover generated during the Lockdown situation.

ii) If there is no contract between lessor and lessee-

In such a case, Section 108 of Transfer of Property Act 1882 (TP Act) would govern the tenancies and leases, on the following grounds:

a) If the property has become substantially and permanently unfit for use or has been completely destroyed, then the lessee may have an option to avoid the lease. This principle has been discussed by the Delhi High Court in Sangeeta Batra v. M/s VND Foods & Ors., (2015) 3 DLT (Cri) 422.

b) But in case of temporary non-use of property by tenant, he cannot invoke Section 108 of the TP Act.

Thus, the temporary non-use of premises due to Lockdown cannot be construed as lease becoming void under Section 108 of the TP Act.

3) The Court referred to certain landmark judgments on the subject of force majeure and frustration of contract. Few cases have been given below:

i) Supreme Court: Energy Watchdog vs Central Electricity Regulatory Commission (2017) 14 SCC 80: Herein, the Apex Court held that a mere rise in price of fuel cannot be considered as a force majeure event and commercial hardship cannot be deemed to be a force majeure condition that makes the contract impossible to perform.

ii) Delhi High Court: Aranya Hospitality Management Service Pvt. Ltd. vs K.M. Dhoundiyal & Anr 2017 SCC OnLine Del 7645: In this case, the Delhi High Court did not allow the Appellant to take the excuse/plea of lack of water connection, as a force majeure event, to avoid payment of rent of the rented commercial space (restaurant) to the landlord. The Court directed the Appellant to either pay the rent due or cancel the agreement.

4) In the present case, the Court noted that there is no contractual stipulation related to force majeure condition or about suspension or waiver of rent in case of occurrence of a force majeure event. Further, Section 32 and 56 of the Contract Act are not applicable in this case, as the Delhi Rent Control Act 1958 is applicable.

5) The Court took into consideration the following facts before passing the Order in this case:

i) That the Rented Property is located in a well-known commercial area;

ii) That the monthly rent of Rs. 3.5 Lakhs for a commercial shop is very low in comparison to the current market rate;

iii) That reasonable compensation should be made to the Respondent-Landlord for the loss incurred due to the delay in execution of the Eviction Order.

6) The Court considering the aforesaid facts and principles of force majeure and frustration of contract, dismissed the Application for suspension of rent and passed the following Order:

(i) That the Tenants are liable to pay use and occupation charges to the Landlord for the Rented Property, in the following manner:

(a) For March 2020- payment to be made by 30-05-2020;

(b) For April and May 2020- payment to be made by 25-06-2020;

(c) From June 2020 onwards- payment as per Interim Order dated 25-09-2017.

(ii) That the Interim Order directing the Tenant to pay Rs. 3.5 Lakhs per month since October 2017, would continue. In case, the Tenant fails to pay, then the Eviction Order would be executed.

This Judgment of the Delhi High Court happens to be the first in the Covid-19 situation that deals with the issue of landlord and tenant rights and whether Covid-19 can be pleaded as a force majeure condition allowing the tenant to stop paying the rent. The Court was clear that if the tenant was in possession of the premises which was in habitable condition, the tenant was bound to pay the rent. It further held that since the Lease Agreement was an executed contract, the Tenant was bound by the terms of the said Contract and had to fulfil his contractual obligations and pay the rent that had accrued during the Covid-19 period.

Harini Daliparthy

Senior Legal Associate

The Indian Lawyer


[1] Executory contracts are those contracts that have not yet been fully performed or fully executed.

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