Reduction of Leasehold Rents as a result of Covid. Rebus Sic Stantibus" clause.

First rulings and court orders in relation to the reduction of rent in business premises leases and the application of rebus sic stantibus.

As a general rule, contracts are to be performed and this is established by the principle of pacta sunt servanda in relation to article 1.901 of the Civil Code. Exceptionally, this principle can be limited in cases of force majeure ex article 1.105 CC, as well as by the so-called rebus sic stantibus clause, which is directly related to the principle of good faith.

In relation to the rebus sic stantibus clause, it is worth highlighting Supreme Court Ruling 455/2019, of 18 July, which said:

"...according to the jurisprudential doctrine of rebus sic stantibus, the alteration of the circumstances that may cause the modification or, ultimately, the termination of a contract, must be of such magnitude that it significantly increases the risk of frustration of the finality of the contract. And of course, it is necessary that such supervening circumstances were totally unforeseeable for the contracting parties (Judgment of the Plenary 820/2012, 17 January 2013). The unforeseeability of the change of circumstances is a necessary condition for the application of the rebus rule. If the parties have expressly or implicitly assumed the risk of a circumstance occurring or should have assumed it because, by virtue of the circumstances and/or nature of the contract, such risk was reasonably foreseeable, it is not possible to assess the supervening alteration which, by definition, implies the non-assumption of the risk (recently judgment 5/2019, of 9 January). It is not possible to speak of unforeseeable alteration when it is within the normal risks of the contract (judgments 333/2014, of 30 June, 64/2015, of 24 February, and 477/2017, of 20 July, among others)".

The health crisis caused by the COVID-19 is affecting the fulfilment of numerous contracts, including leases for use other than housing (premises).

This circumstance is having an impact on our Courts, which, for the time being, are ruling in favour of certain claims made by tenants, who, albeit as a precautionary measure, are obtaining the modification of the contracts.

In this sense, we can cite, among others, the following rulings which have upheld the precautionary measures requested by tenants:

Order 256/2020 of 25 June 2020, issued by the Court of First Instance n°1 of Valencia partially upheld the deferral of 50% of the minimum monthly rent agreed in the contract, applying the rebus sic stantibus clause as "it is notorious that the crisis derived from the current pandemic by COVID' 19 was not foreseeable. Likewise, a situation has arisen that has had an extraordinary, immediate and intense effect on the financial situation of the plaintiff".

For its part, Order 162/2020 of 7 July 2020, issued by Benidorm Court of First Instance no. 2, on the one hand, upheld the partial suspension of the payment of rent for a specific period, and, on the other hand, the measure prohibiting the defendant from filing an eviction or rent claim during the proceedings, understood as the obligation to temporarily refrain from carrying out such conduct.

Order 55/2020 of 15 July 2020 issued by the Court of First Instance and Preliminary Investigation No. 2 of Prat de Llobregat upheld, for reasons of urgency, the precautionary measure, inaudita parte, requested by the tenant consisting of the temporary prohibition, or suspension, of the landlord's power to claim, in extrajudicial or judicial proceedings, the execution of the guarantee at first request issued by a bank that the tenant gave him when signing the rental contract, and the notification of this decision to the guarantor entity.

Order 299/2020 of 13 August 2020 issued by Madrid Court of First Instance No. 74 upheld the precautionary measures consisting, essentially, of suspending the defendant's power to make judicial or extrajudicial claims against the guarantees of the lease, when the lessor seeks to collect amounts for which adjustment has been requested in the claim, and to impose on the lessor the obligation to refrain from including the lessee in default files, such as ASNEF, as a consequence of the non-payment of amounts for which adjustment has been requested in the claim.

Finally, it is worth mentioning Order 447/2020 of 25 September 2020 issued by Madrid Court of First Instance no. 81, which agreed, on the one hand, to suspend the payment of the rent of a discotheque until it is allowed to reopen, and, on the other hand, once the reopening has taken place, to reduce the rent by 50%. In this sense, the Order states that "if on the one hand it does not seem balanced to make the lessor bear all the damages derived from the critical health situation, in the sense of conditioning the payment of the rent - or part of it - according to the maximum permitted capacity, neither is it fair to impose on the lessee to continue to comply with her obligation to pay when the operation of her business is prohibited by the Community of Madrid, since in this case the lack of opening does not stem from a business decision, but from a legal impossibility".

All the rulings have a common denominator, which is the review of the contracts as a consequence of the extraordinary alteration of the circumstances at the time of their fulfilment in relation to the circumstances at the time of their conclusion, that these alterations cause an exorbitant disproportion between the services provided by the contracting parties, and that all of this has occurred in an unforeseeable manner.

In short, the purpose of the application of the rebus sic stantibus clause is to re-establish the balance between the parties.

Although, for the time being, most of the decisions handed down by the Courts are in favour of modifying the contracts in favour of the claims made by the tenants, the fact is that it does not seem to be possible to apply the rebus sic stantibus clause in a general way, but that its application must be done on an individual basis, taking into account the particular circumstances of each case.

In this regard, Decree Law 34/2020, of 20 October, on urgent measures to support economic activity carried out in leased business premises, has just been approved in Catalonia, which establishes, in a generalised manner, that leases of real estate for industrial and commercial activities signed after 1 January 1995 may be modified at the will of the lessee in the event that, as a consequence of the COVID-19 pandemic, measures are decreed by the competent authority to suspend the development of the activity or to restrict the material use of the said real estate.

There are many legal experts who, in addition to doubting the constitutionality of this rule, understand that it encroaches on the competences of the State, and question its legality, since the mere will of the lessee can automatically impose rent reductions on the lessor.

The fact is that the automatic application of this type of rule can lead to situations in which the balance of benefits between the parties is not really restored, which is the ultimate purpose of the rebus sic stantibus clause, so it would be advisable to analyse the specific circumstances of each contract in order to be able to request its application.