Real estate

Covid 19 lockdowns & commercial rents

Published on 4th Jul 2022

On 30 June 2022, the Court of cassation (higher civil court) rendered its judgments in three cases concerning the payment of rents due during the Covid-19 lockdown periods (Appeals No. 21-19.889 - No. 21-20.127 - No. 21-20.190).

The court was seized of some thirty appeals and decided to deal with three cases as a priority, ruling in favour of landlords.
 

Background

In order to limit the spread of Covid-19 pandemic, stores considered as non-essential were forced to close several times in 2020 and 2021. Many commercial tenants then suspended the payment of their rent.

When the landlords brought actions for payment, the question of whether the suspension was justified was raised.

The Court of cassation has taken into account a note from the Ministry of the Economy, Finance and Recovery on the impact of the lockdowns on shop rents, whereby: 

  • up to 45% of retail stores were closed during the crisis;
  • the total amount of rent and service charges thus concerned is estimated at more than 3 billion euros;
  • these businesses were able to benefit from three successive aid schemes.

 

"The general and temporary stores closure does not entail the loss of the rented property and does not constitute a failure by the landlord to perform his obligation to deliver.

A tenant is not entitled to rely on this as force majeure to avoid payment of his rent.”

Press release of the Court of cassation, 30 June 2022

Question to the Court of cassation

A simple but sensitive question 

Were the retailers entitled not to pay their rent?

Underlying this question are several others: Did the ban constitute:

  • a case of force majeure?
  • a failure by the landlord to fulfil his obligation to deliver, justifying the tenant's invoking the exception of non-performance?
  • a loss of the rented property, within the meaning of Article 1722 of the Civil Code, allowing the tenant to request a reduction in the amount of rent due?

 

Decision of the Court of cassation

A clear but severe answer

In its press release published on 30 June 2022, the French Court of cassation states:

 "The general and temporary measure of shops closure does not result in the loss of the rented property and does not constitute a failure by the landlord to perform his obligation to deliver. A tenant is not entitled to rely on this as force majeure to avoid payment of his rent".

 

The emergency state and the loss of the leased property (Art. 1722 Civil Code)

The Court of cassation ruled that the stores closure during a health crisis could not be equated with a loss of the leased property within the meaning of Article 1722 of the Civil Code.

According to the Court, the ban:

  • was general and temporary;
  • had the sole objective of preserving public health; 
  • was not directly related to the purpose of the rented premises as set out in the contract.

It concluded that the retailers were not entitled to request a reduction in their rent.

 

The emergency state and the landlord's obligation to deliver (Art. 1719 Civil Code)

The Court of cassation ruled that the general administrative ban does not constitute a breach by the landlord of his obligation to deliver.

It deduced that the retailers could not rely on the exception of non-performance to suspend the payment of their rents.

 

The emergency state and force majeure (Art. 1218 Civil Code)

It follows from Article 1218 of the Civil Code that a creditor who has not been able to benefit from the consideration to which he was entitled cannot obtain the resolution of the contract or the suspension of his obligation by invoking force majeure.

Consequently, the Court of cassation approved the Court of Appeal's decision to hold that the tenant, as creditor of the obligation to deliver the leased property, was not entitled to invoke force majeure.
 

Osborne Clarke is a recognised industry leader in real estate providing a comprehensive sector-led service that provide responsive advice to a variety of major real estate industry organisations, ranging from developers and investors to property funds and corporate occupiers.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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