Reed Smith Client Alerts

Following the recent announcements by the authorities and after the implementation of new legislation and regulations to help companies to face the sanitary crisis and its economic consequences, in particular by the law n°2020-290 of 23 March 2020 and the decree n°2020-293 of 23 March 2020, it is necessary to analyse the impact of this situation for the main actors in the real estate sector.

Authors: Stéphane Illouz Cynthia Boukobza Jordan Tobaly

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Indeed, the current situation raises different legal issues depending on the sector of activity and the position of the parties to the contract, landlord, user, owner, contractor, investor, asset manager, etc. 

This legal alert focuses on performance of contractual obligations and exemptions under the main real estate contracts, i.e. commercial leases, construction contracts, management contracts and deeds of sale.

  1. Commercial lease agreements

Article 1 of the ministerial order of 14 March 2020 establishing various measures to fight against the spread of the Covid-19 virus ordered the closure until 15 April 2020 of many categories of French regulated “établissements recevant du public” (ERP), establishments intended to receive the public. These include shopping centres, restaurants and bars, theatres, dance and game halls, sports facilities, documentation centres, libraries and museums. However, an exemption is permitted for restaurants and bars that are allowed to maintain their take-away and delivery activities.

In this context, the main issue in real estate matters concerns the suspension of rent payments. The answer to these questions can be analysed with regard to the exception of force majeure (i) and the application of the theory of unforeseeable circumstances (ii) and depends on the categories of establishments affected by the closure measures, such as bars, restaurants, shops, particularly those located in shopping centres, theatres, hotels, offices, logistics warehouses. 

Depending on the request of the contracting party and on the presence or absence of derogatory clauses in the agreement, the grounds for force majeure and unforeseeable circumstances may be invoked cumulatively or alternatively. Indeed, a party to the contract could invoke force majeure resulting from the epidemic in order to temporarily exonerate itself from contractual obligations, but could also plead unforeseeable circumstances in the light of the current economic situation in order to renegotiate the contract. This is only possible if no contractual clause has ruled out force majeure or unforeseeable circumstances.