The Union Cabinet approved the Model Tenancy Act on June 2 for all states and Union Territories to adopt by introducing new laws or amending the existing ones.
The model act is aimed at encouraging owners to put up vacant houses for rent and at helping bridge the trust deficit that exists between tenants and landlords by clearly delineating their obligations.
The new law has progressive provisions that can transform the rental-housing market such as a mandatory written agreement between the landlord and tenant, and capping of the security deposit payable by a tenant at two months’ rent for residential property and six months’ rent for commercial property.
However, the definition of force majeure does not specifically mention pandemics and lockdown-like restrictions, which may be disadvantageous for the tenant.
Last year and for a few months this year, leased office spaces remained largely unused as the pandemic forced several companies to switch to work-from-home. Following the second wave, several tenants are considering reviewing their contracts to include the force majeure provision that takes into account pandemics such as COVID-19.
What is a force majeure clause?
Force majeure is invoked during circumstances that are beyond the control of the tenant or the landlord. If lockdowns are included in the force majeure clause, it would allow tenants to pay lower rent or skip payments altogether when such events occur.
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This is essential in the current circumstances, considering the challenges that both landlords and tenants faced during the two waves of COVID-19, legal experts said.
The scope of the force majeure clause should be broadened to include situations like the pandemic, which could lead to a complete lockdown and hence, inaccessibility to the rental premises. It should clearly spell out the impact a lockdown may have on a tenant’s rental payment obligations, they said.
What does the Model Tenancy Act say about force majeure?
The act set out two situations when force majeure applies: when the term of a tenancy expires and when a property becomes uninhabitable or a tenant is unable to stay in the rented premises.
The model act says that if the term of a tenancy of a property expires when the neighbourhood is affected by any disastrous event of force majeure, then, subject to requisition by the tenant, the landlord must allow the tenant to stay in the premises for one month after the disastrous event ends on the same terms and conditions of the tenancy agreement.
The act also says that when the premises let out on rent becomes uninhabitable due to a force majeure event, or the tenant is unable to stay in the premises because of such an event, the landlord cannot charge rent until the property is restored and becomes inhabitable.
It defines ‘force majeure’ as a situation of war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature affecting the habitation of the tenant in the premises let out on rent.
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“It is debatable that as per the act, a COVID-19-like pandemic would be seen as a calamity and non-utilisation of office spaces by the tenants during lockdowns will be seen as the premises being uninhabitable in the absence of a contract to the contrary,” said Avnish Sharma, a partner at law firm Khaitan & Co. “The model act does not include the pandemic specifically.”
“The definition of force majeure in the Model Tenancy Act appears to be restrictive and not covering pandemics like COVID-19. Particularly, the words ‘other calamity caused by nature’ is qualified by the expression, ‘affecting the habitation of the tenant in the premises let out on rent,’” explained Devashish Bharuka, managing partner at Bharuka Associates, a law firm.
The definition is premises-based rather than tenant-based. It is centred on the impact of a force majeure event on rented premises and not on a tenant’s capacity to pay rent. A pandemic like COVID-19 may affect one’s ability to pay rent while strictly not affecting habitation in the rented premises, which is what is required under the Act, said Bharuka.
“With our experience of the ongoing pandemic, it would be worthwhile to consider expansion of this definition to explicitly cover pandemics to make the law more purposeful for the tenants,” he added.
For commercial premises, as seen in the past one year, a pandemic or lockdown can result in total or at least partial prohibition. Lawmakers should have considered such scenarios while framing the force majeure definition in the Model Tenancy Act, said Vaibhav Suri, a partner at L&L Partners.