Announced in the presidential speech of March 16, 2020, the suspension of rents, water, gas or electricity expenses raises many questions, even though the rent is the essential counterpart of the rental contract (article 1709 of the French Civil code).

This announcement was specified in the emergency bill dealing with the COVID-19 epidemic of March 19, 2020, which allows the Government to take any measure:

“g) Allowing the postponement or staggering of the payment of rents, water, gas and electricity bills relating to business premises, to waive the financial penalties and the suspensions, interruptions or reductions in supplies likely to be applied in the event of non-payment of these bills, for the benefit of very small businesses whose activity is affected by the spread of the epidemic” (Article 7, I, 1°, g).”

Insights on the announcement of this suspension, with regard to the emergency bill dealing with the COVID-19 outbreak, as passed by the Senate today.

Who is concerned?

In the emergency bill dealing with the COVID-19 epidemic, only rents and water, gas and electricity bills for business premises and “very small businesses whose activity is affected by the spread of the epidemic” are concerned.

However, regardless of the measures that will be taken pursuant to this bill, the term “suspension” refers to the concept of “force majeure” as referred to in article 1218 of the French Civil code. The request for suspension of rents or any other expenditure may thus, in principle, concern individuals or companies if they meet the conditions set out in article 1218 of the French Civil code.

Is the suspension of rents, water, gas and electricity costs automatic?

1/ The emergency bill dealing with the COVID-19 epidemic of March 19, 2020 doesn’t yet specify this. It is possible, however, that this suspension will be automatic or, at the very least, facilitated for “very small businesses whose activity is affected by the spread of the epidemic“. This is a matter to be continued with regard to the content of the regulation that will be enacted.

2/ For companies other than “very small businesses whose activity is affected by the spread of the epidemic“, reference should be made to the mechanism provided by article 1218 of the French Civil code. In application of this article, suspension is not automatic and the tenant will have to make a request to his landlord or supplier.

In the event of disagreement, the tenant or debtor must demonstrate, if necessary on the basis of accounting elements, that he is temporarily unable to pay, due to a case of force majeure which is characterised according to the following three conditions:

  • First condition: an event outside the debtor’s control In view of the evolution of the health situation (with the passage of the epidemic to stage three as from March 14, 2020, the closure of crèches, schools, colleges, high schools and universities as from March 16, 2020, the closure of non-essential businesses as from  March 15, 2020 and the containment as from March 18, 2020), it is possible to consider that the COVID-19 pandemic constitutes an out-of-control event for the debtor.
  • Second condition: an event that could not reasonably be foreseen at the time the contract was concluded. For contracts concluded from January 30, 2020, the date on which the World Health Organization (WHO) declared a public health emergency, the issue of unpredictability could be discussed. However, for contracts concluded in France, with no impact abroad, it may be considered that the COVID-19 pandemic could not reasonably be foreseen for contracts concluded prior to  February 23, 2020, the date on which the Orsan REB plan, relating to a known or emerging epidemic or biological risk, was launched by the Minister of Health.
  • Third condition: an event whose effects cannot be prevented by appropriate measures  This condition will depend on the ability of companies to continue to work and achieve even a reduced income.

Does this suspension of payment, if accepted, constitute a definitive exemption?

No. Assuming that the landlord or operator agrees to grant a suspension of payment of rent, water, gas or electricity, the amounts will then have to be reimbursed to the landlord or his supplier.

This principle, which arises from a reading of article 1218 of the French Civil code, does not seem, as it stands, to be called into question by the emergency bill of  March 19, 2020, even for “very small businesses whose activity is affected by the spread of the epidemic”.

Is it possible to request the termination of the lease contract or its subscription from a water, gas or electricity supplier?

Yes, still invoking the existence of a case of force majeure. However, it will have to be demonstrated that the debtor or the tenant is definitively prevented from being able to pay the amounts due.

Is it possible to renegotiate the rent in the context of the COVID-19 pandemic?

Article 1195 of the French Civil code relating to unpredictability, which was introduced by the reform of the law of obligations of February 10, 2016, may find itself applied more quickly than practitioners had anticipated!

However, this provision is only applicable to contracts concluded or renewed after October 1st, 2016.

 

For more information, #COVID-19 : The suspension of rents and the law n°2020-290 of March 23, 2020 to face the epidemic

 

Hanan CHAOUI

Partner - Commercial lease and real estate
Hanan Chaoui holds a doctorate in law and specializes in real estate. She assists her clients having leasing disputes with any type of assets and rental relations. She accompanies them on problematics such as eviction compensation and fixing the rent. She conducts audits and analysis of rental conditions as well as drafting and negotiating rental agreements.

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