Suspension of commercial rents: a rather quick announcement…

The exceptional government measures adopted in March 2020 as part of the fight against the spread of Covid-19 have had a strong impact on the activity of French companies in many sectors.
These measures have raised legal issues concerning in particular the rules applicable to situations of non-performance of contractual services.

Today, we would like to draw your attention to the possible impact of Ordinance No. 2020-316 of 25 March 2020 on the payment of rent, water, gas and electricity bills in relation to the business premises of companies whose activities are affected by the spread of the covid-19 epidemic.

The flow of rent is one of the structural elements of commercial real estate investment and financing transactions. It is likely that the reduction in this flow as a result of the current pandemic and government measures jeopardizes the servicing of the debt contracted to finance the building. In this context, the provisions of Article 4 of the Ordinance may have considerable effects on current real estate investment and financing contracts.

The said article provides that economic operators affected by the pandemic “may not incur financial penalties or interest for late payment, damages, penalties, penalty payments, the execution of termination clauses, penalty clauses or any clause providing for forfeiture or the activation of guarantees or sureties, due to non-payment of rent or rental charges relating to their professional and commercial premises, notwithstanding any contractual stipulation and the provisions of Articles L. 622-14 and L. 641-12 of the French Commercial Code“.

The ordinance specifies that these provisions “apply to rents and rental charges the payment of which is due between 12 March 2020 and the expiry of a period of two months following the date of cessation of the state of health emergency declared by Article 4 of the law of 23 March 2020“.

The ordinance, therefore, does not provide for – as one might have thought following the announcements made by the President of the Republic in his speech of 16 March 2020 – a suspension (or deferment) of commercial rents but rather a simple measure to prohibit (or neutralize) sanctions for non-payment of rents and charges due between 12 March 2020 and the end of the two month-period following the end of the state of health emergency.

With regard to the eligibility criteria for the scheme, “in particular the workforce and turnover thresholds of the persons concerned as well as the threshold of loss of turnover observed as a result of the health crisis”, Article 1 of the Ordinance referred to a future decree: “Those natural persons and legal entities governed by private law and carrying out an economic activity may benefit from the provisions of Articles 2 to 4 which are likely to benefit from the solidarity fund mentioned in Article 1 of Order No. 2020-317 of 25 March 2020 referred to above“.

Decree No. 2020-371 of 30 March 2020 (on the solidarity fund for businesses particularly affected by the economic, financial and social consequences of the spread of the covid-19 epidemic and the measures taken to limit this spread) specifying which economic players are eligible for financial aid from the solidarity fund created by Order No. 2020-317 of 25 March 2020, defines, in accordance with the above-mentioned provisions of Article 1 of the Ordinance on professional and commercial rents, the actors eligible for the scheme of Article 4, which temporarily paralyses the implementation of the contractual clauses, penalties, guarantees and sureties provided for in the event of non-payment of professional and commercial rents.

The persons eligible for the scheme are natural persons and legal persons governed by private law (companies, associations, etc.) carrying out an economic activity and fulfilling the following conditions:
– The number of employees is less than or equal to ten;
– The turnover excluding taxes during the last closed financial year is less than one million euros;
– The taxable profit plus any sums paid to the director in respect of the last closed financial year is less than 60,000 euros;
– These companies were either subject to an administrative ban on receiving the public between 1 and 31 March 2020, or they suffered a loss of turnover of more than 70% during this period compared with the previous year.

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We are a French firm and we have been active in Paris as well as in Central and Eastern Europe for more than 20 years.

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