Payment of Rent under Commercial Leases during COVID-19

Organisations in India often lease out workplaces to run their business and provide workspace to their employees. However, the sudden outbreak of COVID-19 led to a lockdown imposed by Government of India from March 24, 2020,[1] due to which organisations have not been able to utilise their leased workspaces for approximately 2 (two) months. As such, many organisations are exploring the possibility of exemptions from their rental obligations under their lease deeds.

 

In India, unlike the Coronavirus Act of United Kingdom,[2] there has been no government order or notification granting exemption to lessees from payment of rent in respect of commercial properties. In light of the above background, this article discusses the approach which may be considered by lessees in case of commercial rent payments as per their respective contracts and under the Transfer of Property Act, 1882 (“TPA”).

Contract Act and Lease Deed

A lease deed is a contract between the lessor and the lessee which sets out the rights and obligations of the parties in respect of the leased premises. One such contractual right is related to a force majeure[3] clause.

To begin with, the lessees should examine whether their lease deed contains a force majeure clause. In the event that such a clause is included in the lease deed, the lessees must check whether the clause covers events such as pandemic, epidemic, restrictions by government or other authority, reasons beyond the control of the parties, etc. If the answer is positive, then the lessees should examine the rights granted to the affected parties in such a scenario; whether the lease deed allows for the suspension of rent payments or only provides for deferment of such payments till such force majeure events exist. To summarise, it is vital for the parties to consider the scope and ambit of a force majeure clause while executing a lease deed.

Tatva Legal, Hyderabad has a specialized team of lawyers who, amongst other services, advise on real estate transactions covering various aspects of the transaction such as drafting contracts for commercial leasing, real estate advisory services and conducting title due diligence.

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