April 20, 2020

LEASES OF COMMERCIAL PREMISES AND THE SANITARY CRISIS OF COVID-19

The concern about the economic effects produced as a result of the Covid-19 health crisis has produced a high conflict between landlords and tenants of commercial premises that will surely end in an increase in the number of litigations before the courts once the suspension of judicial proceedings ends.

Many tenants have been forced from one day to the next to close their business premises open to the public in compliance with Royal Decree 463/2020, of March 14, declaring the state of alarm with the consequent shutdown of their source of income.

On the other hand, the landlord finds that he/she does not get back the possession of his leased premises and instead the tenant refuses to pay or demands a reduction in rent.

Royal Decree-Law 11/2020, of March 31th, which adopts urgent complementary measures in the social and economic field, focuses solely on housing leases and does not refer to leases of different use that remain without a clear solution.

At the legal level, we must remember that the contracts bind the parties since they are concluded (art. 1091 and 1258 Spanish Civil Code) and there is an obligation to fulfill them.

Given the rigor of the principle "pacta sunt servanda", that is, the obligation of the parties to fulfill contracts, our legal system includes mechanisms such as the figure of force majeure and the "rebus sic stantibus" clause that can be asserted in a judicial procedure to restore the balance of obligations, if the parties do not reach an agreement. But this means going to court and having the judge to apply these principles when the claim is admitted and there is a trial, that is, within several months.

So up to date, no regulation has been issued that exempts tenants from paying the rent of commercial premises during the coronavirus crisis, so the rent of these contracts must continue to be paid regularly to the lessor, in the terms that have been agreed in each of the contracts, unless the parties reach an agreement in this regard.

An agreement must be attempted based on the principle of contractual good faith that reduces the impact of this exceptional situation for both parties. However, an agreement is not possible, a claim can be filed once the current suspension of judicial proceedings is lifted. Finally, we will find ourselves in a situation that will start with an overload of cases at the Courts and a special uncertainty regarding how the Judges will apply the effects and legal consequences of the Covid-19 crisis.

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