The Novel Coronavirus (COVID -19) has raised many questions on its
consequences over the contractual obligations between the Parties. Generally, in
all valid agreements, it is an obligation set upon the contracting parties to
complete their parts of the obligations against all odds as far as possible –
however, the presence of a well-drafted and negotiated Force Majeure (FM) Clause
may help the parties in being either fully or partially relieved from performing
some of their obligations.
Impact On Lease Agreements – Suspension Of Rent On The Basis Of Force Majeure Event
One out of the multiple queries and doubts is the concern of landlords/ lessors
and their tenants/lessees over their Lease Agreements. This is because of the
impairment of the payment of rent by the lessees caused by situations following
the lockdown Order of the Government of India.
Before going into the question of whether there is any remedy available in the
lease Agreement to either exempt or reduce the rentals payable by the lessees,
we need to first be informed of the following scenarios:
- Does a valid contract exist between the Parties?
- Does the contract have any Force Majeure Clause?
- What is the nature and scope of the Force Majeure Clause in the
Section 32 Of The Indian Contract Act, 1872 - Considerations In A Contract With A Force Majeure (FM) Clause
Whether Upon Consideration Of The Fm Clause In The Agreement, Does Covid – 19 Qualify As A Force Majeure Event
- Some contracts may clearly capture detailed events/ well elucidated to
avoid any ambiguity – e.g. outbreaks, pandemic, disease or governmental
prohibition or governmental restriction, lockdown or any
- Process to be undertaken during and after the FM event
- Short term/long term implications of such an event on the contractual
obligations of the parties, and
- Relief mechanism to balance the needs of both the parties like –
termination or suspension of rights and obligations or specific exclusion
for waiver of rent or deferred payment after the FM event ends.
The Delhi High Court has in case of M/s Halliburton Offshore Services Inc. v
Vedanta Lmt. and Anr. stayed invocation of bank guarantee and observed that
lockdown is prima facie in the nature of force majeure.
Some contracts have loosely drafted FM Clause which may not have a detailed list
of events, however, it may include phrases like any other act outside the
control of the parties or any other similar event. In such cases, the scope
for invoking the force majeure clause will depend upon the clause wording;
specific events mentioned it and also the parties’ understanding at the time of
making the contract.
In the case of Ramanand & Ors. v. Dr Girish Soni & Anr.,
the Delhi High Court noted that in the absence of a contract or a contractual
stipulation with regards to the force majeure event, the tenant may generally
seek suspension of rent by invoking the equitable jurisdiction of the Court due
to temporary non-use of the premises. The Court also took note of the
- nature of leased premises and
- the financial status of the parties
Whether There Is A Link Between The Force Majeure Event And The Performance Of Obligation Of The PartiesThe terminology used in the FM clause in any contract will largely decide
whether the FM event will absolve the party invoking the clause of all or only
It may be noted that:
- Courts will refer to the usage of words like prevented, hindered’,
interfered with, etc. and use different standards in analyzing the impact
of force majeure that would excuse performance.
- Any event that only affects the profitability of a party causing adverse
business conditions to a contract may not constitute a valid force majeure event unless there is an express language incorporating the same in the
Therefore, while the lessee may be economically impacted ( in terms of
generation of income for the payment of lessor), the same would generally not be
enough to avoid payment obligation under a lease contract.
Whether The Fm Clause Explicitly Excludes Payment Obligations Within Its AmbitEven if through the wordings of the FM Clause, it is proved that COVID 19 or the
accompanying factor s do qualify as a force majeure event under a contract, the
second question would be to review whether the clause includes/ excludes the
payment obligations of the Parties.
Most leases obligate the tenant to continue to pay rent even during FM event
and do not provide a blanket waiver from payment of lease rentals on the
occurrence of every Force Majeure event.
As Force Majeure is a contractual right, the express wording of the clause have
to be carefully assessed and the lessee cannot, as a matter of right, invoke
non-payment due to a Force Majeure Event in the absence of a supporting clause
and/or a specific rent waiver agreed under the contract. Although it may be
seeming unfair to the lessees because while negotiating the contract, no one
could possibly imagine a situation like COVID 19 and the lockdown restrictions
by the Governments but the doctrine of fairness is nothing but a duty to act
fairly and reasonably.
It is a doctrine developed in administrative law to ensure rule of law and to
prevent failure of justice where the action is administrative in nature. But, it
certainly cannot be invoked to amend, alter, or vary an express term of the
contract between the parties.
It is one thing to say that a statutory contract or for that matter, every
contract must be construed reasonably, having regard to its language. But to
strike down the terms of a statutory contract on the ground of unfairness is
entirely different. 
If the lease agreement does provide for stoppage of rent or suspension of all
obligations during a Force Majeure period without any qualifications or riders,
then the lessee should immediately exercise its right by issuing a letter to the
lessor invoking Force Majeure event and intimating cessation of its obligation
to pay lease rental during the period the Force Majeure event continues.
Whether The Notice Requirements To Invoke The Fm Clause Are Clearly Carved Out In The Contract
A well-drafted force majeure clause would also include a requirement that the
party invoking the clause provide written notice of the force majeure to other
parties to the contract. Hence, the Party claiming relief under the FM clause
will not be automatically suspended of its obligations – it has to follow the
notice requirements, time period, alternative modes of performance of contract,
etc. agreed in order to invoke a Force Majeure notice.
Section 56 Of Indian Contract Act, 1872 - Considerations In A Contract Without A Force Majeure (Fm) Clause
The Parties may then refer to the Doctrine of Frustration
under Section 56 of
the Indian Contract Act (ICA) or the applicable clauses of Transfer of Property
Act. The question is whether frustration can apply where there is only a
temporary inability for the parties to perform their obligations under the
lease. The situation we are faced with right now is that the rest of the lease
remains valid and enforceable but that the obligation to pay rent is frustrated
Under a lease of law there is a transfer of the right to enjoy that land. If
any material part of the property be wholly destroyed or rendered substantially
and permanently unfit for the purpose for which it was let out, because of fire,
tempest, flood, violence of an army or a mob, or other irresistible force, the
lease may, at the option of the lessee, be avoided. The Supreme Court of India
had previously held that where the property leased is not destroyed or
substantially and permanently unfit, the lessee cannot avoid the lease because
he does not or is unable to use the land for purposes for which it is left to
If the purpose of the commercial lease agreement was to do business in exchange
of consideration, then even if the employees/workers are working from home, the
servers still continue to be located in the premises which support the
functioning of the business. Hence, it can be a strong argument that the closure
of leased premises does not affect the use or occupation of the leased premises.
There is obviously no change in place of business
for commercial and
legal purposes by the lessee during the lockdown period.
It is important to note that in certain contracts, falsely invoking the defence
of force majeure or one of the alternative defences just listed can alone
constitute a breach of contract leading to more potential problems. Since the
Government of India has not issued any relaxation for payment of rent,
negotiating with the landlords and subsequent amicable discussions between the
Parties is the best way in the absence of Force Majeure provisions in their
- O.M.P. (I) (COMM) & I.A. 3697/2020
- CM APPL. 10848/2020
- Mary vs State of Kerala & Others, Civil Appeal No.9466 of 2003
- Dhruv Dev Chand vs. Harmohinder Singh and Others, AIR 1968 SC 1024