Will Corona lead to Force Majeure in real estate?


The habitual project delaying and absurd justifications of the builders in calling everything as Force Majeure has got another alibi – Corona. It has sparked a fresh debate within the built environment of the Indian real estate as to whether the Corona pandemic could be treated as Force Majeure in the sector. 

Businesses world over are as much sentiment driven as the economic fundamentals. In India, the real estate is arguably the second most sentiment sensitive business after the stock market. It is hence no surprise that the Corona pandemic is hurting the sentiments of the business. Some ground realities:

New project launches that had been announced are being postponed

Sanitisation drive is visible across the project sites

Sales pavilion on the weekends are not being organised

Corona has only added to the already bearish sentiments in the sector

30% less workforce on project sites

Some industry reactions seem to suggest that better safe than sorry sentiment is all pervasive. “Earlier we had decided to do a physical launch with channel partners and brokers. But now due to the Covid-19 situation and as a responsible company, we will be conducting a digital launch where we will accept requests and enquiries from customers online. We will then be providing time slots to the customers for site visits where there will be no crowd gathering but every customer will be attended one-on-one as per their respective allotted time,” says Anuj Khetan, Director, Vijay Khetan Group.

The real estate industry body CREDAI has even asked it to declare Covid-19 as ‘Force Majeure’ under Section 6 of RERA. The question is whether Corona outbreak, even if it is affecting the construction pace and the sales velocity, could be termed as 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, however, such as war, armed conflict, terrorist attack, labour strike, lock outs, etc.

Now to make Corona Virus a case of Force Majeure the government must declare it an “Emergency Shutdown”, which is not a case here. More importantly, the economic impact of an emergency shutdown would wreak havoc on the Indian economy.

The legal opinion on the issue is divided but the legal firm JLJ Law Offices believes that it is legally tenable to contest it as Force Majeure. In an article authored by Advocates Vivek Jain and Manish Sharma, it says, “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.”

However, beyond the CREDAI’s opportunity seeking demands in the wake of Corona Virus, the fact of the matter is that construction work has not completely stalled in most of the States. The developers believe that the sales velocity has definitely been slow and the real impact on the buying behaviour would be visible only during the upcoming festive spell of Navratri and Akshay Tritiya.

“I don’t see why one should postpone the new launches at this point of time due to Corona. But yes, our sales are slow for many reasons and the corona fear is only leading to more bearish sentiments,” says Amit Modi, Director, ABA Corp.

Kaushal Agarwal, 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 Agarwal”

The moot point here is that it is only the apprehensions of economic losses, construction halt and slow sales during the upcoming festive season that is driving the sector with negative sentiments. None of these apprehensions have affected the business to the extent that legally it could be termed as Force Majeure. The new launches are delayed and the sales initiatives are curtailed. It is to be seen as to what extent has it dented the home buyers’ sentiments, added to his purchasing power. That eventually will lead to logical conclusion of whether Corona would be termed as Force Majeure. 

Ravi Sinha

#ravitrack2media

Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.

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