COVID-19 and payment of rent: Position of tenants under Indian laws

Over the past month or so, the Government of India has been taking several proactive measures to contain the spread of the novel Coronavirus.

Amidst the lockdown that first came into effect from March 24, a prominent question doing the rounds is whether tenants across the country would be exempt from paying rent for the duration.

Let's take a look at the Indian laws governing the concept of lease to get a clearer picture.

Act governing Lease

When a lease is executed, though it is a contract under the Indian Contract Act, 1872, there is a transfer of property. Hence, the lease is governed under the Transfer of Property Act, 1881.

The lessee is put in possession and it is the duty of the landlord to allow the tenant to continue in possession without interruption under Section 108(c) of the Transfer of Property Act. Further, the lessee is bound at the proper time and place to pay the rent to the lessor as provided under Section 108 of the Act.

Whether a Lessee can avoid paying rent during lockdown?

A comparative study of the doctrine of frustration under Section 56 of the Indian Contract Act and Section 108(e) of the Transfer of Property Act would be significant here. This will help us comprehend the obligation of lessee in cases wherein the force majeure clause is absent in the lease deed. Let us view both provisions.

Section 56 of the Contract Act - "Contract to do an act which after the contract is made becomes impossible becomes void when the act becomes impossible".

Section 108 (e) of the Transfer of Property Act - "If by fire, tempest, or flood or violence of any 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 purpose for which it was let, the lease shall, at the option of the lessee, be void, etc.".

Section 108(e) of the Transfer of Property Act refers to "destroyed wholly or rendered substantially and permanently unfit", but Section 56 of the Contract Act refers to "an act becoming unlawful or impossible". Hence, there is no doubt that the Contract Act covers a substantially wider field than the Transfer of Property Act does.

In the case of Court of Wards Dada Siba Estate v. Raja Dharan Dev Chand,, it was held that,

“...where a contract creates an estate in land, the rule of frustration is inapplicable to put an end to such an estate which has already been created in favour of one of the parties and that the doctrine of frustration is applicable only to purely contractual obligations”.

An argument that the question of frustration of a lease by destruction of the property is to be decided under the Transfer of Property Act, but other cases of the lease becoming impossible such lockdown are to be adjudged under the Contract Act, seems rather difficult, as propounded in Mahadeo Prosad Shaw v. Calcutta Dyeing and Cleaning Co.

The reason is while dealing with the provisions of the Transfer of Property Act and the Contract Act, the Supreme Court held in Kidar Lall Seal and And v. Hari Lall Seal,

"It is an established principle that where there is a general law and a special law dealing with a particular matter, the special excludes the general."

Since, the Transfer of Property Act has a special provision regarding leases under Section 108(e), the general provision as enacted in Section 56 of the Contract Act would not apply.

In that view, Section 56 of the Contract Act has no application to leases and instead of that, Section108 (e) will apply so far as frustration relating to leases is concerned.

However, for the present crisis, even the provisions of Section108 (e) of the Transfer of Property Act are also inapplicable, because the land was neither destroyed nor became permanently unfit for the purposes of occupation.

To sum up, a contract of lease may be avoided at the option of the lessee on the happening of an event as contemplated under Section 108 (B) (e) of the Transfer of Property Act. In such case, the lessee cannot continue to hold on to the premises or say that the lease continues but he will not pay the rent.

The rights of the lessee in the demised property continues notwithstanding the fact that for certain period, the lessee was prevented from deriving substantial benefits out of the lease due to the circumstances beyond the control of anybody.

The Author is a Managing Partner at Law Square, Advocates & Solicitors, Bengaluru.