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In the face of the COVID-19 pandemic, many property operators (tourism, hospitality, business, nursing homes, senior living, student housing, etc.) have stopped paying commercial rent. Some are invoking the “force majeure” provision in the Civil Code to stop paying these rents. What is the legal situation?
1- What is unforeseeability?
Article 1195 provides that:
“If a change in circumstances that was unforeseeable at the time the contract was concluded makes performance excessively burdensome for a party who had not agreed to assume that risk, that party may request that the other party renegotiate the contract. That party shall continue to perform its obligations during the renegotiation.
If renegotiation is refused or fails, the parties may agree to terminate the contract on the date and under the conditions they determine, or may jointly request that a judge modify the contract. If no agreement is reached within a reasonable time, the court may, at the request of either party, amend the contract or terminate it on the date and under the conditions it sets.”
In summary:
For leases renewed or entered into after the October 2016 reform of the law of obligations, the Civil Code provides for an obligation to renegotiate the contract when its performance becomes excessively burdensome for one party.
If renegotiation fails, the judicial remedy may even extend to the termination of the contract.
It is important to note that during negotiations, obligations must still be fulfilled—meaning rent must still be paid.
2- Is COVID-19 an event likely to trigger the force majeure mechanism?
Yes, if and only if:
– The lease was entered into or renewed after October 2016,
– It is established that COVID-19 has made performance of the contract particularly onerous,
– The property operator (tourism, hotel, business, nursing home, senior living, student housing, etc.) continues to pay rent.
3- Can property operators (tourism, hotel, business, nursing homes, senior living, student housing, etc.) invoke the defense of non-performance to avoid paying rent?
No. Even if the unforeseen circumstance were to exist—assuming the operator could invoke it—it would only entail an obligation to negotiate an amicable settlement, which would be referred to the courts if such negotiations fail (rent must be paid throughout the entire duration of both the amicable and judicial processes).
