Will RERA Define Corona Outbreak A ‘Force Majeure’ For Indian Real Estate?

• @kw
• 02 May 2020

The Corona outbreak is a phenomenon which is out of anyone’s ability to challenge and can it be said to be an act of god? The economic losses and construction halt and extremely slow sales have created a negative sentiment in the real estate sector. The present situation with so much of uncertainties should qualify for the force majeure clause under RERA .In India real estate is the second most sentiment sensitive business after stock market.

Effect of Corona Virus Pandemic on Real Estate Sector in India

There are some direct effects that have halted all activities in Real Estate business.

During this festive season, each year Construction companies announced their new projects for launch, but this season there have been no launches and all dates have been postponed without committing a sure date. Projects which were in the verge of completion are stalled causing lot of inconvenience to buyers and the real estate developers. All matters of delayed possessions will be hanging in the court and no decisions shall be taken.

Large numbers of flat buyers who have to service their EMl though have been exempted from paying EMI’s for next three months but this will create a huge pressure in bank finances.

The halt in construction activities have forced the daily wage earners to be unemployed. Though Govt. have been advising the construction companies to provide financial support to these daily wage earners, but how practical the suggestion is as many of the small and medium size construction companies are facing downward trend with their financial inflow. In short, the outbreak has only added to the already bearish sentiments in the sector. Some industry reactions seem to suggest that the better-safe-than-sorry sentiment is all pervasive.

A proposal by CREDAI has been sent to Government to declare COVID-19 as a ‘Force majeure’ under Section 6 of RERA. Even though the outbreak has effected construction pace severely and sales have practically halted, can the situation could be termed as ‘Force Majeure’?

Before going into any argument into the subject, we need to clarify and understand the terms ‘force majeure’. Force majeure is a French term that literally means greater force. It is related to the concept of an act of God – an event for which no party can be held accountable, such as an earthquake or a tsunami. Force majeure also encompasses human actions such as war, armed conflict, terrorist attack, labor strike, lockouts, etc.

 Analyzing if Corona Virus a Condition for ‘Force Majeure’

For Corona virus to be termed as force majeure, the government must declare it an ‘emergency shutdown’, which is not a case so far.  If government declares emergency shutdown then it will have a severe impact on Indian economy.

Opinion on this issue is divided according to some legal experts. Some feel that it is legally tenable to contest it as a force majeure. An article published by the law firm, advocate of national repute stated: “For events to constitute force majeure and for parties to seek relief for non-performance of a contract, due to force majeure event, under the law, the event must be: beyond reasonable control; shall affect the ability to perform of the party; and reasonable steps taken by the parties to the contract to mitigate the loss.” It may however be noted that the construction work has not completely stalled in most states, though CRDAI is pressing demand for declaring the situation as ‘force majeure’. Yet to be accepted the ‘Force majeure’ clause under RERA Acts of different states.

Diminishing Sales Impacted by Corona Virus

Developers were expecting some improvement in the market during this festive season when people invest in properties. The spread of Corona virus has brought the entire market crushing as people are not coming out of their home to protect themselves from contacting the dreaded virus.

New project launches have been deferred but some builders are offering online launches and online sales by announcing several attractive incentives.

Kaushal Aggarwal chairman, The Guardians Real Estate Advisory, believes the fear of contagion has dampened business activities across the globe. The impact on real estate will be significant, especially in the immediate short-term. “Affordable and mid-income housing that has been a silver lining for the sector, over the past several years, will also come under pressure primarily because its success depends on maximum distribution and volume sales. However, we see this impact to be a temporary one, keeping in mind the measures being taken by governments across the world. The situation is bound to recover sooner or later, once the impact is absorbed”, says Aggarwal.

The apprehensions of economic losses, construction halt and slow sales are negatively influencing the sentiments but legally if this situation could be termed as ‘force majeure’ is yet to be seen as to what extent it has dented the home buyers’ sentiments and their purchasing power. That eventually might lead to the logical conclusion of whether Corona virus outbreak would be termed as force majeure.