Covid 19 and commercial rents
Suspension of sanction measures….
As of the first lock-down, a suspension with deferral of commercial rent payments was ordered, but only for the benefit of natural persons and legal entities under private law carrying out an economic activity likely to benefit from the solidarity fund (Article 4 of Order no. 2020-306 of 25 March 2020).
These provisions prohibit the creditor from exercising certain enforcement measures to recover rent due between 12 March 2020 and 23 June 2020, but do not suspend the due date for rent owed by the commercial tenant. (Paris Judicial Court, 18 chamber, 2 sect. 10 July 2020 No. 20/04516; TJ Limoges 16 September 2020 (Case No. 20/00185)
This suspension mechanism was reiterated and improved for the second lock-down in Article 14 of Law No. 2020-1379 of 14 November 2020. It applies to companies with less than 250 employees and a turnover of less than 50 million euros and a loss of turnover of more than 50% for the month of November 2020 (Decree No. 2020-1766, 30 December 2020). According to this text, “any cancellation clause or clause providing for a forfeiture due to non-payment or late payment of rent or charges, against tenants for late payment or non-payment of rent or rental charges, is deemed unwritten”.
It should be noted that in a recent decision, the interim relief judge of the Paris judicial court held that the measure of physical distance of at least one metre between two persons provided for by article 1 of decree no. 2020-860 of 10 July 2020 constitutes an administrative police measure allowing the lessee who fulfils the other required conditions to benefit from the neutralisation of any action or sanction, in accordance with article 14 of law no. 2020-1379 of 14 November 2020.
However, Article 14 alone justifies the existence of a serious challenge (Paris Judicial Court, ref. 21 Jan. 2021, no. 20/55750).
However, these suspension arrangements only benefit eligible tenants according to the above-mentioned decree, and only provide temporary protection.
The enforcement judge has also participated in the protection of tenants by ruling that due to exceptional circumstances beyond the control of the parties, “the strength of the principle of the claim that the lessor derives from the lease contract is not such as to justify a protective measure without judicial authorisation” (JEX Paris, 9 July 2020, no. 20/80712)
… and not the due date of the rent
As the texts adopted in the context of the state of health emergency had a limited scope of application, tenants resorted to ordinary contract law, encouraged by the interim relief judges.
Although the latest decisions rule out the possibility of justifying the payment of rent due during the covid-19 period on the basis of force majeure or the exception of non-performance – at least initially – invoked by the tenant, good faith or unforeseen circumstances should be given priority in order to renegotiate the financial conditions of the lease. Lastly, although the loss of the leased property was initially ruled out, it seems to be possible to claim it.
▪ The Court of Cassation had already recalled that force majeure is not such as to prevent the performance of an obligation to pay (Court of Cassation, Commercial Division, 16 Sept. 2014, no. 13-20.306).
It is therefore not surprising that the tenants, having ventured onto this terrain, were not followed by judges (TJ Paris, summary order, 17 July 2020, Case no. 20/50920, TJ Paris summary order of 26 October 2020, TC Paris summary order 11 December 2020 no. 2020035120). The interim relief judge of the Paris Court of First Instance stated that “While the payment obligation on the lessee is certainly made more difficult by an event as restrictive as Covid 19, it comes after other recent epidemics; moreover, it was widely announced worldwide even before the implementation of French health regulations concerning the temporary closure of non-essential businesses; in this respect, this phenomenon cannot be qualified as unforeseeable and therefore as a case of force majeure”
Lastly, a court of appeal pointed out that force majeure must also be ruled out, as the tenant did not justify cash flow difficulties making it impossible to fulfil its obligation to pay the rent, so that the epidemic does not have irresistible consequences. (CA Grenoble 5-11-2020 no 16/04533, D. c/ SAS Appart City)
▪ dismissal of the exception of non-performance and then referral to the judge on the merits:
Having noted that :
- The health context cannot in itself generate a breach of the lessor’s obligation to deliver (TJ Paris ref. 26 October 2020)
- The tenant of a tourist residence cannot invoke the exception of non-performance since the commercial lease did not make the payment of rent conditional on a particular occupation of the premises or on an occupancy rate; moreover, it was not established that the lessor had breached its contractual obligations, making it impossible to continue the lease (CA Grenoble 5-11-2020 no 16/04533, D. c/ SAS Appart City).
The interim relief judge finally held that a serious challenge was :
- the question of whether the tourist residence operated by the tenant was indeed concerned by the prohibition on accommodating public laid down by article 8 of the decree of 24 March 2020, justifying the suspension of rent payments during the ban period from 15 March 2020 to 22 June 2020, in application of the exception for non-performance (TJ Paris, ref. 21 Jan. 2021, no. 20/55750).
- the exception of non-performance raised by the tenant summoned for payment of commercial rents since it had to be studied in the light of the obligation for the parties to negotiate in good faith the terms of performance of their contract given the existence of circumstances (TJ Aix-en-Provence, ref. 22 Sept. 2020, no. 20/00692; TJ Paris, ref. 8 Jan. 2021),
enshrined good faith
The interim relief judge thus seems to give the tenants a respite by referring the assessment of the request for suspension of the rent to the judge on the merits.
On 10 July 2020, the Paris Court of First Instance ruled on the merits of the case, recalling that Article 4 of Order No. 2020-306 of 25 March 2020 does not suspend the payment of rent and that the lease contract must be performed in good faith by the parties.
It therefore seems obvious that the judges will try to verify that the lessee and the lessor have tried to reach an agreement in order to assess the validity of the rent due.
▪ unpredictability to revise
It will also be up to the judges of the court of first instance, on the basis of the new Article 1195 of the Civil Code, and for leases concluded after 1 October 2016, to sovereignly assess the need to apply the power of revision.
The door was thus opened by the interim relief judge of the Paris Court of First Instance, who ruled that it is up to the judge on the merits to determine whether the tenant can rely on the provisions of Article 1195 of the Civil Code to request an adaptation of the contract (TJ Paris, ref. 21 Jan. 2021, no. 20/55750).
It should be recalled that according to article 1195 of the Civil Code, the parties may renegotiate the contract in the event of a change in circumstances unforeseeable at the time of the conclusion of the contract. If these negotiations fail, the parties may opt for termination or refer the matter to the judge for revision or termination of the contract.
Nevertheless, this provision allows parties bound by a lease after 1 October 2016 to negotiate, and in the event of failure to do so to refer the matter to the judge, but does not allow the tenant to be exempted from paying the rent due.
▪ The loss of the leased thing to be explored?
Can the loss of the rented property, which can justify a reduction in the price or the termination of the lease (Article 1722 of the Civil Code), be invoked by tenants whose businesses are closed by administrative measure ?
These provisions cannot a priori be applicable if the impediment to use is not definitive and does not result from the property itself.
The tenant cannot rely on the loss of the rented property to avoid paying the rent since it “could always physically access it” (TC Paris ref. 11 December 2020 no. 2020035120).
However, in a very recent decision, the enforcement judge of the Paris Judicial Court, in order to refuse an attachment, mentioned the existence of “the legal impossibility, during the course of the lease, resulting from a decision of the public authorities, to use the rented premises is comparable to the situation envisaged (which has the effect of releasing the lessee from the obligation to pay the rent as long as it cannot use the rented property) in the text reproduced above, regardless in this respect of the liability clause invoked by [the lessor] (Paris Judicial Court, JEX, 20 January 2021 20/80923).
This decision will certainly be appealed.
If this decision is upheld, should lessors waive rents due during the periods of administrative closures ?
The only certainty now is that in order for the arguments to be heard by the trial judges, the parties must demonstrate that they have acted in good faith in the performance of the contract. The courts would then have to decide on a case-by-case basis…