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Albert Camus, La Peste

Business Closures in Spain During the State of Emergency

Royal Decree 463/2020 of March 14, which declared a state of emergency to combat COVID-19 (hereinafter, the “DR”), and by which temporary measures of an extraordinary nature were adopted, mandated the closure to the public of commercial premises selling non-essential goods.

Consequently, a large number of businesses saw their operations completely paralyzed.

A major difficulty: the payment of commercial rents

Despite the new measures adopted by the Government to mitigate the adverse economic effects of the coronavirus, no decision has yet been made to resolve the situation of businesses forced to close their premises and which, in doing so, must continue to pay their commercial rent (measures have been adopted regarding residential leases to help the most vulnerable).

So, what can be done about the payment of these commercial rents?

The reality is that none of the mechanisms available to tenants to defer or suspend payment are straightforward, and once again, the need for negotiation between the parties will be essential.

The Rebus Sic Stantibus Clause Option

In our opinion, and without prejudice to the need to advise caution, the tenant could invoke the rebus sic stantibus clause, particularly by relying on the reasoning developed in the Supreme Court's judgment of October 15, 2014, which dealt with a lease agreement concluded in 1999 and the economic consequences of the last crisis.

What is interesting in this judgment is that the Court justifies the application of this principle by referring to the exceptionally onerous nature of the contract, which, due to the change in circumstances, "involves repeated losses (economic non-viability) or the disappearance of any profit margin (absence of the remunerated nature of the service)."

On this basis, the Supreme Court considers that the 29% reduction in the rent would be justified in the interest of maintaining the economic balance of the contract.

Why this principle could apply to the health crisis

If the Supreme Court deems it appropriate to apply the rebus sic stantibus clause in the context of an economic crisis, we see no reason why it should not also apply when business activity is nonexistent due to a mandatory government regulation following a global pandemic.

Force majeure excluded for payment obligations

With regard to force majeure, it is not applicable here, given that, according to established case law, the impossibility of performing a contractual obligation due to an unforeseen event or force majeure does not apply to the payment of sums of money (Supreme Court ruling of May 19, 2015).

Another analysis: the landlord's obligation to guarantee the tenant's use of the premises

An interesting analysis that we would like to mention is that of Josep Maria Espinet in his article "COVID-19 and the Suspension of Commercial Rent Payments," in which he rightly reminds us that while the tenant's primary obligation in a lease agreement is to pay the rent, the landlord's obligation is to allow the tenant the peaceful use of the premises (Article 1554.3 of the Civil Code).

Therefore, given that the COVID-19 pandemic prevents the tenant from operating the premises, the landlord is involuntarily unable to fulfill their primary obligation. Due to the reciprocal nature of the legal relationship in the contract, this should allow the tenant to withhold rent payments.

Negotiation between the parties remains essential

All these interpretations are, of course, open to discussion, and it will be important to clearly define the terms of an agreement between the parties (based on good faith, which, while always crucial, is even more fundamental in these uncertain times) in order to avoid unpleasant surprises once the DR measures are lifted and recourse to the courts is once again possible.

In France: Suspension of Penalties but Not of Rent

Furthermore, in France, in accordance with Ordinance 2020-316 of March 25, 2020, certain individuals and micro-enterprises will be exempt from penalties (contract termination, penalty clauses, activation of guarantees, late payment interest, etc.) for non-payment of commercial rent. These measures apply to payments due from March 12, 2020, and for the two months following the end of the state of emergency.

The individuals and companies eligible for this measure are those meeting the conditions stipulated in Article 1 of Decree 2020-371 of May 30 (among other things, they must not exceed certain revenue and employee thresholds).

The study of this regulation reveals that tenants will not, however, be exempt from the obligation to pay, which means that once the state of emergency is lifted, landlords will be able to take any action necessary to recover late or non-payment.

Excluded companies will have to negotiate

As for the (many) companies that will not be able to benefit from the order, they will have no other option than to try to reach an agreement based on the legal principles mentioned above, taking into account the specificities that French case law imposes for each of them.

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