The Nation-wide Lockdown amidst the spread of Covid-19 has affected almost every sphere of law and the social interaction. Property law and contracts are also not spared. The lockdown has sent various shocks to economy and this effects the earnings of individual.
There are a number of debates over various legal issues and a lot of measures are taken to cut down the effects of Covid-19 on the legal contracts and deeds. Amongst this comes the debate over the invocation of ‘Force Majeure’ as a remedy to escape from the liabilities which arises under the lease deeds or agreement to lease.
Lease and Agreement to Lease
Transfer of Property Act, 1882 defines Lease as a transfer of a right to enjoy the immovable property which can be for a certain period or for perpetuity, for some consideration and acceptance of such terms. This is not a bare right to use the immovable property but an interest is created in the property in favour of the lessee. By transfer of such interest in pursuant of a contract, a right in rem is created. It is a well settled proposition that if there is no transfer of interest, then there can be no lease.
An agreement to lease does not need to be in writing or registration, but if the terms of lease can be ascertained and lessee get a right of exclusive possession, be it immediate or at any future date, then it will effect as an actual demise. The difference of lease and agreement to lease is a matter of intention and construction.
Force Majeure
The term ‘force majeure’ holds a wide connotation as compared to the term ‘vis- major’. While the latter only includes the natural unforeseen events, the former take into account both the natural and artificial unforeseen events. These are designed to save the person from any liability arising out of any event which is not anticipated and is not under the control of party. These types of clauses are enshrined in the contracts that under the scenario like fire, flood, terrorist attack or any else beyond the parties’ control, the obligations and liabilities of the parties stands suspended.
Force Majeure and Lease Deeds
The Doctrine of Frustration is an accepted position of law which is applied on Contracts as per Section 56 of the Indian Contract Act, 1872. Lease is more than a mere contract as there is an interest created in favour of the lessee, and when the possession is transferred to the lessee then the essential of the doctrine that some part of the contract is yet to be performed, would not be satisfied, hence this Doctrine is not applicable on the Lease deeds and in that case Section 108, which categorically mentions the Rights and Liabilities of both the lessor and lessee, comes into play. Clause (e) of the Section holds relevance and states that in case of fire, tempest, flood, violence of army or mob, or any other irresistible force, if the material part of the property is substantially rendered unfit for use then the lease stands void at the option of the lessee. This clause prevails over the general clause of Doctrine of Frustration as enshrined in the Contract Act. The Court held that the events under the Doctrine of frustration can discharge a contract and cannot invalidate a concluded transfer. But in case the agreement to lease is not registered nor executed or acted upon, then the Doctrine can be applied because registration forms the basic essential under the Transfer of Property Act. The Court held that the doctrine of frustration is applicable only in case of agreement to lease and not on the lease deeds. The court emphasized on the fact that there is a difference between the Lease deed and an executory contract. It was also settled that Doctrine of Frustration does not affect the rights and liabilities of the parties bound under a lease deed.
The Clause (e) of Section 108 protect the parties in the case of lease deeds and recognize the force majeure events.
The essential ingredients of the Clause are as follows:
There is an ‘irresistible force’ material part is destroyed, substantially or permanently, due to which the property become unfit to let the lessee must inform the lessor to frustrate the deed.
If we look at the essentials then the existence of an ‘irresistible force’, destruction of property, and notice are sine-qua non for this clause to come into action.
But the question is whether the Covid-19 can be termed as an irresistible force or not?
Covid-19 as Force Majeure
Indian Court have not in any specific judgement held the pandemic as an event covered under Vis major or Force Majeure. But in the case of Divisional Controller v. Mahadeva Shetty, Act of God was defined as the act free from human intervention but with the caveat that every unexpected natural event does not work as an excuse. If the event can be anticipated or can be controlled this maxim can not be evoked.
However in US and UK pandemic or epidemics are clearly defined as Vis Major or Force Majeure. In the case of Lakeman v. Pollard, the Supreme Court of Maine held the Cholera epidemic as an Act of God and gave the labourer of a mill, savings from performing his part of the contract of work. Similar things were held in the case of Coombs v. Nolan by the New York Court where the Horse Flue pandemic was covered under the maxim of Force Majeure.
But even if the Covid-19 is considered as a Force Majeure event then also the invocation will not be easily available. Such invocation is dependent on the words or phrases used to describe or define the event. They are generally interpreted in literal terms and the drafting becomes important.
Force majeure can not be implied or read into by the Court in the absence of any expressed provisions for the same. The main point is that sanctity of the Contract need to be adhered to. If there is no express stipulation, then it has to be narrowly construed. Nothing can be added by the Court on its own. Even if the Covid-19 is declared as a Force majeure event, then it will only serve as an evidence and the clause in the agreement will be given effect. the party has to show categorically that the event is the sole reason that has made the party incapable of performing the obligation or liability.
Destruction of Property
The Delhi High Court dealt with the issue in the very recent judgement of Ramanand v. Dr. Girish Soni and Anr. and held that the temporary non-use of the leased property by the tenant due to any factors, whatsoever, can not be used as conditions to invoke Section 108 (e).
The Court in the case of Raja Dhruv Dev Chand v. Harmohinder Singh & Anr, it can only be invoked in case of complete destruction of property or when there is substantial destruction of property which makes the property impossible to let and mere non-use of property by the tenant can not save him from the liabilities or obligations. Even when the super structure which is tenanted is destroyed, it is not implied that the relationship between the parties stands cancelled or terminated. The lease can not come to an end mere by such destruction.
Notice
The Court in the case of Hind Rubber Industries Ltd. v. Tayebhai Bagasawalla, observed that to invoke the benefits under Section 108 (e) of the Transfer of Property Act, 1884, the lessee must confer a notice to that effect to the lessor informing him about his willingness to give effect to the Section. If he fails to do so, then the deed will stand unaffected and the section cannot be invoked. Also this can be availed only in case of a deed which is duly registered under the Registration Act.
Conclusion
From the above discussion, it is evident that for agreement to lease, Section 56 of the Contract act i.e. Doctrine of Frustration can be invoked whereas for registered Lease Deed, Section 108 of The Transfer of Property Act will be considered.
If we look at the above mentioned essential ingredients of Section 108 (e), then the first one that Covid-19 can be called as force majeure or not is still debated and even if we consider this as a force majeure event then also it will not, solely, make the lease deed inapplicable. The language of the deed and intention will be considered on case to case basis.
Second that the event of covid-19 has not destroyed any property either completely or substantially but it has rendered the property unused for the time being which is not a case for invocation of Section 108 (e) as even as per the principle of ejusdem generis. The Financial inability can not be cited as a valid argument to invoke this Section.
Third that the conferment of the notice is a must in case to avail the benefits under this section. The issue was a heated topic under the Covid-19 pandemic spread and various academicians and legal practitioners have suggested that unless there is any relief from the side of government, cordial negotiations between the lessor and lessee is the only best way forward.
About author –
This article is authored by Vineet Tayal , B.A., LL.B. (Hons.) Institute of Law, Nirma University, Ahmedabad.
