COVID-19: Real estate contract law in France | K&L Gates LLP

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As COVID-19 continues to spread in France, leading the government to announce a national foreclosure, important questions arise regarding Force Majeure and the theory of “unpredictability” as to their applicability to contractual relationships between individuals.

More specifically, this ban has resulted in the closure of restaurants and all “non-essential” businesses, but will commercial tenants be able to invoke force majeure or unforeseen circumstances to stop paying their rents?

The law adopted on March 23, 2020 to deal with the COVID-19 epidemic authorizes the French government to take, by decree, within three months, any measure “to deal with the economic, financial and social consequences of the spread of the COVID-19 epidemic and the consequences of the measures taken to limit this spread, and in particular to prevent and limit the cessation of activity of natural and legal persons exercising an economic activity and associations and its impact on employment. “

In this context, the French government may take the following measures:

“Allow the full or spread postponement of the payment of rents, water, gas and electricity bills relating to professional and commercial premises and the lifting of financial penalties and suspensions, interruptions or reductions of supplies which may be applied in the event of non-payment of these bills, for the benefit of microenterprises, within the meaning of decree n ° 2008 1354 of December 18, 2008 relating to the criteria for determining the category to which a company belongs for the purposes of statistical and economic analyzes, including activity is affected by the spread of the epidemic. “

Before the publication of this decree specifying the scope of this measure, which would only apply to very small businesses (very small businesses) and would only concern the deferral of commercial rents, the provisions of the French Civil Code relating to (1 ) force majeure (2) renegotiation of the contract on the basis of the concept of unpredictability and (3) the exception for non-performance may be implemented.
Force majeure

In French civil law, and in accordance with article 1218 of the French Civil Code, to take into account a case of Force Majeure, it must be unpredictable, irresistible and external.

The condition of exteriority is not disputed insofar as the debtor is not the cause of the epidemic.

Nor does the condition of unpredictability present any particular difficulty: when the contract was concluded before the outbreak of the epidemic, the parties could not have foreseen it, at least not in its current effects.

However, the condition of irresistibility must be examined further. Irresistibility means the absolute impossibility for the debtor to fulfill his obligation. This is why the fact that the performance of the obligation by the debtor has simply become more difficult is not enough for it to be considered irresistible.

The event and its consequences must be irresistible. Consequently, if the tenant, without being able to influence the occurrence of the event, had the possibility of avoiding its harmful consequences by implementing appropriate measures to avoid or limit the damage, he will not be able to invoke Force Majeure.

In the present case, given the scale of the current health crisis and its consequences, the condition of irresistibility also seems to be met, so that force majeure must apply.
What is the position of the commercial premises?

With regard to commercial premises, the purpose of which is provided for in the lease, which can no longer be opened due to a ban imposed by the public authorities, the lessor is no longer able to meet its obligation to ” perform its obligation due to a Force Majeure event; the execution of the rental contract will therefore be suspended and the tenant will no longer have to pay his rent during the period of suspension.

This will be the case for establishments whose opening is (for the moment) prohibited until April 15, 2020 by order of the Minister of Health of March 15, 2020 and which do not benefit from any exemption. The situation is more complicated if the lessor respects his delivery obligation because the premises are not closed but the tenant can no longer pay the rent due to a drop in activity due to the COVID epidemic- 19.

Courts are reluctant to admit Force Majeure in similar situations on the grounds that it is not impossible for the debtor to perform, but that enforcement is simply made more difficult for the debtor in the circumstances. If the debtor had to prove that the performance of the obligation was made impossible by the occurrence of the epidemic or by decisions of the public authorities to limit it, the tenant could be relieved by the court of his obligation to pay the rent.

The provisions of the commercial lease must be studied with precision and our team can advise you on the conditions of the lease.

In an interesting decision of December 17, 2018, the Court of Appeal of Basse-Terre, ruling on the chikungunya virus, declared that there is no force majeure when the epidemic is known, endemic and not lethal :

“Regarding the presence of the chikungunya virus, despite its characteristics (joint pain, fever, headache, fatigue, etc.) and its prevalence in the West Indies, especially on the island of Saint Barthélemy during the period 2013-2014, this The event does not have the characteristics of Force Majeure within the meaning of the provisions of article 1148 of the French Civil Code (i.e. henceforth article 1218 of the French Civil Code). Indeed, this epidemic cannot be considered as having an unpredictable character and especially irresistible character since, in any case, this disease relieved by the analgesics is generally curable (the respondents did not report any particular medical fragility) and the hotel could honor his services during this period. “

If we apply this to COVID-19, we could say that it appeared recently, does not currently have an effective treatment and can be fatal.

As a result, the tenant may be relieved of their obligation to pay the rent if such payment is impossible due to the occurrence of COVID-19. On the contrary, when the performance of his obligation becomes more difficult, he will not be able to benefit from Force Majeure and will have to request the establishment of other mechanisms.

It is important to note that no event can be considered in itself as a case of Force Majeure. It depends on the sovereign judgment of the judge who will have to decide on a case-by-case basis if it is a case of force majeure.
The theory of unpredictability

The second option concerns the renegotiation of the contract on the basis of the theory of unpredictability.

Article 1195 of the Civil Code provides: “If an unforeseeable change in circumstances at the time of the conclusion of the contract makes the execution excessively onerous for a party which had not accepted to assume the risk, this party may request a renegotiation contracting party, it will continue to fulfill its obligations during the renegotiation.
If the renegotiation is refused or fails, the parties may agree to terminate the contract, on the date and on the conditions they determine, or ask the court to adapt it by mutual agreement. If no agreement is reached within a reasonable time, the court may, at the request of one of the parties, revise or terminate the contract, on the date and on the conditions it determines. “

This article provides that the parties may renegotiate their contract when an unforeseeable change in circumstances at the time of conclusion of the contract makes the execution excessively onerous for a party.

This provision could perfectly apply to the COVID-19 epidemic provided that the lease is concluded or renewed after the entry into force of this article, ie from October 1, 2016.

In addition, as long as the judge has not ruled, the parties are required to apply the contract in all its provisions.

Article 1195 of the French Civil Code recalls that each of the parties “continues to perform its obligations during the renegotiation”.

Courts being closed due to COVID-19, it is not certain that recourse to the judge with the approval of article 1195 is the most appropriate measure at this stage.
Suspension of payment of rent with the exception of non-performance.

Article 1219 of the Civil Code provides: “A party may refuse to perform his obligation, even if it is due, if the other party does not fulfill his obligation and if the non-performance is sufficiently serious”.

In addition, article 1220 of the Civil Code provides that: “A party may suspend the execution of its obligation as soon as it becomes clear that its contracting partner will not perform on time and that the consequences of this non-performance are sufficient serious for him. This suspension must be notified as soon as possible. “

Thus, these articles establish the principle of the exception for non-performance, which allows a party to suspend the performance of its obligation when the other party does not perform or will not appear at the due date and if the consequences of such a failure are sufficiently serious. .

This is the case when the closure of the premises has been ordered by the public authorities since the lessor is no longer able to meet its obligation to provide premises suitable for its destination and does not fulfill its obligation (or clearly will not do so) at the due date). ), the tenant can therefore suspend the payment of his rents.

The tenant must inform the landlord that he will not pay rent during the downtime because the landlord is unable to meet his obligation to provide premises suitable for the intended use. This notification will be in accordance with the provisions of the rental contract, and probably subject to the impossibility of sending registered mail with acknowledgment of receipt.
Conclusion

Overall, it is difficult to predict how the French courts will deal with force majeure and the exceptional problems raised by COVID-19. At this stage, it seems that we will have to wait for the various decrees of the French government explaining the measures it will decide to take.

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