News on the rent front

25 November 2020

In addition to the tax credit mechanism proposed by the Government as part of the discussions on the Finance Act (see our newsflash dated 16 November 2020 relating to the contribution of the French State to payment of rents through a tax credit for landlords), three recent court decisions have broadened the debate on the issue of the payment of rent during periods of confinement.

First of all, it should be recalled that, in a widely commented decision of 10 July 2020, the Paris Court ordered a lessee to pay the rent for the months of March to May 2020. However, as the lessee's claim was based mainly on the provisions of Article 4 of Decree 2020-316 of 25 March 2020 (which in no way provided for the suspension of rent payment, but merely suspended lessors' remedies), this solution seemed logical. However, the Court considered the concept of good faith, holding that "in the event of exceptional circumstances, parties are required to verify whether such circumstances would make it necessary to adapt the arrangements for the performance of their respective obligations" (TJ Paris, 10 July 2020, n° 21/04516).

In two decisions handed down on 26 October 2020 (N° 20/53713 and 20/55901), concerning litigation over the payment of rents owed by the operators of a sports hall and a parapharmaceutical business, the summary proceedings judge of the Paris Court adopted the above reasoning on "good faith". The judge considered that there was a serious dispute and refused to order the lessees to pay their unpaid rent. For its part, the Grenoble Court of Appeal ruled on the issue, in a judgment of 5 November 2020, but without relying on the good faith principle (N° 16/04533). The Court of Appeal considered the arguments most often advanced by lessees refusing to pay the rent during periods of closure (ordered by the Government as part of the fight against the spread of the COVID-19 epidemic), as follows:

  • Force majeure

The question of force majeure was swept aside in the Paris Court decisions cited above, qualifying the defence raised as "inoperative". In this regard, it should be recalled that the lessee's main obligation is an obligation to pay the rent and that the conditions of force majeure must therefore be assessed from that angle. The Grenoble Court of Appeal considered that since the lessee did not demonstrate cash flow difficulties making it impossible to fulfil its obligation to pay the rent, a force majeure argument could not be upheld.

  • The argument that the landlord has failed to provide premises that can be used for their contractual purpose ("obligation de délivrance"), thereby justifying the lessee in withholding payment of the rent ("exception d'inexécution")

As a reminder, pursuant to Article 1719 of the Civil Code, lessors are under the obligation to provide premises that can be used for their contractual purpose, i.e. allowing the specific activity mentioned in the lease to be performed. This is an absolute obligation which is the very essence of the lease agreement. Following the first lockdown in France, some lessees considered that the mandatory closure measures ordered by the Government resulted in their lessor's failure to fulfil their obligation (and that the external nature of the prohibition, which was not caused by the lessor, was an ineffective defence). Consequently, on the basis of the defence of non-performance of the co-contracting party ("exception d'inexécution"), lessees refused to pay the rent for the period of mandatory closure.

The Paris Court held that the consequences of the COVID-19 context cannot, alone, be considered as a failure by the lessor to fulfil its obligation de délivrance, as such circumstances are not attributable to the lessor. However, the Court added that the exception d'inexécution must be considered in the light of the "obligation of the parties to negotiate in good faith the means of execution of their contract in the context of current health circumstances".

For its part, the Grenoble Court of Appeal refused to consider that the owner of premises located in a tourist residence was in breach of its obligation de délivrance, even though a decree had prohibited public access. The Court explained that since the decree prohibiting access to the premises was subject to an exemption for persons domiciled in the tourist residence, the lessee had failed, on the facts, to adduce evidence that its activity had been prohibited. In doing so, the Court greatly restricted the scope of application of this theory (without, however, excluding it totally).

There is no doubt that the issue will be the subject of much case law in the months and years to come.

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