Fresh agreements being drawn up by lawyers mention that in case of a lockdown there will be no waiver of rent or mention a mutually agreed percentage of the rent that could either be waived or deferred.
The new agreements are being drafted for both residential and commercial properties as both — property owners and tenants — seek clarity in case of another lockdown disrupting life.
The lockdown clause has gained importance as force majeure clause — a common element in any contract which essentially absolves both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties occurs does not mention lockdown or a pandemic.
After the country was put in a lockdown late in March, halting nearly all commercial activity for close to two-and-a-half months, tenants began defaulting on rent payments. When demands were raised by landlords, disputes ended up in court, jeopardising years of business relationships.
Confirming that clients are increasingly demanding lockdown clauses in their new rent and leasing agreements, a senior official with a leading international property consultancy, who did not wish to be identified, said: “Yes, clients are making this demand for new contracts. Basically, they want force majeure clause modified to include pandemic-related impact as well as government-enforced lockdown scenarios.”
Advocate Prakash Rohira, who specialises in real estate, has so far drafted at least ten revised agreements with a lockdown/pandemic clause — eight for commercial properties and two for residential. He said that while in commercial properties, owners are willing to offer a waiver, in residential properties owners want it made it clear that there will be no rent waiver under any circumstances.
Rohira said leave and license properties in Mumbai yield annual earnings (based on market value) of 2-3% for residential and 4-6% for commercial, which is lower than fixed deposits. “There is very little room for any negotiated settlement here. So, newer leave and license agreements through various preferred words clearly state that the License Fees will be payable whatever the circumstances,” he said.
Advocate Utkal Deshmukh of DB Legal said that they have received several requests, especially from tenants, for the addition of the pandemic as a force majeure clause in their future contracts. “The pandemic as clause will be case specific as it will have different implications and contractual obligations for different parties, subject to the agreement between them,” he said.
Trivankumar Karnani, a lawyer who practises at the Bombay High Court, said courts will end up hearing a lot of cases of rent agreement violations. “The lockdown has disrupted the real estate rental business. It is not surprising that both property owners and tenants are now seeking a remedy. And that remedy is reframing of contracts with a force majeure clause.”