The Government of the Generalitat de Catalunya decrees the reduction of rent in the leasing of business premises in which commercial or industrial activities are carried out in cases in which the competent authority imposes restrictions or the suspension of the activity as a result of COVID-19.
In order to share between the lessor and the lessee the impact of the negative economic consequences caused by the measures adopted by the competent authorities to prevent the spread of COVID-19, the Government of the Generalitat has approved Decree Law 34/2020, of 20 October, on urgent measures to support the economic activity carried out in leased business premises.
This decree establishes that the lessee of real estate leased after 1 January 1995 may require the lessor to in a reliable manner for the purpose of modifying the conditions of the contract in a reasonable and equitable manner.
This power is granted for the sole purpose of re-establishing the balance of the contractual benefits between the parties and exclusively when the imbalance arises from the adoption of measures decreed by the competent authority as a consequence of the COVID-19 pandemic relating to the suspension of the development of the activity or restriction of the material use of real estate leased for the carrying out of industrial and commercial activities.
When the aforementioned circumstances occur, in order for the lessee to be able to see the amount of the rent reduced, he/she must necessarily make a reliable request to the lessor requesting the corresponding modification of the contractual conditions. The aforementioned request is of paramount importance, given that the effects of the reduction of the rent detailed below will be effective from the date on which the lessor receives the request, and it will be from the date on which the lessor is prohibited from issuing the invoice for the corresponding monthly rent (the lessor must wait for a period of one month to negotiate or for an agreement to be reached before this period has elapsed).
In the event that the parties do not reach an agreement within one month of the aforementioned notice, a series of effects are envisaged depending on the circumstances of each case:
- If the authorities have decreed the suspension of the activity carried out in the rented premises, the rent and other amounts due must be reduced by 50% for the duration of the suspension.
- If the authorities have decreed the partial restriction of the material use of the leased premises, the rent and other amounts due must be reduced by a proportion equal to half of the loss of use of the premises, measured objectively by the reduction of capacity or opening hours or by other limitations imposed by the regulation. In other words, if the authorities decree the reduction of the capacity of the leased premises to 30%, there is a 70% loss, so the rent and similar amounts must be reduced by the amount resulting from applying the percentage of 50% to the 70% loss (35% rent reduction).
It should be noted that the fact that home delivery or collection services are carried out in the rented premises does not prevent the application of the reduction of the rent and assimilated amounts that corresponds according to the previous assumptions, so that the lessees will also benefit from the corresponding reduction of the rent.
Likewise, if the rent and amounts due are reduced by the corresponding amount, the lessee may require the lessor to fully or partially impute to the obligation to pay the aforementioned rents and other amounts due that have fallen due all the amounts that have been delivered to the lessor and guarantee the fulfilment of its obligations, except for the obligatory legal deposit and other guarantees deposited with the competent official body. In this case, the lessee must return the aforementioned guarantees within one year of the disappearance of the circumstances that led to the reduction of the rent and, in any case, before the end of the contract if its term is shorter.
The regulation also provides that in the event that the suspension of the activity lasts for more than three months in the course of a year, the lessee may withdraw from the contract without penalty from the time that circumstance occurs, for as long as it continues and up to three months after the complete cessation of the measures, provided that the lessor is given reliable notice one month in advance.
Finally, the regulation states that the reduction measures regulated may be applied regardless of whether the parties had reached an agreement prior to the entry into force of the regulation (22/10/2020).
Apart from the doubts that may arise due to questions of competence, the fact is that the approved regulation leaves some loopholes or open questions that would have been preferable to clarify in order to avoid, above all, legal uncertainty and the corresponding conflict. In this sense, the rule alludes to the aim of re-establishing the contractual balance to avoid the negative consequences falling exclusively on one of the contracting parties, but establishes a generic measure of a 50% reduction in rent, not adapted to the specific case and, in any case, independent of the economic results that the lessee may have in the exercise of his commercial or industrial activity, especially when the reduction measure is applied even if the activity can continue, even if only in part, through, for example, the home collection or delivery service. In this sense, if the rule is based on economic criteria, it would have been preferable if the solution and the measures had also taken into account economic criteria, in order to avoid, for example, future conflicts regarding whether the generic reduction measure restores or breaks the contractual equilibrium.
Nor does the rule resolve, for example, how to treat industrial leasing, which goes beyond the leasing of the property on which it is based and to which the rule refers, or how to reconcile the agreements that could have been entered into during the state of alarm under the state regulation with these new measures, despite the fact that the rule states that they are independent.
In this sense, it cannot be ignored, because the explanatory memorandum refers directly to it, that the decree law is based on the “rebus sic stantibus” clause (a supervening and radically unforeseeable change in the circumstances that the parties could have taken into account at the time of entering into the contract) and it is difficult to sustain an unforeseeable change in circumstances subsequent to an agreement between the parties precisely because of the generalised closure that took place during the state of alarm. In other words, if there was an agreement between the parties from mid-March 2020 motivated by COVID-19 and which provided the basis for it, it is difficult to justify that the current circumstances are radically unforeseeable in relation to those existing at the time when the parties entered into the agreement, i.e. during the state of alarm.
In any case, the Catalan rule understands that the new measures are not affected by possible previous agreements between the contracting parties, but, we insist, this is an open question that could generate numerous conflicts if an agreement is not reached between the parties.
Finally, it is important to insist on the importance of properly formalising the request to enter into negotiations with the property in order to modify the agreed contractual conditions, given that it is from that moment onwards that the rent reduction measures provided for in the decree law become effective and from the moment that the landlord receives it, the prohibition to issue the corresponding invoice for the monthly rent and the amounts assimilated to it arises.
The Legal Department of AddVANTE remains at your disposal for further information or to resolve any queries that may arise in relation to this article.