After governmental restrictions on movement of people and closure of commercial establishments in India by invoking provisions of the Disaster Management Act, 2005, several tenants have been raising questions on whether rent is payable under their lease deeds and whether governmental restrictions can amount to force majeure for the limited purpose of payment of rents. Further landlords have also been questioning the right of tenants to seek suspension and/or non-payment of rents when tenants continue to remain in possession and the premises have not been rendered unfit or destroyed. The purpose of this article is to examine the rights and duties of the landlord and tenant vis-à-vis each other and whether at all force majeure can be invoked by tenants in the lease deed.
B. Provisions of law applicable to leases in respect of force majeure:
(i) The provisions in relation to force majeure and frustration of contracts are provided in sections 32 and 56 of the Contract Act, 1872 (“Contract Act”).
(ii) Section 105 of Transfer of Property Act, 1882(“TPA”) defines a lease of immoveable property as a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. The transferor is referred to as the ‘lessor’ and the transferee is the ‘lessee’.
(iii) Section 17 (1) (d) of the Registration Act, 1908 (“Registration Act”), any document creating a lease of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent requires compulsory registration.
(iv) It is settled law that a lease contemplates the transfer of ‘right of enjoyment ’ to the property for a term or in perpetuity in consideration of price paid or promised or rent to be rendered periodically or on specified occasions . Any default in payment of rents or any other expression provision of the lease deed may result in a determination of the lease and the lessor can thereafter maintain a suit for ejection from the premises.
(v) Section 108 of the TPA provides for and stipulates that the rules contained therein shall be used only if there is no contract and/or custom to the contrary.
(vi) Section 108 (c)of the TPA provides for the rights and liabilities of the lessorwhich stipulates that the Lessor shall be deemed to contract with the Lessee that, if the latter pays the rent reserved by the lease and performs the contracts binding on the lessee, he may hold the property during the time limited by the lease without interruption and that the benefit of the contract shallgo with the lessee’s interest and may be enforced by the lessee.
(vii) Section 108 (e) of the TPA provides for rights and liabilities of a lessee and stipulates, that if by fire, tempest or flood, or violence of an army or of a mob, or other irresistible force, any material part of the property be wholly destroyed or rendered substantially and permanently unfit for the purposes for which it was let, the lease shall, at the option of the lessee, be void.
(viii) Section 108 (l) of the TPA provides for payment of rent and stipulates that the lessee is bound to pay rent at the proper time and place to the lessor or his agents.
(ix) It is also settled law in India that the nature and intent of the transaction must be gathered from the terms of the document itself and no evidence of any oral agreement or statement can be admitted as between the parties to such document for the purpose of contradicting or modifying the terms .
C. Judgments in relation to force majeure and suspension of rent:
(i) It is settled law in India that the rules for interpretation of instruments pertaining to immovable properties are governed by the TPA and not under the Contract Act. The Supreme Court in the case of KidarLall Seal And Another v. Hari Lall Seal while dealing with a question of the right of contribution between co-mortgagors in respect of immovable properties applicability of contract laws to immovable property has held that “It is an established principle that when there is ageneral law,anda special dealing with a particular matter, the special excludes the general. Consequently, in the absence a contract to the contrary…”. This judgment brings out two essential ingredients: (a) the TPA being a special law overrides the Contract Act being the general law; (b) the provisions contained in the TPA can be used only in the absence of a contract. Thus, where the contract provides for a ‘force majeure’, the lease deed shall be governed by the express terms thereof and where the terms of the contract are clear there is little that the court can do about it . Further, due to the TPA being a special act and overriding the Contract Act in relation to contracts pertaining to immovable property, the rules contained in Sections 32 and 56 of the Contract Act cannotbe used for interpreting a contract relating to immovable property and force majeure situation would hence, have to be solely interpreted in accordance with section 108 (e) of the TPA.
(ii) In the case of Dhruv Dev Chand v. Harmohinder Singh and Others , the Hon’ble Supreme Court held that: “By S. 4 of the Transfer of Property Act the chapters and sections of the Transfer of Property Act which relate to contracts are to be taken as part of the Indian Contract Act, 1872. That section however does not enact and cannot be read as enacting that the provisions of the Contract Act are to be read into the Transfer of Property Act.” The Court also while dealing with interpretation of force majeure in relation to leasing transactions has concluded that there is a clear distinction between a completed conveyance and an executory contract, and events which discharge a contract do not invalidate a concluded transfer. By its express terms Section 56 of the Contract Act does not apply to cases in which there is a completed transfer.It also held that the second paragraph of Section 56 has a limited application to covenants under a lease. It has observed that a covenant under a lease to do an act which after the contract is made becomes impossible or by reason of some event which the promisor could not prevent unlawful, becomes void when the act becomes impossible or unlawful. But on that account the transfer of property resulting from the lease granted by the lessor to the lessee is not declared void and only such covenant that becomes unlawful or impossible to perform becomes void.
(iii) In the case of Abdul Hashem and another v. Balahari Mondal and Others, the Calcutta High Court held that in a case where during the continuance of a tenancy, a notice was served on the tenant requiring him to place a part of the land under his tenancy at the disposal of the Land Acquisition Collector, and the Collector took possession of the premises let out to him, it was held that even though the occurrence was unforeseen and was not contemplated by the parties when the lease was created, the occurrence was not so fundamental as to be regarded in law to strike at the root and destroy the basis of the relationship of landlord and tenant.
(iv) In TarabaiJivanlal Parekh v. Lala Padamehand it was held that monthly tenants of residential premises from whose occupation the premises were requisitioned continued to remain the monthly tenants of the landlord as before and that by reason of the requisition there was no eviction by title paramount or afrustration of adventure. The Court in that case observed that the doctrine of frustration did not apply where there is a lease whether the term is one for a fixed period or one which can be terminated by notice to quit, as the estate vested in the lessee by a lease is not extinguished by the order of requisition which is of a temporary nature.
(v) In the case of AlanduraiapparKoilChithakkadu by its Trustee M. RamanandaNainar and Ors. v. T. S. A. Hamid and Another, the Tamil Nadu High Court while dealing with a case pertaining to a lessee of a shandy tope agreeing to pay an annual rent for a period of five years, was held not to be entitled to remission merely for the reason that the shandy was hit by two cyclones during the period of lease and that for some period on account of the cyclone, the shandy did not form properly or regularly and the lessee did not get any income. The Court held in that case that in the absence of any provision for remission on account of losses, no such remission can be granted by the Courts.
(vi) In VelurDevastanam v. Sundaram Nainar, it was held by the High Court of Madras that, where the lease was absolute and unconditional, the lessee was liable to pay in accordance with the contract and that there was no power in the court to relieve him against the obligation under it invoking any equitable principles.
(vii) It is also worthwhile to refer to the case Aranya Hospitality Managementv. K.M. Dhoundiyal&Anr , where the Delhi High Court while dealing with payment of rents on occurrence of force majeure has observed that force majeure cannot be a ground for the lessee to avoid its obligations to pay rent while insisting on retaining the possession of the property.
(viii) In the case of Surendra Nath Bibra v. Stephen Court Ltd ¸the Supreme Court while dealing with a case relating to a lease of a flat consisting of 3 bedrooms, at a monthly rent of Rs. 350 for a period of 21 years and where the lessee was delivered possession of only 2 bedrooms, has suspended the payment of rent altogether, has recognized that the lessee is entitled to suspend rents due to defaults of the lessor. It held that the lessee must pay a proportionate part of the rent, because, it would be inequitable to allow the landlord, on the one hand, to recover the full rent when he had not delivered possession of the whole of the premises, and on the other, to allow the lessee to enjoy a substantial portion of the property of the landlord without much inconvenience as a windfall. It will depend on the circumstances of each case whether a tenant would be entitled to suspend payment of the rent fully or whether he should be held liable to pay the proportionate part of the rent.
(ix) The Courts over a period of time have thus come to hold that under the law, lease is a transfer of right to enjoy that land. If any material part of the property be wholly destroyed or rendered substantially and permanently unfit for the purpose for which it was let out, because of fire, tempest, flood, violence of an army or a mob, or other irresistible force, the lease may, at the option of the lessee, be avoided. This rule is incorporated in Section 108(e) of the TPA and applies to leases of immovable property, to which the TPA applies. Where the property leased is not destroyed or substantially and permanently unfit, and unless there is an agreement to the contrary, 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.
On an analysis of the aforesaid, it becomes clear that the TPA being a special law in relation to transactions related to immovable property overrides the rules of Contract Act and precedents arising from Sections 32 and 56 of the Contract Act. Hence, frustration of contracts relating to lease cannot be invoked by the lessee or tenant to avoid payments of rents on the ground of non-availability of the immovable property for a temporary period of time since the transaction of lease is a concluded contract and that the relationship of landlord and tenant continues. Frustration of contract can only be invoked where the immovable property is wholly destroyed or rendered substantially and permanently unfit for the purpose for which it was let out, because of fire, tempest, flood, violence of an army or a mob, or other irresistible force. The Lessee also cannot continue to remain in possession of the immovable property and also seek invocation of force majeure to avoid making payment of rent to the landlord. However, where the lease deed in itself permits remission and/or suspension of rents due to non-availability of the immovable property, the interpretation of such lease deed shall have to be in accordance with the express terms of such contract and not in accordance with the rules contained in Section 108 (e) of the TPA.
Mr. Vishal Bhat is an LLM in Business Laws from NLSIU and a partner with K-Law specializing in real estate, structured debt, advisory and general corporate matters and can be contacted on email@example.com
The Government of India under Section 6 (2) (i) of the Disaster Management Act, 2005 has issued an order and set out guidelines dated March 24, 2020 wherein all private establishments and commercial offices are to remain closed and social distancing to be maintained for preventing the spread of COVID-19 for a period of 21 days commencing from March 25, 2020 and thereafter again extended until April 20, 2020.
In the case of Energy Watchdog v. CERC, (2017) 14 SCC 80 “‘Force majeure’ is governed by the Indian Contract Act, 1872. In so far as it is relatable to an express or implied clause in a contract, such as the PPAs before us, it is governed by Chapter III dealing with the contingent contracts, and more particularly, Section 32 thereof. In so far as a force majeure event occurs de hors the contract, it is dealt with by a rule of positive law under Section 56 of the Contract.…When a contract contains a force majeure clause which on construction by the Court is held attracted to the facts of the case, Section 56 can have no application.”
The definition of the term ‘enjoyment’ in Black’s Law Dictionary and which definition of enjoyment reads as “Enjoyment. The exercise of a right; the possession and fruition of a right, privilege, or incorporeal hereditament. comfort, consolation, contentment, ease happiness, pleasure and satisfaction. Such includes the beneficial use, interest and purpose to which property may be put, and implies right to profits and income therefrom.”
Vijay Kumar v. Indersen, AIR 1982 Del. 260
Section 111 (g) read with Section 114 of TPA
Hindu Public and another v. Rajdhani Puja Samithee and others, reported in AIR 1999 SC 964; Also see Smt.Gangabai v. Smt. Chhabubai, AIR 1982 SC 20.
AIR 1952 SC 47
Provash Chandra Dalui&Anr. v. Biswanath Banerjee &Anr., 1989 Supp (1) SCC 487 wherein it was held “10. ‘Ex praecedentibus et consequentibus optima fit interpretation: The best interpretation is made from the context. Every contract is to be construed with reference to its object and the whole of its terms. The whole context must be considered to ascertain the intention of the parties. It is an accepted principle of construction that the sens; and meaning of the parties in any particular part of instrument may be collected ‘ex antecedentibus et consequentibus; every part of it may be brought into action in order to collect from the whole one uniform and consistent sense, if that is possible. … In construing a contract the Court must look at the words used in the contract unless they are such that one may suspect that they do not convey the intention correctly. If the words are clear, there is very little the Court can do about it. In the construction of a written instrument it is legitimate in order to ascertain the true meaning of the words used and if that be doubtful it is legitimate to have regard to the circumstances surrounding their creation and the subject matter to which it was designed and intended they should apply.”
AIR 1968 SC 1024
AIR 1952 Cal. 380
AIR 1950 Bom. 89
TR 1963 Mad. 94
1959-1 Mad LJ 244
21 March, 2017 (Indian Kanoon.org)
AIR 1966 SC 1361
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The material contained in this alert is for informational purposes only. The views expressed are not those of K Law and do not constitute legal advice. K Law disclaims all liability to any person or entity for any loss or damage caused by errors or omissions in this alert. The author is this article is Vishal Bhat (Partner).