Frustration of Contract vis a vis lease

Query: If the premises let out by a lease agreement are not made available to lessee by lessor during lease period, whether lessee is liable to pay the rent for that period?

Comments:

Section 105 of Transfer of Property Act, 1882 (‘TOPA’) defines lease of immoveable property as a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. The transferor is called the lessor and the transferee is called the lessee. Section 108 of TOPA provides for rights and liabilities of lessor and lessee. Section 108(b) provides that lessor is bound to put lessee in possession of the property and against this section 108(l) of TOPA, the lessee is bound to pay rent or premium to the lessor.

Now, one question that arises for determination is whether lessee can claim frustration of contract if lessor does not put him in possession of the leasehold premises.

Frustration of contract is governed by section 56 in chapter IV of Indian Contract Act, 1872 (‘Contract Act’), which relates to performance of contracts. A contract is frustrated when subsequent to its formation the contract is impossible or unlawful to perform. The wordings in first part of the section speaks about something that is impossible inherently and no one can be directed to perform such an impossible act.  Second part enunciates a situation where performance of contract becomes impossible or unlawful due to any supervening impossibility or illegality. In such circumstances, the contract becomes void and both the parties are absolved from further performance of the contract. There is an automatic dissolution of contract. [1]  It is settled preposition that frustration of contract is not applicable to lease of immovable property, as such lease is a completed conveyance and different from executory contract. [2] [3] Division Bench of Delhi High Court placing reliance on the decision of apex court opined that neither the doctrine of frustration nor its broad principles applied to a lease as only executory contracts are capable of being frustrated and not executed contracts.[4] Lessee cannot seek remission of contract on the ground of losses suffered by him, in absence of specific stipulation in contract. [5]Hence, it can be concluded that once the lessor has given the possession of the property to the lessee, lessee cannot avoid payment of rent, unless hit by circumstances mentioned in section 108(e) of TOPA. There is caveat to this situation. Allahabad High Court took a view that in case of the destruction of leasehold premises for no fault of the landlord, the lessee can avoid payment of rent only if he declares the lease is void under Section 108(e) of TOPA and his failure to do so, the lease will subsist for the benefit of both parties and the landlord is entitled to claim rent. Lessee may have his other remedies, such as damages for breach of covenant to repair but he cannot claim that the destruction of property has deprived him of its possession and withhold rent from the landlord.[6]

Section 108 lays down the rights and liabilities of the lessor and the lessee. Once a valid lease comes into existence the agreement to lease disappears and its place is taken by the lease. It becomes a completed conveyance under which the lessee gets an interest in the property.[7] Lease is not a mere contract, it is a transfer of a right to enjoy the property. Payment of rent is not a precondition for handing over of possession of the premises by lessor, unless specifically stipulated in the agreement.[8] It is right of the lessee to be put into possession and the lessor is not entitled to refuse to give possession to the lessee unless the document provides that the latter is not to have possession until the fulfilment of a certain condition.[9] Burden is on the lessor to show that they discharged their obligation to put the lessee in possession.[10] Therefore, in a situation where lessor refuses to handover the possession to lessee, instead of seeking frustration of contract, the lessee can approach court seeking specific performance[11] or termination of contract[12] and damages for the breach of contract[13].

By

Amit Singh | Abhay Nevagi & Associates, Advocates


[1] Satyabrata Ghose vs Mugneeram Bangur AIR 1954 SC 44

[2] Dhruv Dev Chand vs Harmohinder Singh AIR 1968 SC 1024

[3] Sushila Devi and Ors.  vs. Hari Singh and Ors. [AIR 1971 SC 1756]

[4] Hotel Leela Venture Limited vs Airport Authority of India 2016 SCC OnLine Del 5862

[5] Alanduraiappar Koil Chithakkadu vs T.S.A. Hamid And Anr. on April 25, 1962 (AIR 1963 Mad 94)

[6] Kundan Lal  vs. Shamshad Ahmad and Ors. [AIR 1966 All 225]

[7] Sushila Devi and Ors.  vs. Hari Singh and Ors. [AIR 1971 SC 1756]

[8] Kandasami v. Ramasami, AIR 1919 Madras 168

[9] Kandasami Pillai And Ors. vs Ramasami Mannadi And Ors. on 30 September, 1918

[10] Jogesh Chandra Roy v. Emdad Meah, AIR 1932 Privy Council 28.

[11] Ram Lal Dutt Sarkar v. Dhirendra Nath Roy, AIR (3) 1943 Privy Council 24

[12] Rajpal v. Municipal Committee, AIR 1928 Nag 328

[13] Secretary of State v. Venkayya ILR 40 Madras 910.