Ensuring business continuity via a dynamic plan that caters to both the landlords and tenants across residential as well as commercial real estate in India.
India stumbles forward in the second month of the COVID-19 pandemic induced nation-wide lockdown. Most business owners are out of their wits on how to sustain their companies when there is no business. In these testing times, the sheer aspect of rental waivers could substantially lessen the financial damage that the private businesses of the country face.
Highlights! Rental Waivers Across The Board – PM Modi’s Single-Shot Booster For The Indian Economy
- The REAL estate problem of rentals
- Private options limited unless the government provides relief
- The Indian government’s relief efforts so far
- Toward business continuity without ill-will and mistrust
In his latest address, PM Modi extended the lockdown from 21 to 40 days till 3rd May. At the same time, the PM gave a ray of hope. Economic activity will partially restart in less-affected areas will start as early as 20th April. However, the information has businesses across the county fearing of a fresh round of debt payments and overheads as month-end burdens approach in a matter of 10 days.
In these times, one of the biggest steps would be helping reduce the collateral impact on business from the overhead. This means three months of rent waiver for business spaces in India when there is no business happening.
The REAL estate problem of rentals
Commercial Realty is a thriving industry in India where demand for business spaces grew by 40% last year. However, over 90 percent of these rental establishments have had to shut shop. Most are either working from home or not working altogether. From the hospitality and entertainment industry to the start-up ecosystem, businesses in India are struggling to ensure financial viability as reserves dry out and no fresh revenue for months on the horizon.
Over 90 percent of rented establishments have had to shut shop — either working from home or not working altogether.
The problem of difficulty in paying rent and also salaries to the workforce for keeping the business alive has become a daunting task for individual business owners. These small scale enterprises do not have the capacity to garners loans from banks for this cause. On a private level, a number of options have been put forward by the industry. These include rent holidays, rent reductions, deferred payments without interest and discounted rents for some months. However, any such options need to have a stimulus from the government that minimizes the losses that landlords will face.
Private options limited unless the government provides relief
The Modi government was quick in its reassurance to businesses and the workforce. The message changed from Jaan hai to Jahaan hai (health first, business later) to Jaan bhi aur Jahaan bhi (health as well as business). However, the Indian government hasn’t come out with an intricate strategy to ensure business continuity thus far.
The Indian government hasn’t come out with an intricate strategy to ensure business continuity thus far.
Home rental and student housing startups like Stanza living launched initiatives to help its young student and professional tenants. Nestaway earmarked $1 million to waive fees and service charges during the pandemic-induced lockdown. Similarly, Mumbai-based developer Lodha Group has decided to waive of rents on its commercial spaces till the point government has a mandatory lockdown.
Shoppers Stop has reached out to its lessors to re-discuss rentals. WeWork is also cutting its rental prices for co-working spaces. Unfortunately, such measures will be far and few until and unless the center comes up with a formidable relief plan for various stakeholders of the realty sector.
The Indian government’s relief efforts so far
Till now, the Indian government has announced a Rs 1.7-lakh-crore relief package. This caters to the individual with direct cash transfers and food security measures. Similarly, the Rs 3.7 lakh crore infusion by the Reserve Bank of India in the banking sector and the three-month moratorium on loan repayments also help individual property owners but not the rental population.
Finance Minister Nirmala Sitharaman is yet to reveal any information in this regard as part of upcoming relief measures. Barring calls from Odisha Chief Minister Naveen Patnaik and Delhi Chief Minister Arvind Kejriwal to landlords to waiver rent for two to three months, there haven’t been enough voices from the leadership coffers acknowledging the major hurdle for India’s rental population.
Toward business continuity without ill-will and mistrust
The majority of India’s rental properties, be it housing or commercial, are located in major urban cities. 28 percent of India’s urban population lives in rented accommodations. Similarly, over 80 percent of office space on rent is across 6 major metropolitans. These urban areas are worse hit and expected to stay under restrictions much longer than other locations. This results in a double whammy for such businesses that are based in these cities.
Tenant businesses are mulling their legal options like the Force Majeure clause and the doctrine of frustration, Section 56, Indian Contract Act, 1872.
Many have already defaulted their rents and are in danger of legal eviction by their landlords in the coming months. Companies are mulling their legal options like the Force Majeure clause. Then there’s the doctrine of frustration, Section 56, Indian Contract Act, 1872.
This makes it crucial for the government to expedite its relief plan for small and medium business owners. These companies survive on razor-thin margins without reserves to pay for the costly rental establishments without revenue generation.
Responsibility of the rental setback with a mega stimulus package
Consequently, the Indian government needs to take up the responsibility of the rental setback with a mega stimulus package. Experts say the government should look at up to three-month rent waiver for such businesses in India.
Indian government needs to inject a booster shot to enable landlords to help tenants.
This will not only help the businesses and individual lessee but also save the lessor population from unfair financial harm. Thus, the Indian government needs to inject a booster shot to enable landlords to help tenants. Otherwise, one of the fallouts of the lockdown will be thousands of legal cases. Furthermore, rising corporate mistrust will directly counter the government’s assurance of business continuity.