Rent issues in the times of Covid-19

Meera Siva | Updated on: Jun 03, 2020
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Broad guidelines from authorities have created confusion among tenant and landlords

The tenant-landlord relationship can be rocky, even in good times. With the extra stress from the lockdown, these rifts could be amplified further. Tenants have been delaying or deferring rent payments, and in case of commercial property, they are also asking for waiver due to non-use. Add to this, government authorities at various levels have given directives to not demand rent. Owners are unsure of how to get their dues and tenants are unclear on their legal standing.

Contract clauses

A good place to start, for both parties, is to check the rental agreement before starting any legal action. One key clause to look for is ‘force majeure’. This covers the course of action in case of unexpected events ― those beyond the control of the contracting parties. It would typically include natural catastrophes, such as earthquakes, that may lead to the terms in the contract being not met. Human-made disasters such as building collapsing may also have been included.

The first step is to check if the agreement has this clause. If it is not there, the owner may be on a better footing to demand that the tenant pay the rent. If the clause exists, read the wordings closely to see if the current situation is covered. While there is no confusion that the pandemic is beyond anyone’s control, non-use of the premises due to lockdown or other issues may not be explicitly listed. It may, for example cover only cases where the rented property is damaged. So, it is likely that even with the clause, the owner may have a standing in asking for rent.

The right is also upheld by court. For instance, in a recent judgment on Covid-19-related non-payment of rent, the Delhi High Court (in the case of Ramanand vs Dr Soni ), sided with the owner and refused suspension of rent due to force majeure. That said, the court did not strictly enforce this right as it considers the situation on a case-to-case basis. For example, in the same case, the Court granted postponement of rent payments by the tenants.

Tenant options

If you are a tenant, you must understand that agreement clauses and recent court judgments are not fully on your side. But there is relief from the authorities. For example, the Ministry of Home Affairs issued an order on March 29 stating that landlords should not demand rent for one month from workers. Point five of the order also states that action will be taken against landlords who force labourers or students to vacate. The Disaster Management Act, 2005, will be implemented by the local authorities such as District Magistrates.

Likewise, the State of Maharashtra issued a circular on April 17 stating that owners must postpone rent collection for three months. It also directed them not to evict tenants for non-payment. If you are evicted, you can seek the help of local police and authorities to negotiate with the landlord.

While eviction may not be a worry, expecting a waiver may be tough and is fully at the discretion of the owner. You can seek deferment of rent if your situation demands it. “A tenant can explain the financial situation to the owner and request late payment,” suggests Vijay Kumar, Advocate, Madras High Court.

You must also consider the situation of the owner ― their dependence on the rental income for their expenses ― when proposing an equitable solution. In the case of commercial premises, you can also negotiate for reduced rent, if that may be something you can pay without delay.

Owner options

If you a landlord, you must not evict the tenant or cut off essential services such as water, as it is illegal. Even while the law is on your side with regard to demanding rent, it is best to take a humane view, advises Vijay Kumar. “Discuss the financial situation of the tenant and come to an understanding. It is important to keep a written record of the new terms agreed upon,” he says.

It is possible that you have a sizeable security deposit in your hand, paid by the tenant. In this case, you can consider deducting the rent from the advance paid and making a record of that decision. And in case you are dependent on the monthly rent for a part or whole of your expenses, you must explain this to the tenant and urge him/her to pay. You can seek the help of local authorities or mediators to arrive at a compromise that considers the needs and constraints of both parties.

Court view

The Delhi High Court recently ruled that tenants cannot claim exemption from paying rent

Tough times

No eviction

Defer rent payment

Find compromise

(The author is an independent financial consultant)

Published on June 03, 2020

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