What can I do? Shall I pay the rent?
That’s the question many businesses ask: My business is closed by the Coronavirus Do I pay the rent?
On 14 March 2020, the Spanish Government declared a state of alarm over the COVID-19 health crisis.
It also ordered the closure of all businesses open to the public except those of basic necessity.
This causes, after a week of closure and confinement, a lack of income for business owners.
Tenants wonder, even the Coronavirus, paid rent on my business premises.
This does not apply to regular rental housing for obvious reasons.
On the contrary, if it would be applicable in cases of leasing of business premises.
It could also apply to leases for use other than housing such as seasonal or student leases.
But what are the options?
First of all, contracts will have to be reviewed to see and check whether a situation like this has been foreseen.
In the absence of foresight, we will have the option of resorting to force majeure or the application of the clause “Rebus sic Stantibus”.
What is not an option is to simply breach the contract.
Force majeure. What is it? Is the Coronavirus?
The Force Majeure is an extraordinary, unpredictable and inevitable event. ,
Article 1105 of the Spanish Civil Code defines it as follows:
‘(…) those events which could not have been foreseen or which were expected to be unavoidable’.
Article 1184 of the Civil Code provides that:
‘The debtor shall also be discharged in the obligations to perform where the performance is legally or physically impossible’.
The Covid-19 together, with the closing of shops and the general order of confinement supposes a clear assumption of force majeure.
This clearly exonerates the full performance of the contract by either party.
However, this exemption applies only to obligations to give or make, but not to obligations to pay a monetary income.
Therefore, force majeure cannot be invoked to avoid paying the rent for the business premises.
Rebus sic Stantibus
The “rebus sic stantibus” clause is the rule that allows a party in a contractual relationship to be exonerated or to reduce the negative impact of a contractual risk not examined at the time of the conclusion of the contract.
The difference between the two is that force majeure makes absolute compliance impossible.
The clause ‘rebus sic stantibus’ allows the alteration and modification of the contract to suit the new circumstances.
With the ‘rebus sic stantibus’, lessor and lessee could:
1. alter the lease as regards the determination of the rent and its payment
2. to terminate the contract.
Proposals for amendments to the lessee
• Suspend rent during the state of alarm period.
• Make a discount on the monthly amount of rent.
In return the lessor could request from the lessee:
• Extend the period of obligation to perform the contract.
• Extend the initial duration of the Contract.
• Increase the amount of monthly income after a certain period of time.
• Update rent with CPI increased by several points.
Conclusion on Coronavirus rent payment:
1. First, to review the contracts in order to verify the possible regulation of force majeure for all types of contracts other than leases.
2. In the case of leases for use other than housing or business premises, it is advisable to weigh the risk of non-payment.
3. Once the risks have been analysed, it may be advisable to make partial amendments to the contract, in particular to the rent and its payment.
For more information or if you want to consult your specific situation or that we review your contract, do not hesitate to contact the office through the contact form. As you know and due to the Covid-19 the consultations will be carried out in a non-personal way either by phone or email or videoconference.
