The Impact Of COVID-19 On Commercial Lease Agreements

• Published date: 04 January 2021
• Subject Matter: Real Estate and Construction, Coronavirus (COVID-19), Landlord & Tenant - Leases, Operational Impacts and Strategy
• Law Firm: Soulier Avocats
• Author: Ms Catherine Nommick

The closure of many companies since the first lockdown in March 2020 and the resulting economic slowdown have caused high tensions between lessors and lessees of commercial premises. Some tensions escalated to disputes, some of which have already been brought before French courts. Law No. 2020-1379 of November 14, 2020 authorizing the extension of the state of health emergency and introducing various measures to manage the health crisis (the "Law") has supplemented the measures taken as early as in March 2020 by the French Government concerning the performance of commercial leases agreements.

The adoption of the Law provides the opportunity to address the issue of commercial leases in the context of the health emergency measures that have been taken, as well as the options currently available to lessees and lessors to overcome this unprecedented crisis.

Understanding the health measures taken in relation to commercial leases agreements

1. In order to provide support to the economy to deal with the serious repercussions of the health crisis, the French Government had been empowered - pursuant to Law No. 2020-290 of March 23, 2020¹ - to take, by way of Ordinances, any measures to postpone in full or spread out the payment of rents relating to business and commercial premises and to waive financial penalties and suspensions that may be applied in case of non-payment by lessees.

2. Under the terms of two Ordinances dated March 25, 2020², the French Government has set up a mechanism to protect commercial lessees against the risk of rescission of the lease agreement in the event of non-payment of rents during the health crisis.

Ordinance No. 2020-306 of March 25, 2020 applies to all contracts and temporarily renders termination clauses ineffective for a legally protected period between March 12 and June 23, 2020.

Ordinance No. 2020-316 of March 25, 2020 prohibits the application of penalties or termination clauses in case of non-payment of rents and service charges that fall due during a protected period running from March 12 to September 11, 2020 (two months after the end of the state of health emergency). However, it can only be invoked by natural persons and private law legal entities who/which carry out an economic activity and are eligible for the solidarity fund mentioned in Article 1 of Decree 2020-371 of March 30, 2020.

As a result of the successive restatements of the provisions governing the solidarity fund, the protective measures provided for under...