COVID-19, Force Majeure And Lease Agreements
COVID-19, Force Majeure, and Lease Agreements
1. Context: COVID-19 and Lease Agreements
The COVID-19 pandemic created an unprecedented global disruption.
Many lessees (tenants) found themselves unable to pay rent or perform lease obligations due to lockdowns, business closures, and financial hardships.
This situation raised legal questions about whether such non-performance could be excused on grounds of force majeure or frustration of contract.
2. Force Majeure: Definition and Legal Basis
Force majeure refers to unforeseeable circumstances that prevent someone from fulfilling a contract.
In Indian law, force majeure is not defined explicitly in the Indian Contract Act, 1872 but is generally understood under Section 56 (now replaced by the Contract Act, 1872 (Amendment) Act, 2017 and codified under various laws) which deals with “Doctrine of Frustration”.
Section 56 of the Indian Contract Act (before the amendment) provided that a contract becomes void when performance becomes impossible or unlawful due to unforeseen events.
Force majeure clauses are typically contractual clauses agreed upon by parties to excuse performance under specific conditions (like natural disasters, wars, epidemics).
3. COVID-19 and Force Majeure in Lease Agreements
Lease agreements often include a force majeure clause listing events that excuse delay or non-performance.
COVID-19 and government-imposed lockdowns arguably fall under force majeure events because:
They were unforeseeable at the time of contract formation.
They caused impossibility or severe difficulty in performance (e.g., closure of shops, offices).
Tenants invoked force majeure to seek rent relief, deferment, or waivers.
4. Doctrine of Frustration vs. Force Majeure
Force majeure is a contractual clause excusing non-performance due to specified events.
Frustration of contract is a legal doctrine under Section 56 where the contract becomes impossible to perform due to unforeseen events, even without a force majeure clause.
If no force majeure clause exists, parties may seek relief under frustration.
5. Relevant Legal Principles and Application
Mere economic hardship or difficulty is not enough to invoke force majeure or frustration.
The event must render performance impossible or illegal.
Government orders like lockdowns can amount to force majeure if they directly prevent performance.
Courts examine:
Whether COVID-19 or lockdown falls within the force majeure clause.
Whether the event directly affected the specific contractual obligations.
Whether the party invoking force majeure took reasonable steps to mitigate losses.
6. Case Law and Judicial Responses in India
a) Ram Kishan Dalmia v. Justice Tendolkar (1958)
Classic case on Doctrine of Frustration under Section 56.
Contract was held frustrated because performance became impossible due to government order.
Sets precedent for relief when government orders prevent contractual obligations.
b) Naihati Jute Mills Ltd. v. Khyaliram Jagannath (1968)
The Supreme Court held that hardship or increased expense does not amount to frustration.
Mere financial difficulty due to COVID-like circumstances would not invoke the doctrine.
c) Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd. (2020) (Delhi High Court, related to COVID-19)
Court acknowledged COVID-19 and lockdowns as a force majeure event.
Allowed invocation of force majeure clause where performance was directly prevented.
d) Indore Urban Cooperative Bank Ltd. v. Dewan Metal Ltd. (2020)
The Supreme Court stayed eviction proceedings against tenants unable to pay rent due to COVID-19 lockdown.
Although not a final judgment on force majeure, it showed judicial sensitivity to pandemic hardships.
7. Practical Considerations in Lease Agreements during COVID-19
Force majeure clause analysis: Does the clause specifically mention epidemics, pandemics, or government actions?
Notice requirements: Tenants must usually notify the landlord promptly about the force majeure event.
Mitigation: Tenants expected to minimize damages and find alternative means to perform obligations.
Negotiation: Many landlords and tenants entered into rent deferment agreements or reductions outside court.
8. Summary: Key Takeaways
| Aspect | Explanation |
|---|---|
| Force Majeure | Contractual clause excusing non-performance due to events like pandemic, lockdown. |
| Doctrine of Frustration | Legal doctrine that contract becomes impossible to perform due to unforeseen events (Section 56). |
| COVID-19 as Force Majeure | Recognized by courts where lockdown/government orders prevent performance. |
| Economic hardship | Not sufficient alone; must be impossibility or illegality of performance. |
| Judicial attitude | Courts sympathetic but require strict interpretation; eviction stays granted temporarily in some cases. |
9. Conclusion
COVID-19 significantly affected lease agreements worldwide.
In India, whether COVID-19 is force majeure depends on:
Contractual terms (force majeure clauses).
Whether the performance was rendered impossible due to lockdowns or government orders.
Courts have adopted a case-by-case approach, balancing contractual sanctity with pandemic realities.
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