COVID-19 Calls for Long-Term Protections for Commercial Tenants Against Future Disasters

Blogs · June 26, 2020
Author(s): Malavika Rajkumar

Protecting both tenants and landlords from financial losses

COVID-19 has been an eye-opener for businesses around the world to make strategic, long-term changes to supply chains — changes that had often already been under consideration such as the UK’s Corona Virus Act, 2020 that protects business tenancies from eviction. When the coronavirus finally abates, businesses will be in a rush to re-establish their value and continue product and service distributions.

However, a large chunk of businesses in India operate out of leased spaces and the pandemic has led to mounting financial problems for them. COVID-19’s widespread impact on the ability of businesses to continue operations in leased spaces could remain for the time to come and requires an open dialogue towards practical solutions.

This blog suggests long-term measures that the Government should introduce to protect commercial tenants, given that the current economic climate of India is marked by the loss of revenue streams and prevailing financial uncertainty. At the same time, acknowledging that rental income could be the sole earning of lessors, measures are suggested to protect their interests as well.

Need for such measures

The pandemic has necessitated various legislative and executive measures by the Central and State Governments. However, none of them contain provisions for protection of commercial tenants during a pandemic.

The existing practices and protocols will need to be reviewed for better preparation in the event of future disasters to provide protection to commercial tenants.

Call for amendment to the Transfer of Property Act

The Transfer of Property Act, 1882, contains various provisions for the protection of tenants.

Section 108(e) of the Act grants tenants the entitlement to avoid the lease only in situations where “any property be wholly destroyed, or rendered substantially and permanently unfit for the purpose for which it was let out, due to fire, tempest, flood, violence of an army or a mob, or other irresistible force”.

The Parliament, along with the Ministry of Housing and Urban Affairs, should explore the possibility of an appropriate amendment to Section 108(e) to include situations notified under the Disaster Management Act, including a pandemic. Such an amendment would allow for the lease to be made void in disaster-like situations, including COVID-19, which render the premises inoperable. This could go a long way in providing relief to tenants and help cut business losses.

Provisions for landlords to claim insurance

At the same time, to balance the rights of tenants with the rights of landlords/lessors, the Central Government may also consider providing certain reliefs to the landlords and owners of leased premises through insurance. In many situations, the sole source of income for landlords may be the income accruing to them under the respective commercial lease or contract.

However, currently, COVID-19 is not an existing ground on which businesses can make their claim for business interruptions.

The IRDAI (Insurance Regulatory and Development Authority of India) has recently published guidelines to all insurers on the handling of claims reported under COVID-19 whereby coverage is granted for the treatment of hospitalisation expenses to alleviate hardships for policyholders. Currently, ‘business interruption’ insurance policies for businesses are usually add-on options under general liability insurance policies for businesses.

Guidelines ought to be framed by the IRDAI to promote efficiency in the conduct of insurance business (as per Section 14 (2) (e) of IRDA Act, 1999) to provide for ‘business interruption’ coverage to underwrite losses on account of business interruptions caused due to the disasters notified under the Disaster Management Act, 2005. Such a measure by the IRDA would be in the public interest and would provide a remedy to policyholders, including landlords.

Conclusion

Implementing such long term measures would have benefits that go beyond the current Covid-19 crisis. Laying down a framework to protect businesses will be helpful for any future disaster or epidemic situations faced by India.

This is Part 2 of the two-part series on protections to commercial tenants in India which explains the measures that can be taken by the Government in light of COVID-19. Part 1 suggests some immediate measures in this regard. 

Views are personal.


About Malavika Rajkumar:

Malavika is a Research Fellow (Content Lead) at Nyaaya at Vidhi. She is a graduate of Symbiosis International University and holds a B.B.A.LLB degree. Her main areas of research include womens's rights, child rights, social welfare legislations, gender based violence and information design. She also writes regularly on publications such as Live Law and Firstpost. Before joining Vidhi she completed a summer course on International Relations from Kings College London in 2017. She has worked on the Legal Development Project funded by WHO on ‘Road Safety and Design’ and in the National Policy and Research Team by IDIA (Increasing Diversity by Increasing Access). Link to full bio