Business

Covid's Lockdown: Hell Hath No Fury Like a Landlord Scorned

A misreading of a recent Delhi HC judgment has led to a perception that rent is to be paid to the landlord in every eventuality, even if the heavens may fall.

The original proverb for the paraphrased title to this piece was adopted from a tragic English play called The Mourning Bride. Unfortunately, what was true for the dramatis personae, Queen Zara, and love in 1697, is now true for landlords and pandemic-delayed rents in 2020.

The world is at its wit’s end. Anyone who doesn’t think that there is an ominous financial cloud deserves a reality check.

Not being a career economist, the one conclusion I can derive about the economy is that everybody’s financial cycle is jumbled up with the other. In other words, no one in the financial system can strive to survive in isolation.

Let us take an example from where I can speak from personal experience – the working of a lawyer’s chamber. Almost all lawyers of good standing and repute rely on fat monthly retainer cheques from bigwig clients which keeps the offices plush, the chamber going and the spirits very high. On account of the pandemic, by and large most clients, including large corporations, have defaulted on retainer payments. Even the billables for the last quarter have not come through the door.

Despite these circumstances, lawyers are expected to pay the rent towards commercial leases, and the salaries of their colleagues and clerks. Large financial corporations have no shame in pleading penury and shamelessly saying in a three-sentence email that they will, for the time being, not be able to honour their payments. This is without understanding the ripple effect this single non-payment will trigger.

An empty shopping mall in Ahmedabad, March 16, 2020. Photo: REUTERS/Amit Dave/File Photo

Lawyers will, of course, dip into their savings, and honour the obligations of the support staff who are at the very bottom of the food chain, lest their poor clerks and their families will starve of hunger and probably get evicted.

This illustration is applicable across the board. It is true for all businesses (big or small), professionals as well as salaried persons. Everyone is pinning their hopes on some income which will help defray their expenditures, pay salaries, pay rentals and somehow keep the show running.

One cannot shy away from paying the people at the bottom of the pyramid i.e. the house-help, the drivers, the factory workers. Depriving them of subsistence will definitely result in them meeting their maker. Speaking to friends who are young politicians and have some grasp at the ground level say that the poor migrant labour in their constituencies, would say in so many words that ‘…we might or might not die of coronavirus, but we will certainly die of hunger’.

Also read: Tenancy Agreements and COVID-19 Lockdown: A ‘Majeure’ Headache

Therefore, the one persona in this food chain, worth negotiating for some respite with, is perhaps the landlord. She is the only one in this transaction that can afford to give a haircut and cut you some slack. But will she? The answer, in most cases sadly, is likely to be an emphatic no. Why? One reason could be that she believes that the law is on her side. The key phrase here is ‘she believes’.

The basis for some landlords unwilling to give any waiver or indulgence to the tenants is an order passed by the Delhi High Court, which has been overly misconstrued and misinterpreted on the basis of some serious misreporting.

The order in case titled Ramanand v. Dr. Girish Soni’ was rendered by the honourable court about three weeks ago.

What the learned judge categorically states at the outset is worth quoting:

“The urgent application under consideration, raises various issues relating to suspension of payment of rent by tenants owing to the COVID-19 lockdown crisis and the legal questions surrounding the same. The COVID19 pandemic has had large-scale implications for human life. Contractual relationships and jural relationships between parties are severely affected due to the lockdown.

The question as to whether the lockdown would entitle tenants to claim waiver or exemption from payment of rent or suspension of rent, is bound to arise in thousands of cases across the country. Though there can be no standard rule that can be prescribed to address these cases, some broad parameters can be kept under consideration, in order to determine the manner in which the issues that arise can be resolved.” [emphasis added]

The three major findings of the court, are as follows:

  • The matter was one pertaining to a statutory tenancy under the Delhi Rent Control Act, 1958 and not of a contractual tenancy governed by Contract Law. (paragraph 30)
  • In a contractual tenancy, where there is a force majeure clause or any other condition that could permit waiver or suspension of the agreed monthly payment, the same would be governed by such terms (paragraphs 11 & 14).
  • Even in the absence of a contract or a contractual stipulation, the tenant may generally seek suspension of rent by invoking the equitable jurisdiction of the Court due to temporary non-use of the premises (paragraph 26).

Almost all leading national papers have misinterpreted the decision of the court. The decision has been reported as if a general principle has been laid down by the court that rent is to be paid to the landlord in every eventuality, though heavens may fall.

There has been a miserable failure in understanding the decision of the court. This is despite that fact that the learned judge’s decision is immaculately worded and a treatise in itself on the subject and in fact eloquently clarifies the position in law.

That being said, the trusting and simpleton public of our city, apparently now also receives professional legal advice over forwarded messages, which is treated as the gospel truth. Without dwelling into what this forwarded message ailment is called, it would be advisable for the tenants to open their leases and check what indulgence the contract permits on account of a situation such as the present pandemic. And, if possible, it would also be judicious to seek professional legal counsel from something other than your newspaper or your smartphone.

Also read: Coronavirus Lockdown: Maharashtra Asks Landlords to Postpone Rent Recovery

Very pertinent information was revealed at a webinar on ‘Assessing the impact of COVID-19 on Rental Contracts,’ where one of the speakers said that global office markets like Tokyo and Hong Kong have waived off rent, which stands at $600 per square feet per annum. In India, the top office markets stand only at $15 per square feet per annum.

Singapore has come out with the COVID-19 (Temporary Measures) Act, 2020 which provides for rental relief for tenants of commercial properties. The Act originally did not waive payment of rent, but provided for suspension from payment till the time the threat does not pass and the economy does not fully recover. However, as per an amendment effected last week, commercial property owners are now set to get four months’ worth of rental relief from April to July, while those renting spaces at industrial or office properties will get two months of help for April and May.

Low footfall at South City shopping mall during the fifth phase of COVID-19 nationwide lockdown, in Kolkata, Thursday, June 11, 2020. Photo: PTI

It remains to be seen whether the government of India will be adept in introducing a similar sort of bailout package for the tenants. Sans any waiver as such, the tenants would need to rely on the legal covenants in their contracts to seek a force majeure exception.

It was heart wrenching to see one of Delhi’s most iconic book stores at Khan Market draw its curtains last week on account of not being able to afford the rental for the shop, and not being able to arrive at some arrangement with the landlord. This event marks some sort of symbolic significance in a David and Goliath (here, landlord and tenant) kind of way.

Harry Golden, a famous American writer once said, “If the roof caves in and the tenants are sitting in the debris, they will laugh like hell. They will endure any hardship as long as it means trouble for the landlord.”

The tables have turned.

No tenant wants to exploit the landlord. The tenant only expects a just bargain to sustain his business. In a pandemic, she does not want to turn a profit. She only wishes to sustain and not perish. It would be so fair and ideal if the landlords and the tenants come together and work out a mutually beneficial bargain. The only problem is that it is not a fair world we live in.

Rushab Aggarwal is an advocate at the Supreme Court of India and the Delhi High Court. He may be contacted via email at mail@rushabaggarwal.com. The piece is partially satirical. Views are personal.