Covid-19 is unprecedented crisis which is faced all over the world; it has unleashed an economic crisis and has brought number of issues with regard to commercial lease agreement, as tenant associations increasingly seek waivers. In this pandemic situation the main question for the tenant that arose was whether tenant will be able to waive off from the
payment of rent has emerged in large number of cases. This article will further discuss the analysis of force majeure in commercial lease agreements and explore whether it will be applicable in this case or not.
Force majeure means “an event or accident that can never be controlled or anticipated, this event is unexpected which can’t be controlled and which prevents someone from doing or completing something that he or she had agreed or
officially planned to do”. [Black’s law dictionary (10th ed. 2014)] In simple terms it is an unexpected circumstance that hinders the performance of contracts beyond the control of parties.
The underlying principles of the applicability of ‘force majeure‘ clauses are as hereunder:
- the very basis of such clauses is that the events are beyond the reasonable control of parties;
- it is also necessary to analyze if the best endeavors have been taken to mitigate force majeure events;
- for an event to qualify as force majeure, it must be unforeseeable by the parties;
- That the event has rendered the performance of the contract impossible or illegal.
DOCTRINE OF FRUSTRATION AND ITS APPLICABILITY TO LEASE DEEDS
The evolution of force majeure principle has evolved from various judicial pronouncements. Section 56 of the Indian Contract Act, 1872 enshrines the principle of force majeure.
The two main elements are:-
- Occurrence of the event that could not be prevent or stop; and
- The impossibility to perform such obligations arising out of the contract due to the occurrence of that event.
If force majeure clause is not mentioned in the contract, then parties normally resign to the doctrine of frustration which is embodied in section 56 of the contract act to see the situation whether contract can be perform or not.
In case of Raja dhruv dev chand v. Rjaa Harmohinder Singh the question before the court was section 56 of the act is applicable when the rights and obligations of the parties have enshrined under a lease deed. In this case court held that the frustration won’t apply to lease deeds. Application of the doctrine of Frustration in commercial & lease
agreements was widely debate in case Cricklewood Property and Investment Trust Ltd. vs. Leighton’s Investment Trust Ltd. (1945) the House of Lords decided that a ninety-nine years old lease would not be frustrate and the lessee
would not be discharge from his obligation merely because of temporary disability in utilizing the property. In many such similar questions, the courts in England have stated that a mere disability in holding the possessory rights shall
not end up in frustrating the contract or lease from the obligation of payment of the lessee.
Analysis from the various Judgments
So basically, it is held and analysis from the various judgments if in contract force majeure clause is not mention in lease deed, then parties don’t have the option to resort under section 56 of the Contract Act but the lessee has the option to go and find the remedy under section 108(b)(e) of Transfer of property act, 1882 which says unnatural calamities such as fire, flood or any kind of violence of army, any part of the property wholly or partially destroy and
which is permanently unfit for the purpose of lease, the lease can be void.
At the times of Covid-19 the pandemic times will be regard as irresistible force that is to be shown by lessee and can enforce the force majeure clause in the absence of that clause in the contract.
FORCE MAJEURE CLAUSES AND LEASE DEEDS
The government of India in this pandemic time has appealed to the landlords to not take rent or extend the time limit for paying the rent for tenants. Due to pandemic times, the economic loss occurred everyone was jobless and have no source of income. But we need to understand does this applies or it is legally acceptable or not?
Commercial Lease Agreement
Generally, there is a clause mention in this commercial lease agreement it provide a mechanism either to postpone or extend the payment of rent for the house
due to unforeseeable circumstances which is beyond the control of parties. On the other hand, if the lease agreement does not mention the force majeure clause then party has no claim
under that, the parties can claim under the doctrine of frustration or impossibility.
In the event there is a force majeure clause that has been agree between the lesser and lessee and document in a lease deed, the invocation of force majeure clause would depend upon the wording and scope and ambit of the
definition of a force majeure event.
If the parties have specifically included a pandemic/epidemic, then invocation of it may be easier. However,
typically force majeure clauses would provide for the act of God and natural calamities but may not specifically provide for a pandemic/epidemic. In such a setup, the invocation of force majeure must be carefully analyze to see whether
the force majeure clause can be trigger or not.
On account of the central lockdown for twenty one days, the lessees may be also able to resort to and invoke force majeure on account of the lockdown provided if the lease deed provides for government orders/action preventing the
occupation of the premises to be a ground for invocation of force majeure clause. Again, this must be analyze carefully, and lawyer’s advice should be sought ideally before resorting to invocation of force majeure.
Consequences of force majeure
Further, one must also analyze the consequences of force majeure as may be specified in the lease deed. Normally, the parties could have provided for suspension of obligations including non-payment of rent for the days when the premises have been rendered unfit for use. In such a scenario, the parties would not have the liberty to invoke
termination of the lease deed but suspension of payment obligations under the lease deed for the period the premises
were render unfit for usage. Also, the clause might provide an additional right to termination in the event the force majeure scenario subsists and continues for an ongoing period. In that eventuality, termination may be exercisable in
addition to suspension of obligations under the lease deed only in the event such force majeure persists and not otherwise.
The parties need to be careful before terminating lease deeds as in the event the Court/arbitrator decides that the
termination was wrongful then the party who has terminated the lease deed may have to pay damages for wrongful termination.
In the light of the aforemention, it tends to be infer that in the midst of the flare-up of Corona virus, there is a probability of end or suspension of the occupancy arrangements by utilization of the tenet of dissatisfaction, power majeure condition, or principle of suspension of lease, which is expose to factors and furthermore reliant on the
standard of development continued in translation of the separate authoritative commitments. The translation of these abstract necessities is not the same as case-to-case.