Commercial lease rentals and the health crisis: an update

Businesses have been heavily impacted by the health crisis, especially for those who have been subject to administrative closures imposed by the government in an attempt to contain the spread of the virus.

It is in the context of the global epidemic that law n° 2020-1379 of 14 November 2020 was adopted.
The objective of this text is to protect tenants of commercial premises in difficulty.

Thus, Article 14 of the said law orders the suspension of actions based on the non-payment of rent for premises affected by administrative measures. These actions cannot therefore be brought by lessors since 12th March 2020 and continue for two months after the lifting of the state of health emergency (1st June 2021).

Therefore, all actions taken with the aim of establishing the acquisition of the termination clause of a lease will not be accepted by the courts before the end of the period mentioned.

However, the Court of Appeal of Riom, in a judgment of 2nd March, found that the termination clause of a commercial lease had been acquired due to the non-payment of the rent by the lessee, even though the only unpaid rent dated from the period referred to in Article 14 of the Law of 14 November (CA Riom, 2 March 2021, No. 20/01418).
This judgment marks a position taken by the Court of Appeal in conflict with positive law.

In its decision, the Court of Appeal went further by relying on the good faith of the lessor, who had proposed a plan to spread out the payment of debts even though the closure of the premises was due to the application of administrative police measures. It seems that, in the face of texts that exclusively protect lessees, judges are trying to rebalance the ratio with lessors, who are also affected by the health crisis.

It is in this sense that the Court of Appeal of Lyon, in a decision of 31 March 2021 (No. 20/05237), attempted to specify the exceptions unenforceable against the lessor in this time of crisis:

While the health crisis has a definite impact on the tenants’ ability to pay their rent, it does not make the fulfilment of this pecuniary obligation impossible, and therefore cannot be qualified as impossible. The health situation in itself can’t be qualified as “force majeure”. Moreover, it is the police measures that impose the closure of the commercial premises, and not the Covid-19 itself.
The difficulties in paying the rent are thus only indirect consequences of the health crisis.

The temporary loss of the leased object cannot be invoked against the commercial lessor either. This is only possible in the case of partial or total destruction of the leased property. Indeed, the judges explicitly refuse to assimilate the impossibility of operating with any destruction of the premises.

Finally, according to the Court of Appeal of Lyon, it is impossible to raise the exception of non-performance if the lessor has made the premises available to the lessee.

However, the Court of Appeal of Versailles, on 6th May 2021 (No. 20/04284 & No. 20/04845), in two rulings, recognized the character of “force majeure” of the health crisis, rejecting the lessor’s liability due to the lessee’s inability to operate the commercial premises.
On the other hand, the Court noted that the impossibility of operating the premises under the terms of the contract (restaurant without takeaway sales) amounted to a partial loss of the leased property, which could justify a reduction in rent during the period of administrative closure in the sense of Article 1722 of the Civil Code.

Although the government has strongly supported the businesses affected by the administrative closure measures, some of them are at great risk of having to file for bankruptcy in the coming months.

According to Euler Hermes, 60,000 companies could go bankrupt in 2021. From then on, collective proceedings will be opened to try to turn the company around and, if this proves impossible, to place it in compulsory liquidation.

Faced with this procedure, two options would be available to lessors:
Attempt to terminate the lease before the opening of the collective proceedings. However, this implies going into the procedure as an “unsecured” creditor, which means that in the absence of a security (e.g. a guarantee), creditors with a legal or contractual security will be reimbursed first.
In this case, it will be necessary to declare the claim upon receipt of the notification of the opening of the procedure.

Furthermore, if the lease is still in force and the procedure is opened, Article L622-16 of the Commercial Code gives the lessor the status of “privileged” creditor on the rents of the two years preceding the procedure. Regarding unpaid rent during the proceedings, the doctrine accepts that the lessor will be reimbursed just after the employees and the legal costs.

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