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Financial Literacy a Must for The Right Decision
Indian financial markets have turned increasingly complex for the common man, and a necessity has arisen to increase financial literacy to enable people to make informed decisions. Financial literacy consists of knowledge of financial concepts such as spending, saving, borrowing, investing, etc., and using it to manage personal resources efficiently.
Individuals faced with having to make complex financial decisions because of the complicated financial environment find that imprudent financial decisions like excessive spending, living on borrowed money, and deferred debt payments made earlier in life can prove to be costly.
Financial education can be seen as the best strategy to help individuals to manage their limited financial resources wisely, ultimately resulting in a decrease in the number of individuals being declared bankrupt.
The Organisation for Economic Cooperation and Development (OECD) has defined financial education as, “the process by which financial consumers/investors improve their understanding of financial products and concepts and risks, and through information, instruction and/or objective advice, develop the skills and confidence to become aware of (financial) risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being and protection.”
Financial literacy has assumed a significant role in the present era due to factors including the development of new financial products, the complexity of financial markets, information asymmetry, and changes in other economic factors. It results in the intersection of financial inclusion, financial development, and financial stability.
Financial inclusion The Indian government has tried to provide financial products and services to all sections of society concentrating particularly on the weaker sections and the low-income groups to enable their inclusion in the market.
People are getting literate enough to understand banking and financial concepts and terminology. Reserve Bank of India (RBI) has aggressively looked into it by joining hands with non-governmental organizations (NGOs), self-help groups (SHGs), and commercial banks.
Financial literacy and credit counseling centers have inculcated saving habits among people, to make them aware of the financial products and the credit schemes, and counsel them to prevent unmanageable debt levels. Increased financial literacy supports social inclusion and enhances the well-being of the community.
The Securities and Exchange Board of India (SEBI) has undertaken measures through stock exchanges, depositories, mutual funds associations, associations of merchant bankers, etc. by organizing seminars wherein study material is disseminated to educate investors. Another material related to financial education is available on the official website of SEBI.
Furthermore, the advancements in the information and communications technology (ICT) sector, the advent of mobile phones, the internet, and ATMs have also changed the way financial business is conducted. Financial development Financial illiteracy has been a barrier as per as delivering services is concerned. If individuals are not familiar or comfortable with products, they will not go for them.
In recent years, the knowledge about interest rates, exchange rates, etc. has been influencing the decision-making of individuals and they face financial risks despite informed decisions. It leads them to devise risk management strategies.
Businesses sometimes try to control financial risks with private insurance coverage and sometimes through various financial products. Financial literacy programs have played an important role in reducing economic inequalities as well as empowering citizens and decreasing information asymmetries between financial intermediaries and their customers.
Innovations such as electronic payments are helping those who have been excluded from the system. Financial development is widely recognized as an important determinant of economic growth.
Financial stability is also an integral component of customer protection. Customers are often penalized for minor violations in repayments, although they have limited redressal mechanisms to rectify deficiencies in service by banks, rendering the banker-customer relationship unequal.
Literacy has empowered the common person and thus reduced the burden of protecting him/her from the elements of market failure from a regulatory perspective. They understand the details of the regulations and avoid any kind of mistake that can have adverse effects.
Financial literacy has improved the integrity and quality of markets. It has provided individuals with basic tools for budgeting and helped them to acquire the discipline to save. It has ensured that they can enjoy a dignified life after retirement. It relates to personal finance, which enables individuals to take effective action to improve overall well-being and avoid distress in financial matters.
Hence increased financial knowledge has enabled people to participate in financial markets. Numerous households have improved money-related proficiency and individuals, as well as households, have been observed to be inclined to possess a retirement plan and savings.
Financial literacy plays a vital role in the efficient allocation of household savings and the ability of individuals to meet their financial goals. It has resulted in instability in the market and individuals’ financial conditions have improved. Conclusion Knowledge is crucial for financial decision-making.
This conclusion may be drawn on the basis that a strong correlation exists between the extent of an individual’s education and that individual’s investment acumen, the propensity to save, and management of personal credit. A positive correlation between greater education and increased investment in higher-yielding assets and higher investment-related income and a lower incidence of personal credit mismanagement like bankruptcies can be achieved.
RBI and SEBI’s initiatives are strides taken in the right direction for achieving its objectives of financial inclusion and financial literacy. Various NGOs and SHGs are also contributing to improving the financial education of the people.
However, more capital infusion towards financial literacy workshops and seminars at schools, colleges, workplaces, and residential areas is required so as to boost its effectiveness and spread. Early financial education and increased financial literacy are imperative and should be a first-order concern for public policy and educators alike.
Tags: financial literacy, financial education, financial awareness, financial knowledge, financial literacy for students, personal financial literacy, basic financial literacy
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Rs 20 Lakh Crore Package – Atmanirbhar Bharat Abhiyan
The Finance Minister made the fine print of Prime Minister Narendra Modi’s Atmanirbhar Bharat Abhiyan economic package, India’s economic response to the Covid-19 pandemic by the announced in her 5 days of economic stimulus press conferences. The package of Rs 20 lakh crore has been divided between measures that the government is taking now and the measures that it has taken earlier.
The overall package consists of three primary components – a set of measures taken by the government before Modi’s speech on May 12, the Reserve Bank of India’s liquidity measures over the last two months and the five tranches announced by Nirmala Sitharaman.
The government’s Rs 20 lakh crore economic support package, intended to help the economy tide over the Covid-19 crisis, will involve a very small amount of direct government spending. It is estimated that the actual fiscal impact on the budget could reach the bottom based on the calculations and assumptions made during the series of announcements.
The package may fall short of mitigating the near-term challenges for some businesses, but it is better designed to improve India’s medium-term growth potential.
Even though the announcements made are worth over Rs 20 lakh crore, the actual cash outlay by the government this year and the impact on the fiscal deficit will be far less. This is because many of the government’s proposals are credit-focused or are aimed at easing liquidity concerns for many affected sectors.
Any costs incurred will be initially covered through banks or other financial institutions and thus not result in actual cash outgo by the Centre. A part of the initiatives announced may only be ramped up over an unknown period of time and therefore may not be fully relevant for the fiscal deficit this year.
Further, it is difficult to hone in on an exact figure as much of it shall depend upon the Centre’s pace of implementation of certain programmes.
Meanwhile, it has used the cover of the COVID-19 crisis to plough through long pending, politically sensitive reforms. The fourth instalment of the Rs 20 lakh crore package comprised reforms for sectors including coal, minerals, defence production, air space management, airports, MRO, distribution companies in UTs, space sector, and atomic energy.
For improved ease of doing business among MSMEs, the minister extended the initiation period of fresh insolvency proceedings against MSMEs by six months to up to one year along with excluding Covid-19 related debt from the ‘default’ category under the IBC Code.
There has been no mention of any direct transfer from the economic package. Thus, people like the migrants, domestic workers, and street vendors do not find much to look up to who are in dire need of cash for livelihood and sustenance. The scheme aims at providing empowerment but not entitlement.
The ease of getting loans will be much more effective in an economy where a significant number of people are already finding it difficult to sustain the month on the income received. The announcement made by the Finance Minister has gone through a fair round of criticism by various economists and financial experts, some of the most important points on which the stimulus package falls short include,
Firstly, it is considered to be less of a stimulus and more of industrial reforms, which could have been announced at any time let alone being announced in times of crisis.
Secondly, it has been also observed that the only direct budgetary cost in this tranche was Rs. 8,100 crores to be provided as a raised 30% viability gap funding to boost private investment in social sector infrastructure.
Thirdly, the package may fall short of mitigating the near-term challenges for some businesses, but it is better designed to improve India’s medium-term growth potential
Finally, the fourth and fifth tranches covered sectors of strategic importance but these policies will be rolled out over a 3-6 month period, and any implication for supporting or reviving the economy as it comes out of lockdown is missing.
The relief package is a bold attempt to help the world’s one of the largest economies as it strives towards its first full-year contraction in four decades. While the package contains a suite of offerings targeted at different sections of the economy including the MSMEs.
Any subsequent announcements should include labour reforms and contain a clear focus on addressing the immediate need for cash for the MSME sector to meet its short-term working capital requirements, preserve the entrepreneurial spirit and boost capital formation and consumption. The figure might should up a large amount of package, but the core is hollow.
Tags: atmanirbhar bharat abhiyan, economic package, 20 lakh crore package, economic stimulus package, economic relief package, 20 lakh crore, atmanirbhar bharat abhiyan economic package
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The Disappearance of Corporate Tenants In The Pandemic?
Stock market crashes, mass unemployment, and disruptions hinting at a recession – are only the tip of the iceberg and its underlying repercussions are likely to unfold with time. The COVID-19 pandemic is adversely affecting commercial real estate (CRE) as it continues to wreak havoc in industries throughout the economy. For many years, the primary declining CRE sector in India has been a brick and mortar retail stores.
However, the retail sector is no longer suffering alone, as the COVID-19 outbreak is hurting most other CRE sectors: office, hospitality, multi-family, restaurant, personal services, entertainment, and construction.
Central, state, and local governments have ordered business shutdowns and social and travel restrictions limiting most social and commercial activities. As a result, commercial tenants throughout the country are going out of business, temporarily closing, curtailing operations, laying-off employees, and suffering sharply declining revenues.
Even so-called “essential” or “life-sustaining” companies that are largely exempt from governmental restrictions are experiencing declines in business. The spread of this deadly virus can prove to be the biggest black swan event for the real estate sector. Where all commercial real estate may see a decline, retail businesses may find that their regular flow of customers substantially reduced thereby essentially placing a period on the rental incomes of commercial landlords.
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‘Force Majeure’ provision
In the absence of any clarity by the Government on rental obligations under commercial lease agreements, businesses are left struggling with zero sales coupled with salary and rental obligations. Amid the pandemic, the much forgotten ‘Force Majeure’ provision in contracts and leases has gained traction and attention. The commercial tenants could invoke the ‘force majeure’ to absolve them from rental payments during “an event beyond the parties’ control”.
However, force majeure events are not exhaustively laid out under the law, and the applicability of this provision depends on the language of the rental agreement and the interpretation of the courts. Therefore, the parties must renegotiate the terms of the agreement to provide breathing room for both parties.
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Doctrine of Frustration
A question that may arise is whether a Lessee can invoke the Doctrine of Frustration in the absence of a Force Majeure Clause for Non-Payment of Lease Rent? Typically, the Doctrine is invoked in circumstances where the purpose of their contract is held to be frustrated under Section 56 of the Indian Contract Act.
However, the Supreme Court in Raja Dhruv Dev Chand v Raja Harmohinder Singh, observed ‘’Authorities in the courts in India have generally taken the view that Section 56 of the Contract Act is not applicable when the rights and obligations of the parties arise under a transfer of property under a lease’’.
Thus, it is unlikely that a lessee can claim frustration of contract in the absence of a Force Majeure clause under a lease agreement and seek a waiver of lease rental as a consequence of a Force Majeure event. However, most tenancy agreements don’t have the provision of ‘force mature and cannot invoke the doctrine of frustration and so unless announcements are backed by ordinances, the uncertainty of its enforceability remains.
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Common Area Maintenance Costs
Commercial landlords responsible for common parts (Common Area Maintenance) are providing more frequent and thorough cleansing of those common parts, particularly frequently touched surfaces (e.g. door handles, elevator buttons, and toilets), although, there is no legal obligation on them to provide such services to prevent the spread of the virus.
Supplying these extra cleaning services will have cost implications, and commercial landlords should check the service-charge provisions in their leases to ensure such charges are recoverable.
Wider regulatory issues regarding any steps taken (such as cleaning or surface disinfection) by a commercial landlord or its managing agents should also be addressed.
For example, municipal permission for commercial premises will often contain conditions that restrict or limit the hours within which such operations may take place. This could possibly catch enhanced or additional cleaning activities, for example, if additional garbage clearance is required or additional traffic and noise are caused.
But there could be a possible solution in order to save the commercial leases and the solution can lie in one of the most important statutes.
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Transfer of Property Act
Section 105 of the Transfer of Property Act (TPA) defines a “lease”. The recognizes certain situations under which unforeseen circumstances may give rise to a justified ground to treat the lease as terminated. Section 108(B)(e) shows three criteria must be satisfied before any benefit can be derived:
(i) the existence of an ‘irresistible force’;
(ii) property becomes substantially and permanently unfit for the use for which it was let; and
(iii) the lessor must be informed of the lessee’s decision to render the lease deed void. Therefore, under Section 108(B)(e), it is as important to establish that COVID-19 rendered the property permanently unfit for the purpose for which it was leased out, as it is to establish that COVID-19 is in itself an instance of an ‘irresistible force’.
In this context, it becomes important to examine whether COVID-19 and the lockdown can be termed as an ‘irresistible force’ for the purposes of Section 108(B)(e). Black’s Law Dictionary defines force majeure, inter alia, as a “superior or irresistible force” (4th ed. 1972).
While the authors have not come across a judicial precedent where the definition of ‘irresistible force’ has been specifically settled, obiter indicates that the Courts have not made a distinction between ‘irresistible force’ and force majeure. Whether COVID-19 itself would qualify as a force majeure event is a question of fact and is most likely to be settled on a case-to-case basis.
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Payment obligations and unforeseen circumstances
An obvious and major concern is whether the payment obligations under the lease remain active despite the lessee not having access to the property. The question as to COVID-19 and not having access to the property is a question of fact for the courts to determine on a case-to-case basis. But Courts have deemed that the lessee is in possession of the property and has access to it unless a notice under Section 108(B)(e) of the TPA is sent to the lessor.
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Considerations for a Lessee
The relationship between the lessee and the lessor is primarily governed by the terms of the lease deed. If the lease deed does not have a force majeure clause, the resort has to be had to Section 108(B)(e) of the TPA. The lessee will have to first satisfy himself that the event is one of ‘irresistible force’ and has to notify the lessor to avoid future rental payments.
This analysis is complicated by two important considerations. First, a lessee can only seek the benefit of Section 108(B)(e) if the lease in question is duly registered under the Registration Act, 1908. In the absence of registration, a lessee must examine their protection under common law for a month-to-month tenancy. Second, most lease agreements for commercial establishments contain an arbitration clause as the means for dispute resolution.
The arbitrability of disputes under a lease deed is currently pending resolution by the Supreme Court. In Himangni Enterprises v. Kamaljeet Singh Ahluwalia (2017) the Court held that disputes under the TPA were non-arbitrable.
The correctness of this view has been doubted in Vidya Drolia vs Durga Trading Corporation(2019) and a reference to the three-judge bench is currently pending. Given a large number of open-ended questions, it would be interesting to observe how courts react to the impact COVID-19 has had on various economic relationships.
Impact on the Sector
The Indian residential sector has been grappling with subdued demand for the past few years. In an attempt to stay afloat amidst changing dynamics, developers tried to pull all levers like restricting supply, focussing on execution, reducing unit sizes, and developing affordable housing projects.
However, the liquidity crisis initiated by the IL&FS fiasco and subsequent fallouts of various financial institutions further impacted the residential sector. Amidst these changing dynamics, PE players shifted their attention totally towards commercial assets.
As per ANAROCK Research, residential PE investments’ share of the overall inflows declined from 53% in 2015 to a mere 8% in 2019. COVID-19 has severely hit the residential real estate business and the sector has come to a standstill.
With a screeching halt to site visits, discussions, documentation, and closures, the early indicators depict that we are likely to face a tough time for the next few quarters and the sector’s recovery has been pushed further away by at least a couple of years. As per ANAROCK research, more than 15.62 Lakh units launched between 2013 till 2019 across the top 7 cities of India are in various stages of construction.
Of this, MMR and NCR together comprise 57% or about 8.9 Lakh units. With India being locked down until mid-April 2020 (as per the current advisory) there will be massive disruptions in the construction material supply even after the lockdown ends, leading to disturbances and delays in the construction activity.
Conclusion
The customary strained landlord-tenant relationships are further distressed with the lack of clarity in central and state government announcements bringing fore questions of eligibility and applicability of relief measures. Until the air clears (pun intended), Indians will continue to rely on legislation that hugely favors tenants in rental disputes, leaving landlords grappling to survive the crisis without any respite.
In the interim, as parties await clarification from the government, it is advisable to facilitate a shared objective of contractual performance through collaboration and provide a win-win solution to all until normalcy returns.
Tags: commercial realestate, commercial land, renting to corporate tenants, pandemic recession, Corporate Tenants, mass unemployment, commercial real estate
Landlord Legal Aspects – Tenant Disputes in Commercial Realty
Increasing unemployment levels, stock market crashes, and supply chain disruptions are only some of the effects of the COVID-19 outbreak. Many more underlying repercussions shall unfold over time.
With most Indian businesses adversely affected owing to the nationwide lockdown implemented by the Central Government to curb the spread of the virus, the Commercial Real Estate Sector (CRE) has been hit hard. Almost all of the CRE segments, namely: hospitality, office, restaurant, entertainment, and construction, have been impacted.
The Centre and the State governments have been ordering businesses to close commercial establishments such as offices and shops and advising the same to work from home (if possible), barring those in essential services. The result has been that a significant number of commercial tenants have been curbing operations, cutting jobs amid sharply declining revenues.
Even the so-called essential businesses have been experiencing a decline in their income. Where commercial real estate may see a drop, retail companies may find that their regular flow of customers has reduced substantially, thereby placing a period on the rental incomes of commercial landlords.
Force Majeure
Since the Central Government has not provided any clarity over rental obligations under commercial lease agreements, such establishments have been left struggling with negligible sales numbers, in addition to rental and salary obligations.
Amidst this outbreak, the much-forgotten ‘Force Majeure’ provision in leases and contracts has gained attention and traction. The commercial tenants could invoke the said provision to get relief from needing to clear rental payments during an event that is beyond the control of parties (as per Force majeure).
Nevertheless, Force Majeure events are not laid out exhaustively under the law, and the applicability of this clause depends mainly on the language of the rental agreement and interpretation by the courts. Hence, both parties have to re-negotiate agreement terms so as to get some relief during this time.
Doctrine of Frustration
An important question that could arise is whether a lessee can invoke the Doctrine of Frustration in the absence of the Force Majeure provision for non-payment of lease rent. Usually, the same is invoked during circumstances where the purpose of the concerned contract is held as frustrated under Section 56 of the Indian Contract Act.
Having said that, the Supreme Court (SC) in the Raja Dhruv Dev Chand vs Raja Harmohinder Singh, observed, “Authorities in Indian courts, have generally taken the view that Section 56 of the Contract Act is not applicable when the rights and obligations of the parties arise under a transfer of property under a lease.’’
Therefore, it is improbable that a lessee can claim frustration of contract in the absence of a Force Majeure provision under a lease agreement, and seek a waiver of the rental as a result of a Force Majeure event.
Nonetheless, the majority of tenancy agreements do not contain the Force Majeure clause, and cannot invoke the doctrine of frustration. Thus, unless ordinances appropriately back announcements, the uncertainty of its enforceability continues.
Maintenance Cost of Common Areas
Commercial landlords responsible for common parts (Common Area Maintenance) are providing more frequent and thorough cleansing of those common parts, particularly the frequently touched surfaces (e.g. door handles, elevator buttons, and toilets). However, there is no legal obligation on them to provide such services to prevent the spread of the virus.
Supplying these extra cleaning services will have cost implications, and commercial landlords should check the service-charge provisions in their leases to ensure such charges are recoverable. Broader regulatory issues regarding any steps taken (such as cleaning or surface disinfection) by a commercial landlord or its managing agents should also be addressed.
For example, municipal permission for commercial premises will often contain conditions that restrict or limit the hours within which such operations may take place. This could catch enhanced or additional cleaning activities, for example, if additional garbage clearance is required or additional traffic and noise is caused.
There could be a possible solution to save commercial leases. The same can lie in one of the most important statutes.
Transfer of Property Act
Section 105 of the Transfer of Property Act (TPA) defines a “lease”. This recognizes certain situations under which unforeseen circumstances may give rise to a justified ground to treat the lease as terminated. Section 108(B)(e) shows that three criteria must be satisfied before any benefit can be derived:
(I) the existence of an ‘irresistible force’;
(II) the property becomes substantially and permanently unfit for the use for which it was let; and
(III) the lessor must be informed of the lessee’s decision to render the lease deed void.
Hence, under the same Section, it is as equally essential to establish that the novel Coronavirus rendered the property permanently unfit for the purpose, for which the property was leased out, as it is to determine that the novel Coronavirus is in itself, an occurrence of ‘irresistible force’.
In this context, it becomes crucial to examine whether the said virus and the nationwide lockdown can be termed as an ‘irresistible force’ for Section 108(B)(e). Black’s Law Dictionary has defined Force Majeure, among other things, as an “irresistible or superior force” (4th ed. 1972).
While the dictionary’s authors have not encountered a judicial precedent, where the definition of ‘irresistible force’ has been specifically settled, obiter stipulates that the Courts have not made distinctions between Force Majeure and ‘irresistible force’. Whether the novel Coronavirus itself would qualify as an event under Force Majeure is a question of fact, and is most probably to get settled, on a case-to-case basis.
Payment obligations and unforeseen circumstances
An evident and significant concern is whether the payment obligations under the lease remain active despite the lessee not having access to the property. The question as to the presence of COVID-19 and not having access to the property is a question of fact for the courts to determine on a case-to-case basis. However, the Courts have deemed that the lessee is in possession of the property and has access to the same unless a notice under Section 108(B)(e) of the TPA is sent to the lessor.
Considerations for a Lessee
The relationship between the lessee and the lessor is governed primarily by the terms of the lease deed. In case, the lease deed does not contain a Force Majeure provision; the resort has to be had to the Section mentioned above, of the TPA. First, the lessee has to satisfy himself that the event is one of ‘irresistible force’, and also has to communicate the same to the lessor, to avoid making rental payments, in the future.
This analysis is made complicated, owing to two essential considerations. First, a lessee can only seek the benefit of Section 108(B)(e) if the lease in question is duly registered under the Registration Act, 1908. In the absence of registration, a lessee must examine their protection under common law for a month-to-month tenancy.
Second, the majority of commercial lease agreements include an arbitration clause, as the means for the resolution of a dispute. The arbitrability of disputes under a lease deed is, in the current scenario, awaiting a decision by the Supreme Court.
In Himangni Enterprises vs Kamaljeet Singh Ahluwalia (2017), the Court held that the disputes were non-arbitrable under TPA. Although, a doubt has been cast upon the accuracy of this view in Vidya Drolia vs Durga Trading Corporation (2019), and a reference to the three-judge bench is still pending.
Therefore, given the vast amount of open-ended questions, it would be interesting to witness how courts would react to the impact that the novel Coronavirus has had on a variety of economic relationships.
The Indian residential sector has been grappling with subdued demand for the past few years. In an attempt to stay afloat amidst changing dynamics, developers tried to pull all levers such as restricting supply, focusing on execution of existing supply, reducing unit sizes, and developing affordable housing projects.
However, the liquidity crisis initiated by the Infrastructure Leasing and Financial Services (IL and FS) fiasco, and the resultant fallouts of multiple financial institutions further impacted the housing sector. In complete view of these changes, Private Equity (PE) players had shifted their focus primarily toward commercial projects.
As per an industry research report, the share of PE investments made in the residential sector declined from 53 percent in 2015 to a negligible 8 percent by 2019. COVID-19 has severely hurt the residential real estate business, and the sector has come to a standstill. With site visits coming to a grinding halt, the evaluations, paperwork, and deal closures have also been reduced.
The early indicators show that we shall probably face a difficult time during the upcoming few quarters, and the sector’s recovery has been pushed further away, by at least a couple of years.
The tenant-landlord relationship, which is customarily strained, has become distressed further due to the lack of clarity in the announcements of relief measures made by the Central and State governments.
Until the same is made clear, Indians will keep depending on legislations that heavily favor tenants over landlords, during a rental dispute. Thus, landlords would be kept grappling to survive through the current crisis.
During the interim, as both sides wait for a clarification from the government, it would be prudent to facilitate the shared objective of contractual performance, via collaboration and the provision of a win-win solution to the same, till the return of normalcy.
Tags: supply chain disruptions, commercial real estate sector, tenant disputes, supply disruption, landlord tenant dispute, landlord and tenant disputes, landlord dispute, commercial tenant disputes
COVID-19 Impact on The Landlord Tenant Relationship
Sequoia Capital, a leading venture capital company, termed the novel Coronavirus the ‘Black Swan of 2020’. Black swans are rare, and so is this virus. The pandemic has been spreading at an alarming rate, pushing economies to an unprecedented standstill, and placing a period on the rental incomes of landlords.
In the wake of mass unemployment, salary cuts, and loss in investment values, the Central and State governments were compelled to provide rent relief measures to tenants, especially for the lower strata of the society.
Thus, to prevent a wave of homelessness, the Central Government introduced several rent relief measures. In a recent order, the same discouraged landlords from demanding rent from poor people and migrant workers. The Uttar Pradesh government also issued an order in the Noida area with regards to asking landlords to defer the collection of rent by a month.
The order also included a punitive action in the form of imprisonment of up to one year, a hefty fine, or even both of the aforementioned, for landlords found to be violating the said order.
Recently, the Maharashtra Housing Department also advised landlords and homeowners to postpone rental collections from tenants for at least three months, and not evict tenants for non-payment of the same. This circular, however, is only an advisory to landlords in Maharashtra, and should not be misconstrued as absolute or legally enforceable. The rationale was to grant relief to tenants who are not able to fulfill their rental obligations during the current crisis.
This decision was welcomed by tenants located across the state. One prominent real estate developer announced a full waiver for its retail tenants in its properties until the end of the lockdown. However, not all landlords have taken similar actions to mitigate the suffering of small businesses.
In fact, relaxations meant to secure a roof over tenants may jeopardize those landlords whose survival is largely dependent on rental incomes, especially in the case of some senior citizens. To the lack of respite by the government, landlords continue to bear electricity and water charges, property taxes, insurance, maintenance, and mortgage payments.
To provide fiscal stimulus and liquidity, RBI announced a three-month moratorium on Equated Monthly Installments (EMI) of loans, such as housing loans, personal loans, auto loans, working capital loans, and even credit card dues, to name a few, without negatively impacting the credit scores of borrowers. This move is likely to abate the potential ripple effect across the real estate and banking sectors caused by massive loan defaults.
However, there is a caveat that interest is not waived off, and will continue to accrue on the outstanding loan amount. Furthermore, such forbearance programs only defer mortgage payments, rather than completely forfeiting or discounting the cost.
Maharashtra Housing Department’s un-enforceable circular coupled with the EMI moratorium imposed by the Reserve Bank of India (RBI) may leave startups and small businesses with low cash reserves, struggling to survive the ongoing crisis. Unfortunately, lessees (commercial) might not be able to benefit directly from these orders, since many banks have this prerogative of creating relief packages, and evaluating applications to avail for the same.
The government’s move fails to provide all-encompassing blanket protection, especially to corporates in need. As a result, many businesses may not be able to see the light at the end of the crisis.
Additional remedies available to landlords and tenants shall depend on the language of the contract and the legal relationship between the parties – be it lessor-lessee, licensor-licensee, or landlord-tenant. The commercial tenants could invoke the clause of Force Majeure, which could be used to absolve them from clearing rental dues in the midst of an event beyond their control, which affects their ability to operate.
Nevertheless, events under the said clause are not stated exhaustively under the law, and the applicability of the same depends upon the language of the contract and its interpretation by the Courts. Therefore, the parties must review and, as mutually agreeable, revise the terms of the agreement in order to meet a consensus and provide breathing room to both parties.
Regardless of government efforts, individual circumstances indicate foreclosures across the country. Fortunately, the Supreme Court observed, “A tenant can not be evicted arbitrarily via the use of the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI Act) since that would amount to usurping the statutory rights of protection provided to the said tenant.”
Therefore, in case of a landlord fails to repay a loan, the same can not use section-35 of the SARFAESI Act to bulldoze the statutory rights provided to the tenant under the Maharashtra Rent Control Act, 1999.
Therefore, in a crisis, where resources and revenues drain faster than expenses, only time will tell whether the government’s measures for protecting the interests of the tenants will leave landlords grappling to survive the crisis without any respite.
In a jurisdiction that hugely favors tenants in rental disputes, landlords, though perceived as wealthy and greedy, may bear the brunt in the wake of rent relief measures announced by the Central and State governments.
Though normalcy appears to be a distant dream in India, deep collaboration between parties to a contract with a shared objective of contractual performance, may keep litigation off the charts and provide a win-win solution to all.
Tags: landlord and tenant, private landlords renting, landlord tenant relationship, notice to vacate, landlord tenant lawyer, tenancy act,
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