A watched pot never boils

Authored by-

Mr. Alok Gupta

Alok Gupta is the President of the prestigious The Estate Agents Association of India, Central Zone One. He can be reached at [email protected]. Views expressed are personal.

First, the debate started with whether the landlords should collect the rents for the lockdownperiod or not. Then, the debate shifted to whether they are even eligible to collect the rents or not. Now since the courts in India have well clarified and ruled that not only the landlords are eligible to collect the rents but also it would be unjust to them if they are even asked to waive rents for the lockdown period. Now since the lockdown doesn’t seem to end so smoothly, so soon, it is becoming a challenge for the landlords to recover rents from their tenants. I have tried to study the situation from both the sides, analyse the gravity of the lockdown compassionately and have then devised a modest methodology for the landlords to recover rents amicably and lawfully even amidst the Corona crisis.

Gardens are not made by sitting in the shade.

Have a dialogue with the tenants.

Most of the time, we become victims of our assumptions. We simply presume that the tenants do not want to pay or are unable to pay. Quite a few times, even the tenants presume and take the approach of convenience and do not pay the rents just because the landlords have not reminded them. Landlords, if they do not receive their rents, as usual, must first of all speak to their tenants and inform them that no government order mandates a rent waiver, if there is an order in this regard, it is only for the deferment of rent which, sooner or later, the tenants will have to pay. It is in the interest of the tenants to keep paying the rents as usual rather than piling it up for a future date which may also attract interest and penalties as per the agreement. I have seen that most of the tenants after being approached, pay the rents.

Landlords do not have money plants in their backyard.

Inform tenants of your side of problems too.

As the word ‘landlord’ gives the impression, most of the time tenants presume that the landlords are the ones who quite literally have money plants in their backyards. According to their presumption, this is that sect of the society which has a lot of money, deep pockets, and no financial problem whatsoever. They tend to forget that even a widow or a handicapped can be a landlord whose household runs merely on rent. The landlord could also be a retired worker who runs the household out of the rents receivable from the properties purchased through his or her hard-earned savings of a lifetime. In quite a lot of cases, the tenants are richer than their landlords. Moreover, the landlords too have a lot of expenses to bear. They may have to pay the EMIs, they have to pay the society bills, property taxes etc. in which they have no respite from the government. It would be very relevant to state that all the landlords, irrespective of the kind of tenants they have, have to bear such expenses and if they are not paid their rents, where will they get the money to pay off such dues ???    

Needs must when the devil drives.

Adhere to the contract as per law.

The landlords must read their agreements once again, carefully. Most of the tenants, as per my study, have tried to take shelter of the ‘Force Majeure’ clause in the agreement. What is ‘Force Majeure’? In Real Estate terminology ‘Force Majeure’ means unforeseeable circumstances that prevent someone from using the premises. It is rare that the said clause would have covered the situation of a pandemic or the lockdown specifically and would have allowed for a waiver of rent for the period of lockdown. In the absence of such clarity in the agreement, the landlords need to make the tenants understand that the clause of ‘Force Majeure’ is not to be misused in this situation of lockdown. Majority of the residential tenants is safely out of the purview of this clause as it is very much using the premises. We are now left with only the commercial tenants to deal with. These tenants too are using the premises directly or indirectly, partially or fully, their premises have not become unusable in any way.Moreover, the most important point to note here is that the clause of Force Majeure, if applicable, is used to terminate the agreement. A tenant cannot use this clause to take waiver of rent for a month or two and still keep the agreement alive and continue to use the premises. The order dated 21st May 2020 of the honourable Delhi High Court well defines this aspect.

The landlords shouldn’t stop issuing their bills if such is the requirement for the tenants to pay the rents. It is to be understood that there is no waiver of GST from the government’s side. Whether the rent is received or not, the landlords are liable to pay  GST, which is payable on mercantile basis not on receipt basis.

Unwillingness easily finds an excuse.

Ask for justification.

It is for those tenants who, despite being in good financial health, are unduly withholding the rents. These usually are those tenants who do not have the right intentions and are simply trying to take advantage of the situation. These tenants can be politely asked to substantiate their act with necessary documents such as their balance sheets, Income Tax Returns, Bank Statements etc. If these documents defeat their claims, the tenants must not be allowed to take undue advantage of the situation and the rents must be recovered from them.

So much so, some of the companies asking for the waiver of rents have even donated money for the welfare of the pandemic affected populace. How justified is this?

A bird in hand is better than two in a bush.

Accept the part payment of rents.

In some cases, where the tenants are genuinely stuck up financially and are facing some liquidity crunch, they be asked to pay at least a part of the monthly rent now deferring the balance settlement to a pre-decided date. This will not only keep the money cycle going for the landlords but also prevent the tenants from taking undue advantage of the ‘Force Majeure’ clause.

Where there is a will there is a way.

Advise tenants to take loans if so required.

If there comes a situation where neither the landlord nor the tenant is in a good liquidity situation, it should be the tenant who should be asked to take a loan from the bank or raise finance from other sources rather than imposing the same on the landlord. Why should the landlord bear the brunt? If the tenants are big companies, they shouldn’t have any problem in raising a loan from their existing bank. If the tenants are small or medium-sized companies, they could be directed to the financial assistance made available to them by the government.

A landlord must bear in mind that he or she is neither a partner nor a stakeholder in the profits of his or her tenants. A landlord is asking the tenants to pay only what is due as per the contract between them. I do not recommend any landlord to be unsympathetic or merciless towards tenants but, he should also have the conviction that he too is a sufferer of the lockdown and he too needs his money cycle to remain intact.