23 Mar COVID-19 and lease agreements of comercial real estate.
The Spanish government has adopted a first package of financial, tax and corporate measures to mitigate the difficult situation faced in many businesses, which have been forced to close their doors and cease all activity.
However, this package does not include any special regulation regarding the leasing of business premises, which is a major cost for many entrepreneurs. Despite this, in certain cases a reduction in rent or even a temporary suspension or termination of the agreement can be requested.
In the absence of special measures for the alert state, we can turn to civil law and, in particular to the rebus sic stantibus doctrine, which has its origins in case law, according to which an agreement can be modified and even terminated in those cases where there is an extraordinary and unforeseeable alteration of the circumstances that existed at the time of the conclusion of the agreement, so that the agreement is now excessively burdensome for one of the parties.
By applying this doctrine, the aim is to rebalance the performance between the two parties, so that the price received for the good or service is adjusted to the new circumstances.
In our opinion, the appearance of COVID-19 and the state of alarm decreed by the Spanish government is a circumstance not foreseeable by either party at the time the agreement is entered into, which, in turn, breaks the basis of the business concluded.
The Supreme Court has already accepted on several occasions the application of this doctrine in order to apply a reduction to lease agreements whose rent has become excessive due to the economic crisis of 2008, which significantly reduced the turnover and income of many companies in the tourism sector.
If an economic crisis was considered due to an unforeseeable cause, the COVID-19 crisis should receive this qualification even more.
However, this fact alone is insufficient to automatically apply a reduction or modify the agreement, and it is necessary to verify the real impact that the COVID-19 crisis has on the agreement whose modification is sought. In this respect, a lease agreement of a business premise which is affected by the state of alarm cannot be treated in the same way as a lease agreement in which an essential activity is carried out, which is expressly permitted.
What must be analysed is whether the change in circumstances leads to the lessee’s disappearance of his profit margins or even to a loss result. In such cases, the lessee may request a temporary adjustment of the rent to the new circumstances.
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