We areall aware that the COVID-19 outbreak has brought unforeseen hardships for people in the country. Countless businesses have suffered because of the pandemic. In order to survive the current crisis, tenants are searching for ways to delay or avoid the payment of lease rentals to help reduce the number of issues related to cash flow.
The current scenario has given rise to many concerns among landlords as well as tenants in the real estate market.They are facing a lot of challenges during these unprecedented times. Hence, for parties of a commercial lease agreement or those looking for commercial space for lease, knowing about the current scenario while leasing commercial property during the COVID-19 outbreak becomes even more crucial.
Before we move on to the available options for the parties of a commercial lease, here are some major concerns that are faced by tenants and landlords in the commercial segment:
- Force Majeure
In the case of an unforeseen event, the Force Majeure clause let the parties get out of specific obligations. If a pandemic has been included in the specifications, invoking the force majeure would be very easy. However, typically, force majeure clauses only cover Acts of God and natural calamities. In the case the force majeure clause is not included in the contract, the Doctrine of Frustration under Section 56 of the Indian Contract Act, 1872, maybe consulted to check for possible options. In any case, an attorney should be consulted for charting out a proper plan.
- Withholding/Suspension of Rent
Almost all leases do not let tenants suspend or withhold the rent, irrespective of the situation. In such a scenario, the parties must communicate in an effective manner and work out a solution wherein the lessor has to make sure that the closing of the premises takes place in a situation where such a suspension is permitted. The lessee may also request permission from the lessor for carrying out limited operations so that the business’s good will does not get compromised. In such a condition, the landlord can permit complete/partial rent waiver to the tenant.
- The Keep-Open Clause of Commercial Leases
The keep-open clause is defined as the obligation of the tenant to continuously trade throughout the lease duration. A tenant who belongs to the retail segment and has the keep-open clause in their lease is required to take into account the effects of closing their outlets totally. Depending on the guidelines put in place by the government and the lease provisions, keep-open clauses can lead to conflicts between the tenants and the landlords.
Available Options for the Parties of a Commercial Lease
Given the current scenario, it becomes crucial to know more about the available options for parties of a commercial lease. Taking the unprecedented situation into consideration, a wise step would be for the lessor and lessee to have a discussion and come to a mutually agreeable settlement instead of litigating on the problem.
Practical Steps that Should be Taken When Entering into New Contracts
The below-mentioned tips can prove to be advantageous for the parties while entering into new contracts, particularly for situations where the Coronavirus is more likely to affect the business:
- Meticulously review obligations in the lease, construction contracts, and other real estate contracts
- Comprehend the balance between economics and location
- Add a clause keeping an epidemic outbreak in mind
- Retail tenants are required to study their leases well in order to understand what they need to do in a situation where their business cannot be run from the premises
- Ensure having a business interruption insurance in place to cover income loss
- Put provisions associated with temporary rent adjustments if possible
Other Points to Keep in Mind When Choosing a Commercial Property for Lease and Entering into an Agreement
As a result of the COVID-19 experience, parties that are entering into agreements should build in suitable causative provisions in the force majeureclause along with certain redressal mechanisms such as payment suspension or a waiver of rentals for such scenarios. Or they can particularly look at including “cessation of business due to a governmental order,” “epidemic”,“pandemic”.Irrespective of whether you go for commercial space for rent in Gurgaon or in any other part of India, this information will prove to be beneficial.
Businesses can also consider a larger adoption of business continuity insurance that will particularly cover lockdowns, pandemics, etc. This information will come in handy at a time when you search for a commercial space such as an office complex in Gurgaon for rent.
A new jurisprudence is to be expected from judicial decisions of Indian courts that will aim at protecting the interest of the lessees as well as the lessors in similar situations which may come up in the future. While we all are still not aware of the outcome of the pandemic and how the country is going to recover from the situation, it is important to know as much as possible about the current scenario of leasing commercial property during the COVID-19 outbreak. Doing so will only help you in taking care of your business.