Real Estate COVID-19 Help Desk in France

In 2019, the volumes invested on the French commercial real estate market reached a record € 39.2 billion. This performance represents a 23% increase over one year and is 29% above the 5-year average and 66% above the ten-year average.

This result is linked in particular to the exceptional dynamism of transactions above 300 million euros, which reached a record total amount of 13.9 billion euros, or 54% more than in 2018. With 27.3 billion euros (+16 in one year), the offices remain clearly in the majority (70% of the amounts invested). Foreign investors account for 35% of investments made in France in 2019, with the fact that there is a strong presence of US and Asian investors, mainly Korean, who accounted for 8% of commitments.

Following the strikes of December 2019, the health crisis linked to covid-19 has reinforced the adoption of telework to the detriment of traditional office spaces. The health crisis caused a sudden halt in activity in the Ile-de-France office market. Added to the drop in demand placed in the first quarter of 2020, this cessation of activity will result in a fall in volumes of premises rented.

First, Ordinance No. 2020-316 protects, under restrictive conditions (reserved for certain small businesses), lessees of commercial premises who have not paid their rents or charges between March 12 and September 11 July 2020 against financial penalties, default interest, damages, termination clause or other activation of the guarantee / deposit.

Second, Ordinances of March 25 (no. 306) and of April 15, 2020 (no. 427) purposes is to freeze the effects of clauses which would penalize too heavily or definitively non-compliance with certain contractual obligations during the Covid crisis19.

Ordinance 2020/306 created a “legally protected period” (or “periode juridiquement protégée”, aka PJP) which runs from March 12, 2020 to midnight June 23, 2020.

These Ordinances provide that penalty clauses which had already started to take effect before March 12 are suspended during the PJP and resume their effects at the end of it.

They also provide that the penalty, termination or forfeiture clauses, when their object is to penalize the non-performance of an obligation within a specified period, are deemed not to have taken effect, if this period expires during the PJP. However, these ordinances in no way suspend the obligations which must therefore always be performed during the PJP. In addition, default interest, at the legal or contractual rate, still runs in the event of non-payment of rents. In addition, only obligations that must be performed on a due date during the PJP (firm date or expiration of a deadline) are covered by the suspension of the implementation of the above-mentioned clauses. Conversely, the obligations whose compliance must be constant (eg the destination of the premises) could give rise to resolution during the PJP.

For obligations (e.g. payment, works) due during the PJP, the deadline for compliance with the lease will run from June 24, 2020 and will be equal to the time between March 12, 2020, if the obligation arose before this date (or a later date, if the obligation arose during the PJP) and the date on which it should have been performed during the PJP.

Under Ordinance 2020/427, the period of performance of the obligations which must be carried out within a specified period expiring after the PJP (June 24, 2020 or after) is postponed for a period equal to the time elapsed between the 12 March 2020, if the duty was born before this date (or a later date, if the duty was born during the PJP) and the end date of the PJP. However, all payment obligations (e.g. rent and charge) are excluded from this postponement.

Ordinance 2020/306 also allows the party who could not have terminated a contract before a deadline or oppose its tacit renewal within a specified period, if this period were to expire during the PJP, to benefit from an additional term which is two months after the end of it, that is to say until August 24, 2020.

Regardless of the provisions applicable during the legally protected period (see § 1), the landlord and the tenant must respect the terms and conditions of the lease agreement, unless they can invoke one of the following right.

First, it is tempting for a tenant to invoke force majeure to suspend the payment of their rent. Subject to a contractual definition, the event invoked as force majeure must be beyond the control of the party invoking it and must be (reasonably) unpredictable on the day of conclusion of the contract. It must also be irresistible and, as such, directly and genuinely prevents the performance of the obligation. French law adds that the event must have effects that cannot be avoided by appropriate measures.

Furthermore, with regard to the payment of the rent itself, the Court of Cassation held that the debtor of a contractual obligation of paying a sum of money cannot be relieved of this obligation by invoking a case of force majeure. Therefore, even if the tenant has suffered the immediate aftermath of the Covid 19 crisis and has no cash, he will not be able to invoke this crisis, as force majeure, to suspend the payment of his rent.

Second, tenant could rather seek through the Covid19 crisis a default by his own landlord, authorizing him, in turn, not to pay his rent. He could then invoke an exception for non-performance which must be temporary and proportionate to the non-performance of the other party. However, it must characterize the failure of the landlord with regard to its essential obligations which are on the one hand the obligation to deliver the premises and on the other hand the guarantee of the peaceful enjoyment of the latter. It must be noted, however, that the closure of shops or the prohibition to accommodate the public ordered by public authorities does not constitute a violation of either the obligation to deliver or to the guarantee of peaceful enjoyment.

On the one hand, the obligation to deliver is not an absolute obligation; it means the delivery of premises which must, materially, allow the exercise of the activity for which the rental is intended. In this case the premises are still present and in good condition. The obligation of delivery relates more to maintenance defects or an inadequacy of the premises rented for the activity envisaged contractually. On the other hand, with regard to the guarantee of peaceful enjoyment, case law traditionally retains that the landlord guarantees the tenant only against his personal act and not against the acts of third parties such as neighbors or demonstrators. In other words, a decision to close made by a public authority could only authorize a tenant to suspend the payment of their rents if this decision is based on a default by the landlord.

Third, the unforeseeability allows, under certain conditions, one of the parties to request from the other party and then to ask the judge, the readjustment of the contract in the event of financial imbalance.

However, the legal conditions for establishing this unforeseen event are strict: on the one hand, there must be an unforeseeable change in circumstances, on the other hand, this change must make the performance of the contract excessively onerous for one of the parties and finally this party must not have agreed to assume such a financial risk.

It is in the interest of one of the parties to invoke unforeseen circumstances to be able to place themselves within a legal process providing for three stages. First, one of the parties may request the renegotiation of the contract from the other party (however, the party must continue to perform the contract during the renegotiation phase). Then if the renegotiation fails to rebalance the contract, the parties can agree to the amicable resolution of the lease. Finally, in the absence of agreement, each party may refer the matter to the judge in order to ask him either to revise the contract or to terminate it.

It is very likely that for many operators of commercial premises, the lockdown and more generally the Covid19 crisis constitute an unpredictable change making the performance of the lease excessively expensive, since the lessee would have to pay the rents without being able to exploit his shop. Though the path is narrow, invoking unforeseeability should force both parties to come together to understand their respective problems and constraints.

Ordinance No. 2020-315 of March 25, 2020 relates to the financial conditions for the resolution (cancellation) of certain tourist travel and stay contracts in the context of Coviod19. It applies to contracts whose resolution (cancellation) is notified by the consumer or the professional between March 1, 2020 and September 15, 2020 inclusive. The contracts concerned are:

• Package travel (e.g. flight booking + accommodation)
• Contracts relating to travel services, sold by professionals producing them themselves.
• Contracts relating to hosting services.

The professional concerned must:

• offer an immediate refund of the full price paid for the canceled service or, within 30 days of cancellation, send by email or paper mail a purchase voucher valid for 18 months from its issue, corresponding to the amount paid initially. Client can use this voucher in whole or in part to buy one or more services offered by the same agency. The balance of the purchase voucher will be refunded at the end of its validity period.
• and, within 3 months of the cancellation, make a new proposal for a service identical or equivalent to the first without additional cost whose date is fixed by mutual agreement. This new offer remains valid for 18 months and client can refuse it.

Outside this scope, holidays homes rentals concluded directly with the owner are subject to provisions of the contract and those of the civil code. Cancellation indemnity policy and refund will depend on the terms and conditions of the contract.

As regards Public works contracts

First, If, as a result of the measures taken in the context of a state of health emergency, the services subject to the public contract have been suspended by the public contracting party, the company may claim for compensation for site maintenance costs and damage caused by a suspension and compensation for damage suffered during the period of suspension of the site.

Second, to take into account the costs and constraints induced by the sanitary crisis, the private party can invoke article L. 2194-1 of the Public Order Code which provides for the parties to a public contract to modify the initial contract during performance, without new competitive bidding procedure, when “modifications are made necessary by unforeseen circumstances “. (see also the EU public procurement Directive, 2014/24 / EU of February 26, 2014).

Third, the enterprise may also submit a claim for indemnification based on “act of god”: Any measure of the client linked to the coronavirus, which modifies the conditions of performance of the contract, or the contract itself, may give rise to complaints.

As regard Private works contracts

Contracting party my either refer to the NF P.03-001 standard, equivalent to CCAG for private works contracts, which provides for (i) compensation for guard costs and damages during the suspension of the work and (ii) renegotiation of the contract justified by the existence of unforeseeable circumstances .

Should the contract not subject to the said standard, parties will have to analyze their contract (mainly the so called “CCAP”) to determine whether it contains clauses similar to those of the NFP 03-001 standard cited above. Otherwise, the company can avail itself of the revision for unforeseen event rule provided by law (art. 1195).

For matters relating to public works contracts, administrative court will have jurisdiction over these claims, while for matters relating to private contracts, Judicial Court and commercial court may be seized by parties. It is expected a congestion of all courts in the next few months (following a period of strike end of 2019); therefore alternative dispute resolution schemes should be a real efficient option.