Amid the second wave of the COVID-19 pandemic and the resultant job losses and pay cuts, many tenants may not be able to pay their monthly rentals. We examine whether landlords can evict such tenants Amid the raging second wave of the COVID-19 pandemic in India, migrant workers may once again find themselves being forced out of urban centers in India. With job loss and pay cuts, because of the economic crisis from the resurgence of more fatal variants of the Coronavirus, the focus is again on tenants, who may not be able to pay their monthly rentals.
Even though the government agencies and global think tanks continue to maintain that the economic impact of the COVID-19 second wave, would not be as adverse as seen during the first wave when millions of workers lost their incomes following a strict nationwide lockdown, numbers present a bleak picture.
According to the Centre for Monitoring Indian Economy (CMIE), the second wave of COVID-19 and the fragmented lockdowns have impacted over 75 lakh jobs, taking the unemployment rate to a four-month high of 8%, in April 2021.
Since the actual numbers might be much higher, considering the data does not include jobs in the unorganized sector, it may be safe to assume that a large number of people, who returned to cities after the first wave was over and businesses started to resume normalcy, are running the risk of non-payment of their monthly rents.
Unlike the first wave, when various states issued directives to landlords to not force their tenants to pay rents amid the economic crisis, no such advisory has been issued by any state so far, including those which are home to some of the biggest job markets in the country – Maharashtra, Delhi and Karnataka.
Rent payments may be a bigger burden for tenants who are also paying monthly EMIs against housing loans for their under-construction properties. Unlike last time when it offered a six-month relief to home loan borrowers, the RBI has not announced any home loan moratorium scheme. In the view of the banking regulator, businesses in India are better prepared to deal with the economic impact of the second wave of the pandemic and the RBI would continue to assess how the situation evolves, before announcing another moratorium scheme.
Tenants who availed of the moratorium and/or the loan restructuring schemes last time may be under greater monetary pressure now than they were during the 2020 lockdown. This brings us to the question: What can a landlord do in case you are not able to pay your monthly rent, because of a job loss?
Can a landlord evict a tenant?
Under the provisions of the Draft Model Tenancy law in India, landlords could initiate an eviction process, if the tenants fail to pay the rent for two months in a row. So, unless states start issuing directives to landlords in this regard, the landlords would be well within their legal rights, to ask their tenants to move out.
“Not only can the landlord ask you to move out of their premises, but he would also be allowed to keep a large part of the security deposit, to claim any unpaid rent,” says Prabhanshu Kishra, a Lucknow-based lawyer.
Ever since the first case of Coronavirus was reported in India, on January 30, 2020, when a student from the Wuhan University came back home to Kerala’s Thrissur district for vacations, the number of infections in the country has been on the rise. The economy has been dealt a sudden jolt, owing to the lockdown imposed to curb the spread of the virus. In the short term, businesses with medium to no-risk appetite may be forced to resort to paying cuts and layoffs. Unfortunately, this will cost many dearly.
Mohit Singh has been living in 57-year-old Ajay Sharma’s property as a tenant, for the last year. Unfortunately, Singh, who belongs to a mid-income family, has lost his job. So, he approached Sharma for a rent waiver but the latter refused, citing that rent from two of his properties, was the only sizeable income for him. Sharma is about to retire in a year’s time and his wife is a teacher. Their household income is Rs 1.50 lakhs per month. Their expenses include parents’ welfare, daughter’s education, funds for retirement corpus, monthly necessities, personal medical expenses, municipal charges, expenses incurred on domestic help, commuting, etc.
Singh, however, believes that Sharma should offer some relief on rent payment, given that he has always been paying his rental dues on time and has maintained the decorum that a tenant is supposed to. Singh has also availed of the RBI’s loan moratorium, to divert his EMI money to other urgent needs. He also feels that the authorities have urged landlords to provide rent relief to tenants wherever possible and Sharma should take note of it. In some cases, the authorities have requested landlords not to force their tenants, especially migrant workers and students, to pay their rent. They should be allowed to defer the rent payment by at least a month’s time.
Disaster Management Act, 2005 and rent payment
On March 29, 2020, the Union Ministry of Home Affairs in an order said, “Wherever the workers, including the migrants, are living in rented accommodation, the landlords of those properties shall not demand payment of rent for the period of one month.” Further, it said that “If any landlord is forcing laborers and students to vacate their premises, they will be liable for action under the Act,” invoking measures under the Disaster Management Act, 2005.
While this stands true for workers and students, it is most certainly to help the economically backward, who have to sustain far more pressure than people with regular jobs and a decent lifestyle.
Can a tenant be evicted for non-payment of rent?
Aditya Pratap, the advocate, Bombay High Court, says that non-payment of rent can lead to eviction of the tenant from the premises. “The timely payment of license fees is the essence of an agreement. Secondly, the law presumes that every person will save for a rainy day. If a person has no income during a particular month, he/she is expected to pay out of his/her savings. Thirdly, the dominant purpose of a residential rental agreement is to give the premises on a residential basis. Whether a tenant is working or not, he/she is occupying the premises and legally, a landlord can avail of the eviction remedy.”
Remedies for landlords, tenants who do not prefer eviction
Given the circumstances, the eviction of a tenant and their family might not be a humanitarian move. Landlords who do not wish to evict their tenants and financially stressed tenants must put their heads together to arrive at a consensus. Here are some tips:
“Practically, I would advise landlords to consider mediation,” says Pratap. If you are someone who can afford to bear one or two months of deferred payments, go for it. However, your tenant’s track record must be good and you must ensure that you can trust him/her. A cordial negotiation is a way ahead and one-sided decisions should not be imposed upon either the landlord or the tenant.
Note that with mounting health and safety concerns owing to COVID-19, even courts have placed a temporary ban on the eviction. A landlord can file an eviction case in a court, but the case might not be heard, as only urgent matters are being listed for hearing.
Novation of contract
Section 62 of the Indian Contract Act, 1872 reads: “If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.” This means that you can go in for a novation and create a supplementary contract with new terms, meant for the benefit of both parties.
Commonly asked questions
What if the tenant was just about to move into a property on rent?
Suppose that a tenant, Manik Nath, was just about to move into Animesh Sinha’s property on rent but could not do so, because of the lockdown instructions valid across India? In such a case, Nath can invoke the ‘force Majeure clause, as he has not occupied the property. He will not be expected to pay the rent and he can claim a refund of his deposit.
What if the tenant wanted to move out of the property and is unable to?
Let us consider another example. Priyank Gujral was about to move out of Vikram Naik’s property by April 1, 2020. Unfortunately, the plan did not work out. Gujral thinks he can excuse himself from paying the rent for April 2020. He says that his landlord was aware of his plans to shift out of the property and should not have any problems. According to advocate Pratap, Gujral will have to continue paying the rent, because he is occupying the premises. His intention of moving out of the property does not count here. If the landlord is agreeable to a waiver of the rent, then, that is a mutual agreement. However, by law, such a rent waiver is not allowed.
The authorities have taken several steps, to combat the fallout of the Novel Coronavirus pandemic. These include the following:
COVID-19 Response (Urgent Management Measures) Legislation Act
The COVID-19 Response (Urgent Management Measures) Legislation Act came into being on March 26, 2020. Restrictions were imposed on terminating a tenancy for an initial period of six months, that is, from March 26, 2020, until September 25, 2020.
Relief for migrant laborers
Delhi chief minister Arvind Kejriwal appealed to landlords to make it easier for their tenants to survive the economic difficulties brought about by COVID-19. He suggested that they should accept rents either in installments or should not coerce migrant workers and students to pay the rent.
In Uttar Pradesh, the state government also issued an order to the effect that if landlords were caught harassing their tenants, this could lead to imprisonment. In Maharashtra, the housing department advised landlords to abstain from evicting the tenant and defer the rent collection, if possible.
RBI’s loan moratorium
For those severely hit by the pandemic, the Reserve Bank of India (RBI) extended an EMI holiday on all term loans for a period of three months, which was further extended for another three months up to August 31, 2020. For those struggling to bear the expenses towards rent and loans, the EMI holiday was a relief. Independent reports state that about 45% of people who had taken loans from financial institutions, availed of the EMI holiday.
Section 32 of the Indian Contract Act, 1872- Force Majeure
Waiver of one’s monthly rent or its non-payment under contracts, which have a force majeure clause would be governed by Section 32 of the Contract Act. In the apex court in the Energy Watchdog v. CERC & Ors. the case held that a tenant may claim some waiver but only if a contract had such a provision or clause to this effect. Section 32 of the Contract Act, allows the tenant to claim that the contract has become void and surrender the premises. However, if the tenant wishes must retain the premise, no clause gives them any respite to the tenant in the form of a rent waiver or suspension.