Force Majeure vs. Unforeseen Circumstances In Indian Real Estate

1.  Introduction

India’s real estate sector has witnessed unprecedented growth over the last decades, driven by institutional investment, large-scale urbanization and increasingly sophisticated contractual structures. As projects become larger and transaction timelines longer, contracting parties are placing greater emphasis on contractual risk allocation. Among the provisions attracting increased attention are force majeure clauses and contractual protections against unforeseen circumstances.

Although often conflated in negotiations, Indian law treats these concepts as distinct. Force majeure is a contractual mechanism rooted in the Indian Contract Act, 1872 (“Act”), whereas unforeseen circumstances refer to commercial developments that alter transaction assumptions without necessarily excusing performance¹.

2. Distinction between Force Majeure and Unforeseen Circumstances

 Although force majeure and unforeseen circumstances are frequently used interchangeably in commercial negotiations, they operate differently under Indian law and allocate different categories of contractual risk. The distinction is relevant in real estate transactions, where projects often extend over several years and remain susceptible to regulatory, economic and operational changes.

Force majeure derives its efficacy primarily from the contract itself. Since the Act does not define the term force majeure, the parties remain free to determine the events that would constitute force majeure and the consequences that would follow. In Energy Watchdogs vs. Central Electricity Regulatory Commission², the Supreme Court clarified that where a contract contains an express force majeure clause, the rights and obligations of the parties are governed by Section 32 of the Act. Accordingly, the availability of relief depends upon whether the event falls within the contractual definition and whether the agreed consequences have been triggered.

Unforeseen circumstances on the other hand, are not recognized as an independent legal doctrine under the Indian contract law. They generally refer to events that materially alter the commercial assumptions underlying a transaction without rendering contractual performance impossible. These may include unexpected increase in construction costs, changes in financing conditions, labour shortages, regulatory delays, or adverse market movements. While such events may significantly affect the commercial viability of a project, they do not ordinarily excuse performance unless the parties specifically incorporated hardship, price adjustment, change in law, or re-negotiation provisions into the agreement.

The distinction becomes even more pronounced where a contract does not contain a force majeure clause. In such cases, a party may seek to invoke the doctrine of frustration under Section 56 of the Act. However, the threshold under Section 56 is considerably higher. As explained in Energy Watchdogs vs. Central Energy Regulatory Commission, frustration applies only where a supervening event renders performance impossible or fundamentally different from what was originally contemplated. Mere commercial hardship, increased expense, or reduced profitability is insufficient. In Alopi Prashad & Sons Limited vs. Union of India³, the Supreme Court held that the courts will not rewrite the contractual bargains merely because performance has become onerous or commercially disadvantageous.

Accordingly, while force majeure and unforeseen circumstances may arise from the same factual event, they do not necessarily produce the sale legal consequence. A governmental prohibition on construction activities, for instance, may constitute a force majeure event if expressly covered by the contract, entitling the affected party to contractual remedies agreed between the parties. Conversely, the same event may merely increase costs or delay project completion without frustrating the contract, in which case relief would depend entirely upon the contractual allocation of commercial risk rather than any general doctrine of unforeseen circumstances.

 The Position in Lease Transactions

The distinction between force majeure and unforeseen circumstances assumes particular significance in lease transactions. Where a lease contains a force majeure clause, the parties’ rights are governed by the contractual framework. Depending upon the drafting, a force majeure event may suspend specified obligations, extend performance timelines or, where the event continues beyond an agreed period, entitle either party to terminate the lease. There is therefore no uniform legal consequence of a force majeure event; the remedy is dictated by the contract itself.

The position is markedly different where a lessee seeks relief solely on the basis of unforeseen circumstances. The Indian courts have consistently held that a lease is not merely an executory contract but a completed transfer of an interest in an immovable property. In Raja Dhruv Dev Chand v. Raja Harmohinder Singh⁴, the Supreme Court held that the doctrine of frustration under Section 56 of the Act does not apply to completed leases. Consequently, unforeseen commercial developments, such as declining business, increased operational costs or changing market conditions do not ordinarily suspend the lessee’s obligations to pay.  This principle was reiterated by the Delhi High Court in the case of Ramanand vs. Dr. Girish Soni⁵, where the court held that any entitlement to suspend rent during the COVID-19 pandemic had to arise from the contractual terms of the lease under Section 108(B)(e) of the Transfer of Property Act, 1882, rather than the doctrine of frustration.

Even where unforeseen events significantly affect a tenant's ability to utilise premises profitably, such events do not automatically suspend rent obligations unless the lease itself provides for relief.

4. Implications for Co-Development Agreements

The distinction between force majeure and unforeseen circumstances becomes relevant in co-development agreements, where the parties undertake reciprocal obligations over an extended period and the commercial success of the project depends upon various external variables, including regulatory approvals, financing, market demands and construction timelines.

Where a co-development agreement contains a force majeure clause, the occurrence of a qualifying event such as natural calamity, governmental prohibition on construction activities, war or a pandemic, entitles the affected party to the remedies expressly agreed by the parties. Depending upon the drafting, these remedies may include suspension of performance, extension of project milestones, deferment of reciprocal obligations or, where the force majeure event continues beyond a specified period, termination of the agreement without liability. As the Supreme Court observed in Energy Watchdogs, the availability and extent of such relief depends on the contractual allocation of risk rather than any general principle of law.

The position is materially different where the project is affected by unforeseen circumstances that do not amount to force majeure. Escalation in construction costs, labour shortages, fluctuations in financing costs, delays in obtaining regulatory approvals, changes in market demand or reduced project profitability may substantially alter the commercial assumptions underlying the transaction. However, these developments do not ordinarily render performance impossible and therefore do not attract relief under section 56 Act. Unless the agreement specifically provides otherwise, parties remain bound by their contractual obligations notwithstanding the increased commercial burden. In Alopi Parshad, the Supreme Court reiterated that courts will not relieve a party from a contractual bargain merely because performance has become more onerous or less profitable.

Given the long gestation period of real estate projects, sophisticated co-development agreements increasingly distinguish between force majeure and unforeseen commercial developments by incorporating separate contractual mechanisms for each. While force majeure clauses typically address exceptional events beyond the parties' control, unforeseen circumstances are more appropriately managed through change-in-law provisions, cost escalation mechanisms, hardship clauses, approval-related extensions or contractual renegotiation frameworks. Such provisions enable parties to preserve the commercial equilibrium of the transaction without conflating commercial hardship with legal impossibility.

5. Conclusion

Indian law draws a clear distinction between force majeure and unforeseen circumstances. Force majeure addresses exceptional events that prevent or substantially hinder performance, deriving force from contractual risk allocation. Unforeseen circumstances concern commercial or economic changes that affect the bargain without rendering performance impossible.

For leases and co-development agreements, this distinction is critical. While force majeure may excuse or suspend performance where expressly contemplated, unforeseen circumstances rarely provide relief unless the agreement contains bespoke hardship mechanisms. As real estate transactions grow in complexity, parties would be well advised to address both concepts separately rather than relying on generic force majeure language.

Footnotes

^{1 Sections 32 and 56 of the Indian Contract Act}

^{2 Energy Waatchdog vs. Central Electricity Regulatory Commission [(2017) 14 SCC 80]}

^{3 Alopi Parshad & Sons Ltd v Union of India AIR 1960 SC 588}

^{4 Raja Dhruv Dev Chand v Raja Harmohinder Singh AIR 1968 SC 1024}

^{5 Ramanand vs. Dr. Girish Soni 2020 SCC Online Del 635}

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