Covid-19: Forcing Force Majeure – and Resisting

decoding the if and buts of leases

By Divya Malcolm

In the pandemonium about the pandemic, force majeure has ceased to sound Latin.
Instinctively, everyone – suppliers, retailers, tenants, lessees – has sought to take refuge in
force majeure/ vis majeure, and avoid payments. It’s a natural fallout of Covid-19 lock-down
and the consequent drying up of revenues. However, the relationship of a lessor and lessee
stands on a different footing. It’s neither ad hoc nor onetime; there is both (a) privity of
contract, and (b) privity of estate; the duration is several decades: they are truly tied up in
knots. The paragraphs below attempt to untie some of these knots.
A man’s word is his bond- impossibility of performance, the only exit:
Commerce and trade would have been impossible if businessmen were allowed to walk in and out of the promises made by them. The law too casts a firm responsibility on them to perform their contractual obligations. In this spirit, under Section 37 of the Indian Contract Act, 1872, the parties are specifically enjoined upon to perform their promises unless such performance is dispensed with or excused under the provisions of the Contract Act, or of any other law. One such instance is when the performance of an act becomes impossible without
any fault of the promisor. Section 56 deals with such instances and embodies the doctrine of frustration of contract. However, the Courts have consistently held that contracts cannot be frustrated on the grounds of commercial difficulty, inconvenience or hardship. Force Majeure
is, therefore, construed strictly. And should a contract define force majeure, the manner in which it should be invoked, the consequences (including compensation, suspension of obligations, or termination) that shall follow, they are all implemented to a tee by the Courts.
In case of leases the matter is although the more sticker.
Section 56 of the Contract Act inapplicable to leases:
Leases are dealt with by the Transfer of Property Act, 1882 (popularly called TOPA). Under law, special statutes override general enactments such as the Contract Act. Since TOPA holds sway on leases, Section 56 of the Contract Act is ousted. Further, the two landmark
judgement of the Supreme Court [(a) Raja Dhruv Dev Chand v. Raja Harmohinder (AIR 1968 SC 1024) and (b) Sushila Devi v. Hari Singh (1971) 2 SCC 288] have left no scope for doubts or debate. A joint reading of the two bears out that Section 56 of the Indian Contract
Act, 1872 does not apply to leases as it is a completed conveyance different from an executory contract and events which discharge a contract do not invalidate a completed transfer or lease.
It is not that force majeure finds no place in TOPA. Clause (e) of Section 108, reproduced below, is as close as it gets:
“(e) 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.”
Hence, only if the force majeure event is of such a nature that the leased property is substantially, and permanently destroyed it can be voided at the option of the lessee.

The Delhi High Court’s judgement dated July 15, 2016 Airports Authority of India V/s. Hotel Leela Ventures Limited offers a succinct treatise on the subject. Briefly, the lessee sought remission in the lease rent as the project had become commercially onerous on account of
recession in the hospitality industry triggered by the terrorist attacks in Mumbai in 2008. The lease under question was for a duration of 30 years, and the lease rent was calculated as a percentage of the revenue. The Hon’ble Delhi High Court held the Petitioner’s claim to be
false, frivolous, and an abuse of the process of law. It may be noted that the Special Leave Petition preferred by Hotel Leela Ventures against the Delhi High Court’s order failed.
Leave & Licenses:
Overtime the business of letting out of property has evolved. Today, multinationals operate from co-working spaces. Mall owners, at best, execute a leave and license agreement in favour of the retailers. Restaurateurs operate from premises on Business Conducting Basis.
Hence, the nuances of leases may be of little relevance to them. In such cases, a lot turns around the wordings of the contract.
Under Covid lockdown the relationship between co-working space operators and their users, mall owners and retailers is teetering. Very few contracts provide for suspension of monthly compensation / conducting fee / rent during the subsistence of the force majeure event. Most
provide for termination in case the event continues for over 3 months. However, termination is never a solution. With large security deposits, un-depreciated fit-out costs, and goodwill attached to premium sites at stake, parties need to sit across the table with the property
owners and brainstorm solutions.
So far as Maharashtra is concerned, there is yet another aspect which has been lying low for sometime, but may now become rather sensitive. If the owners of commercial properties terminate the leave and license agreements, notwithstanding any arbitration clause, for eviction of the licensees, the correct forum is the appropriate civil court and not the arbitral tribunal. A reconciliatory approach in a plummeting market may be good for the owners too.
To quote Nelson Mandela: “May your choices reflect your hopes, not your fears”.

 

Divya Malcolm is a Partner at Kochhar & Co., Advocates and Legal Consultants. The views
expressed in this article are her own and not that of the firm.

Real estate rental agreements and contracts will continue to prevail during Covid-19 scenario: Former Judge, Supreme Court of India

By SRELJ Bureau

NEW DELHI, 21 May 2020: Mr Justice Arjan Kumar Sikri, Former Judge, Supreme Court of India & International Judge, Singapore International Commercial Court (SICC), today said that the real estate rental agreements and contracts will continue to prevail during the current Covid-19 scenario and the Force Majeure will continue to be applicable as mentioned in the contract.

Addressing the webinar on ‘Assessing the impact of COVID-19 on Rental Contracts’ organized by FICCI in association with Indian Council of Arbitration (ICA), Mr Sikri said that real estate rental agreements and contracts are between two parties and the government cannot enforce any notification. He added that in Covid-19 scenario, Section 108, the transfer of property act, which has a very high threshold may not apply.

Mr Sanjay Dutt, Joint Chairman, FICCI Real Estate Committee and Managing Director and CEO, Tata Realty and Infrastructure Ltd, raised pertinent queries on the importance of rental agreement and Force Majeure in an agreement. He added that global office markets like Tokyo and Hong Kong have waived off rent, which stands at $600 per sq ft per annum for office space. In India, the top office markets stand at $15 per sq feet per annum.

Mr Raj Menda, Joint Chairman, FICCI Real Estate Committee and Corporate Chairman, RMZ Corp said that commercial parks are operational, and they are working hard to function seamlessly. He added that his organization has convinced its clients to pay the rent.

Mr R K Sanghi, Advocate, said that to provide relief to both landlords and tenants, the Indian government can look at coming out with a temporary law as being done by some of the countries today like the US and Singapore.

Mr Sudip Mullick, Partner, Khaitan & Co said that the key is the agreement and the notifications of the government on deferment or non-payment of rent by tenants are primarily moral obligations and not legal obligations. He added in Covid-19 situation, the contract between the landlord and tenant will prevail.

Mr P V Kapur, Senior Advocate & Bar at Law, said that the best solution in a situation like COVID-19 is that the landlord and tenant find a way out with mutual negotiations. He added that in case of triggering Force Majeure in an agreement, the party will have to give a notice.

Mr Vinod Rohira, Managing Director & Chief Executive Officer- Commercial Real Estate and REITS, K Raheja Corp, said that 60 per cent of office space leasing in India is by Fortune 500 companies that are financially robust. All partners understand that rent is oxygen for developers, or they default.

Smart cities use latest technology for Covid-19 awareness and safety of people

By SRELJ New Bureau

COVID-19: Initiatives by Smart Cities

Vadodara

The Vadodara district administration has installed a helium balloon attached with two cameras for surveillance on lockdown violators. The balloon, installed in the Tandalja area, also has a public address system attached to it. The administration has divided the city into four zones, red, orange, yellow and green as part of a strategy to deal with the corona virus pandemic.

Bengaluru

Model COVID-19 War Room at Bengaluru – Covid-19 data dashboard of Karnataka has been inaugurated by State Minister for Medical Education on 7 April 2020 at Bengaluru Smart City COVID War Room. This dashboard will be the single source of all COVID-related data which includes people under quarantine, their contacts, medical personnel on ground, hospitals, taluk-wise & City-wise data & beyond. This real-time data is being put together with a host of software and applications

Kalyan Dombivali

To create awareness and keep citizens informed about Corona, awareness videos are published on KDMC Face book page. To constantly keep citizens engaged, the Face book page has published a daily routine of activities has been designed from 7:00 am to 9:00 pm. The city has identified local experts from different fields such as Yoga, Culinary Art, Aerobics, music, poetry, ghazal, kathak and Bharatanatyam, philosophy and allotted time slots to each of them, in which they come live in Face book Page of KDMC during scheduled time slots. This initiative is receiving huge response and appreciation from citizens.

Agra

• E-Doctor Seva is a tele-video consultation facility, launched by Agra Smart City Ltd for local population. https://tinyurl.com/edoctorapp. It is a Public Private Partnership (PPP) initiative of Agra Smart City Limited. Consultation facility will be available from 10 am to 12.00 pm (Monday to Saturday).For consultations, citizens will have to log in using the link (https://tinyurl.com/edoctorapp ) and schedule an appointment with the doctor. Appointments can be taken using the mobile app. App can be downloaded by any Android phone (play store) users by clicking the link below: (https://play.google.com/store/apps/details?id=com.needstreet.health.hppatient). Once appointment is taken through the site/app a particular date and time will be allocated for the consultation. The patient can have a tele/video call with the doctor at the scheduled time. After consultation, online prescription can also be downloaded by patient from the site/app. On request, required medicines will be delivered at home from the Smart Health Centre-Pharmacy.

• This noble and innovative initiative is taken by Agra Smart City in association with its PPP partner Azael Manufacturing Private Limited. They are also in the process of opening 10 Smart Health Centers in Agra for providing affordable and holistic healthcare services to local masses. One such centre is already operational and serving the local population.

• Smart Health Centers established under Smart City scheme help in spreading awareness about various Do & Don’ts of Corona ,each patient is given a 3-5 min briefing on the advisory regarding Corona for both the general consultation as well as at the dental clinic. 325 patients took consultation in March and 675 patients in February. 1015 sanitizers and 935 masks were distributed at subsidized rates through the pharmacy at smart health center which provided a great relief to the people.

• Agra Administration in association with Agra Smart City & Agra Police is making full use of ICCC Control Room established by Agra Smart City Limited at Nagar Nigam Agra. Agra Lock down Monitoring App has been launched. This innovative video surveillance solution will be made use to effectively monitor the various locations in Agra city to manage the crowd and fight COVID 19. The latest in this effort is the AI based Analytics, the first of its kind combat COVID 19 in Agra. The latest ground-breaking technology adopted by Agra Administration is provided by the existing Surveillance vendor under CSR initiative. An alert is instantly generated to help the authorities to strictly maintain social distancing in Agra. The alerts are configured through an App on the field staff Mobile phones and help the Police Administration on ground. Agra lockdown monitor App will be available to all thana in-charges and any other police personnel as required.

• Along with district administration, cooked food bank has been established which collect cooked food packets from various NGOs and it is been distributed to needy, destitute and labourers etc., 5000 food packets has been distributed.

Kakinada

COVID-19 data dashboard developed in Kakinada ICCC. Kakinada, district, state and country level information is being displayed in the ICCC. The details can be accessed at https://covid19.kkdeservices.com:2278.

Chandigarh

Chandigarh has installed a comprehensive ‘fight COVID station’ with facilities of thermal screening by taking temperature, pedestal operated hand-wash and soap dispenser, mist spray of sodium hypochlorite solution and hand dryer facility. It has been installed at the Main Mandi sector-25, Chandigarh by Municipal Corporation of Chandigarh and all visitors to Mandi are expected to pass through the station.