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By mid-June, therefore, large and small businesses facing acute cash-flow challenges because of the lockdown could be exposed to additional problems as they may be required to pay, as per employment contracts or the applicable statutory requirements, substantial sums in settlement for a significant number of employees. Commercial leases, especially for small businesses, could, therefore, be exposed to additional vulnerability as a result.
Essentially, the inability to pay rent is no reason to release parties of their contractual obligations. As we have discussed earlier in this space, force majeure provisions are not available in the specified forms for real estate transactions. Often when such clauses exist, they are intended to protect the landlord’s interests. Tenants, commercial or residential, are required to fulfill their contractual obligations regardless.
Alternatively, the doctrine of frustration might be invoked when certain developments, beyond the control (or fault) of either party, prevent the contract from being executed. For temporary relief from mortgage or rent payments, “frustration would not likely help as its effect is to relieve the parties of their further obligations to perform, from the time of the event,” Sanche explained.
Legal principles and doctrines reflect the realities of their time. However, unprecedented developments, such as famines, pandemics and wars, create circumstances where strict legal doctrines may have to give way to compassion and cooperation. Such approaches are preferred for economic reasons as well.
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