Preparation of Analytical Table including adjustment for Strike period30th March 2021
In the event of strike or lock-out, if the Minimum Rent is not raised, the amount of Minimum Rent depends on the clause of the agreement between the two parties, i.e., Lessor and Lessee.
However, it may be treated in two following ways, viz., the clause may contain like the following:
(1) During strike or lock-out, the actual royalty earned will discharge all rental obligations (if actual royalty is less than Minimum Rent).
(2) During strike or lock-out, the Minimum Rent will be reduced proportionately having regard to the length of stoppage.
(1) Where Actual Royalty earned will discharge all rental obligations:
Under the circumstances, during the period of Strike or Lock-out, there will neither be short-working nor will there be any recoupment. For example, the contract stipulates that the Minimum Rent is Rs. 12,000 per year. But, during the period of strike, actual royalty earned Rs. 8,000. Hence, landlord will get only Rs. 8,000. As such, there will not be any short-working of Rs. 4,000 (Rs. 12,000 – Rs. 8,000) which may be considered in other years.
(2) Where Minimum Rent is reduced proportionately:
Under the circumstances, the amount of Minimum rent will be reduced proportionately having regard to the length of stoppage. For example, the Minimum Rent is. 12,000 per year. Strike period is 3 months, as such, the amount of Minimum Rent will be Rs. 9,000 (i.e., Rs. 12,000 × 9/12).
As such, if actual royalty earned is less than Rs. 9,000 there will be short-working and, similarly, if actual royalties are more than Rs. 9,000, the excess portion may be recouped (of course, if there is any short-working balance).
The following example will help to understand the principle clearly:
In case of strikes, recoupment of short-working etc.:
P Ltd. took a mine on lease from Landlord at a given rate of royalty with a Minimum Rent of Rs. 12,000 per year. Each year’s excess of Minimum Rent over royalties is recoverable out of the royalties for the next two years. In the event of Strike, the Minimum Rent was to be reduced proportionately, having regard to the length of the stoppage. But in the case of Lock Out, it was provided that the actual royalties earned for the year would discharge the full rental obligation for that year.
The results of the workings were
- In case of Strike, the Minimum Rent should be reduced proportionately i.e., Rs. 12,000 x Rs. 9,000.
Minimum Rent for the 4th year will be Rs. 9,000 and, as actual royalty is Rs. 10,000, so Rs. 1,000 is recouped.
- In case of lockout the actual royalties will discharge all rental obligation i.e., landlord will get only Rs. 8,000 for the 5th year although the Minimum Rent is Rs. 12,000.
- Since in the first year the actual royalty is ‘Nil’ the entire amount is treated as short-working.
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