COVID Lock Down period as Force Majeure in Real Estate

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By Dr Sanjay Murari Chaturvedi, Editor.

COVID-19 has brought many questions on Force Majeure. Genuine cases where the performance is not possible because huge migration of construction labour in the country does exist. The government lifted Lockdown rules on 8th April 2020  and issued a SOP for construction workers. The SOP was for their accommodation and food, social distancing etc. L&T one of the biggest construction companies, declared that their sites are operational upto 90% in the country in the month of May 2020 itself. Many big construction sites restarted immediately. MAHA RERA asked all its registered ongoing projects to appraise it by putting information on construction labour, status and difficulties in starting projects.

One thing is certain, there is a thin line to decide Force Majeure in contracts. Even the Supreme Court has given a definition for the Force Majeure. Lease have also become major talk of the town for the subject. the two landmark judgements of the Supreme Court [(a) Raja Dhruv Dev Chand v. Raja Harmohinder (AIR1968 SC 1024) and (b) Sushila Devi v. Hari Singh (1971) 2 SCC 288] have left no cope for doubts or debate. A joint reading of the two bears out that Section 56 of the Indian Contract Act, 1872 does not apply to leases as it is a completed conveyance, different from an executory contract and events which discharge a contract do not invalidate a completed transfer or lease.

It is not that force majeure finds no place in TOPA. Clause (e) of Section 108, reproduced below, is as close as it gets: “(e) if by fire, tempest or flood, or violence of an army or of a mob, or other irresistible force, any material part of the property be wholly destroyed or rendered substantially and permanently unfit for the purposes for which it was let, the lease shall, at the option of the lessee, be void.”
Hence, only if the force majeure event is of such a nature that the leased property is substantially, and permanently destroyed it can be voided at the option of the lessee.

The Delhi High Court’s judgement dated July 15, 2016 Airports Authority of India V/s. Hotel Leela Ventures Limited offers a succinct treatise on the subject. Briefly, the lessee sought remission in the lease rent as the project had become commercially onerous on account of recession in the hospitality industry triggered by the terrorist attacks in Mumbai in 2008. The lease under question was for a duration of 30 years, and the lease rent was calculated as a percentage of the revenue. The Hon’ble Delhi High Court held the Petitioner’s claim to be false, frivolous, and an abuse of the process of law. It may be noted that the Special Leave Petition preferred by Hotel Leela Ventures against the Delhi High Court’s order failed.

In this spirit, under Section 37 of the Indian Contract Act, 1872, the parties are specifically enjoined upon to perform their promises unless such performance is dispensed with or excused under the provisions of the Contract Act, or of any other law. One such instance is when the performance of an act becomes impossible without any fault of the promisor. Section 56 deals with such instances and embodies the doctrine of frustration of contract. However, the Courts have consistently held that contracts cannot be frustrated on the grounds of commercial difficulty, inconvenience or hardship

Also this 60 days also observed Nationwide Lockdown from 25th March 2020 till 3rd May 2020 and as per Order of Supreme Court of India : {RECORD OF PROCEEDINGS SUO MOTU WRIT PETITION (CIVIL) No(s).3/2020 IN RE : COGNIZANCE FOR EXTENSION OF LIMITATION dated : 23-03-2020} the Apex court have Suo Moto cognizance, have ordered that all matters in Supreme Court, High Courts and all subordinate courts stand extended irrespective of Limitation period as per Limitation Act or Special Law and hence, the Appeal is qualified and deemed to be within the period of limitation specified in sub-section (2)of section 44.

.In its Order dated 18th May 2020 vide Order No 14/2020, Maha RERA have invoked Force Majeure for COVID-19 Pandemic.

The Order with reference to the advisory issued by the Central Advisory Council on 13th May 2020, have extended time line for all all statutory compliance due to “Force Majeure” under the provisions of RER Act 2016.

The Order said “Whereas, in view of COVID-19 (Corona Virus) Pandemic and consequent nation-wide lockdown with effect from March, 2020, reverse migration of labourers to their native places and break in supply chain of construction material, the construction activities of real estate projects across the country have been severely impacted.” “Whereas, an urgent meeting of Central Advisory Council (CAC) was held on 29th April, 2020, and as per its recommendations Ministry of Housing and Urban Affairs has issued Advisory regarding extension of registration of real estate projects and concurrently extending timelines of all statutory compliances due to ‘Force Majeure’ under the provisions of Real Estate (Regulation and Development) Act, 2016 (RERA), on 13th May 2020″

Accordingly, in keeping with the advisory of Government of India and in exercise of the powers under section 37 read with Section 34(a), 34(f) and 34(g), a force majeure period of six months, from 15 th March to 14th September, 2020 is being invoked and the following directions are issued with immediate effect:

MahaRERA vide Order No. 13/2020 has already revised project validity by three months. The said validity is extended by a further period of 3 months suo-motu. MahaRERA shall accordingly issue project registration certificates, with revised timelines for such projects, at the earliest. The aforesaid extension will be in addition to the extension already granted or that may be granted to a project under the first proviso to Section 6 of the Act.

  • For further extension beyond the aforesaid 6 months, for adversely affected projects, concerned promoters will have to apply in accordance with provisions of Section 6. MahaRERA may at its discretion waive the fee for such extension due to force majeure in accordance with rule 7 of Maharashtra Real Estate Registration Rules, 2017.
  • The time limits for compliance under Section 11, which become due anytime during force majeure period, stand automatically extended for a period till the expiry of force majeure period.
  • The Force Majeure period will be treated as a “moratorium period” for the purpose of calculating interest under section 12, 18 19(4) and 19(7) of the Act.
    • The work of registration of sale documents has been adversely affected due to non-functioning of the offices of the Sub-Registrar. Therefore, any registration of agreement for sale, which becomes due during the force majeure period under Section 13 of the Act, can be registered in a period extending till the expiry of force majeure period.
  • The dates of possession mentioned in already registered agreements for sale, shall be deemed to be extended by the Force Majeure period.
    • Due to non-functioning of the concerned offices, the work of transfer of title and conveyance has been adversely affected. Therefore, any compliance under Section 17 that becomes due during the Force Majeure period is allowed to be completed in a period extending till the expiry of the force majeure period.
    • In the Neel Kamal Realtors Suburban Pvt. Ltd. and anr. Vs Union of India and Others, the Hon’ble Bombay High Court division bench in para 115 of its order has observed that the object and purpose of the Real Estate (Regulation and Development) Act, 2016 is to complete the development work within the stipulated time. Keeping in view the spirit of this order and to ensure that the available liquidity in the designated RERA Accounts get utilized, on priority, for completion of the project, any refund, which under rule 19 of MahaRERA Rules becomes due during the Force Majeure period is allowed to
    be executed in a period extending up to one month after the expiry of the Force Majeure period.
  • Similarly, any amount, which under Section 40 of the Act becomes payable during the Force Majeure period, shall be recovered after the expiry of the Force Majeure period.

As the leave and License contracts are basically for rental premises, the lockdown is not provided as Force majeure. Now after March 2020, every lease deed is accommodating Force Majeure clause for such pandemic. But since there is no such covenant in the lease agreements, tenant have no choice but to pay full rent. Landlords may give some discounts or mortarium period but it is sheer landlord’s prerogative and cannot be forcefully asked for.

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