There were many problems that erupted among Landlords-Tenants in the Covid-19 pandemic. There were salary cuts, jobs losses, migrations, slowdown of economic activity in the business fraternity, which led to many disputes.
Covid-19 had brought the cruise industry to a complete halt last year. Pandemic clauses are not a standard feature in most lease agreements and, with any precedent lacking, landlords and tenants found themselves in unchartered waters as they negotiated voluntary arrangements such as rental abatements and waivers. Covid-19 changed the landlord-tenant relationship.
Change in priorities
The Covid-19 pandemic caused ripples across all industries including the residential rental market. “A large number of organizations opted for work-from-home (WFH) for a stipulated period since health and safety concerns of employees became vital. Therefore, a significant number of working professionals relocated to their hometowns to save on rent. As a result, the demand-supply dynamics changed significantly, resulting in rentals reducing across micro-markets. However, with the dust settling, we expect this trend to reverse.
Also, with the rise of remote working, tenants are now seeking bigger, more spacious homes to accommodate their newfound requirements. “Tenants are now searching for homes in suburban areas as they are more affordable and spacious. And as people continue to spend more time at home, there has been an increased demand for multifunctional homes that can accommodate study rooms, workstations, recreational zones, etc. More than 50 percent of the landlords from Delhi-NCR, Mumbai, Bengaluru, Hyderabad, Chennai, and Pune had either reduced or waived off the rent during the lockdown. As per the recent information, distance from the workplace has dropped in ranking as a key criterion for tenants, and factors such as safety, water supply, open spaces, etc have become important determinants in tenants’ decision-making process.
“With multiple lockdowns and remote working, many people faced salary cuts and job loss, which affected their incomes. As a result, tenants either defaulted on their payments or delayed them. And this led to landlords being unable to meet their financial obligations such as making the mortgage payments for the rental property and paying electricity and water charges, insurance, maintenance, property tax, etc. Also, while the landlord had the option of evicting the tenant, that too brought with it its own set of challenges such as finding the right replacement, preparing a new lease agreement as per new rules and regulations, etc.
At the start of the pandemic, most tenants reached out to their landlords with a request to reduce rent or tried to invoke the force majeure clauses in their contracts. Also, many were faced with delayed appraisals, which made paying rent difficult and, in some cases, led to eviction. “Legally, a lease cannot be terminated on account of the pandemic, unless this was specifically provided for. And most landlords were constrained to provide some discounts to ensure that they did not lose their tenants. The landlords also could not rent out the premises to any third parties as the existing leases could not be terminated with the possession being with the tenants. On the other hand, where the tenants had provided security deposits to the landlords, they were unable to terminate the leases without facing a significant loss,”.
Lease terms may be very different going forward, claim experts. Future lease documents won’t leave anything open to interpretation. “We would expect changes in rent, the term of a lease, and perhaps the level of security required by a landlord under the lease. Also, landlords will properly stamp and register the documents so that they can enforce the same before a court of law. Likewise, at least in the immediate future, we also expect more scrutiny over legal drafting to specifically deal with rent abatement or rent deferrals – or the specific exclusion of such rights – in case of a similar crisis,”.
“With the pandemic highlighting how unexpected developments can affect home occupancy, tenants and landlords can mutually look at some changes in the rent agreement moving forward. For instance, a clause that defines a partial rent reduction in case the apartment is unoccupied for a long duration will provide both, landlords and tenants, with a much-needed framework to follow in case a similar crisis emerges in the future.
In the post-Covid era, flexibility to understand each other’s concerns will be the key to keeping landlord-tenant relationships healthy. “Many landlords supported their tenants in the aftermath of unemployment and pay cuts with an understanding of reinstation of rentals within a stipulated period. With the Indian economy bouncing back, we can already see light at the end of the tunnel with things slowly, but steadily, getting back to normal,”.
“During the initial phase of the pandemic, landlords and tenants faced multiple challenges, but the Draft Model Tenancy Act 2019 will overhaul the legal framework that currently governs rental housing and allow transparent renting of premises. In addition to this, the Act aims to accommodate the interests of both, landlords and tenants, and formalize rental housing. It will also spur investor and developer interest in niche real estate segments such as student housing and co-living. This, along with other government incentives related to renting and tenancy agreements, will further aid both, landlords and tenants,”.