Application of the rebus sic stantibus clause in leases relating to commercial premises

Clearly, the health and economic crisis that we are living through is having dire consequences in many different areas, one of the most affected groups being that of tenants of business premises, who need solutions to allow them to continue trading and avoid the undesirable socio-economic effects that a closure would entail.

There are several options for those who have seen the economic capacity of their companies affected because of Covid-19 and the restrictive measures imposed as potential solutions under the state of emergency (such as opening bans, restrictions on capacity and mobility, as well as other requirements that require significant effort when offering the goods and services for which the premises in question are intended, including the disinfection of their products or spaces). In this article we will focus on analysing the application of the rebus sic stantibus clause by the Spanish Courts and Tribunals in leases relating to commercial premises.

This clause has always been applied cautiously by our Courts and Tribunals in accordance with the principle of pacta sunt servanda, under which contracts have the force of law between the contracting parties and must be complied with in accordance with the wording thereof (art. 1.091 CC). The rebus sic stantibus doctrine, as established by the Supreme Court, “seeks to solve the problems arising from an overstaying of the existing situation or concurrent circumstances at the time of conclusion of the contract, when the alteration is so pronounced that it dramatically increases the burden or cost of the benefits for one of the parties, or ends up thwarting the very purpose of the contract”. Consequently, there is no doubt that the effects of the pandemic represent a substantial, entirely unpredictable and cumulative change in the circumstances considered at the time that the contract was concluded, hence the need to adapt what has been agreed to the social reality of the moment, since, moreover, the current pandemic does not fall within the normal risks considered in the contract. Would it not be considered extraordinary and impossible to foresee the emergence of a virus that has provoked a declaration of global pandemic by the WHO and required massive population lockdowns and severe restrictions on mobility and economic activity?

In this context, there have already been several judicial decisions which, under the rebus sic stantibus clause, have agreed to balance the considerations of the contracting parties, some of which are as follows:

As early as July 15, 2020, Court of First Instance No 14 of Palma de Mallorca, in its Order No. 248/2020, decided to adopt as a precautionary measure the suspension of payment of the fixed part of the contractually agreed rent for one year following the filing of the application (May 2020), because of an interim request made by the tenant of business premises consisting of a hotel facility.

Months later, on December 14, 2020, at VENTURA GARCÉS we obtained, as an interim measure for one of our clients (a company in the fashion sector that was leasing business premises used for the retail sale of clothing), a reduction of 50% in the minimum guaranteed rent payable under the contract. This measure was agreed in Order No. 727/2020 of the Court of First Instance No.18 of Valencia, with retroactive effect from April 2020 until the end of the contract in May 2021. In addition, the resolution exempted our client from replacing the guarantee.

Subsequently, Court of First Instance No. 32 of Barcelona, ​​in its Order No. 424/2020 of December 23, 2020, resolved another request for interim measures filed by a company dedicated to the operation of hotels and facilities in the hotel sector, agreeing: (a) the prohibition of enforcement of the bank guarantee put in place in guarantee of the obligations arising from the contract; (b) the suspension of the obligation to provide a new bank guarantee; (c) a reduction in the fixed rent payable under the Contract, with effect from the accrual date (March 15, 2020), in the following terms: (i) During the period in which the hotel was prohibited from operating as a result of the declaration of the State of Emergency, the rent will be equal to 0; (ii) During the rest of the 2020 financial year and until the resolution of the lawsuit, the rent will be calculated by multiplying the monthly rent agreed in the Contract by the average percentage decrease in overnight stays in Catalonia compared with 2019, as published monthly by the “Generalitat of Catalonia” on the following website: Economic indicator from the Statistical Institute of Catalonia.

In 2021, Court of First Instance No. 20 of Barcelona, ​​in its Sentence No. 1/2021 of January 8, has already upheld the lawsuit filed by a tenant who had several hotel industry contracts with a large property owner and agreed that a rent reduction of 50% was applicable with effect from April 1, 2020 to March 31, 2021.

A month later, the Court of First Instance and Instruction No. 7 of Palencia, in its Order 26/2021 of February 9, decreed – in a case in which the landlord had previously filed a claim for eviction and rent – the interim suspension of the obligation requiring the tenant of premises used as a gym to pay the rent and the proportional part of the IBI, until the restrictions imposed to combat Covid-19 allowed him to reopen the business. And, from then on, a reduction of 40% in the rent, as well as a prohibition on including the tenant in any type of delinquent file.

In a pioneering ruling by a Provincial Court that applied the rebus sic stantibus clause as a result of the current health crisis, Section 8 of the Valencia Provincial Court in its Order 43/2021, of February 10, declared the application of the rebus sic stantibus clause by the Court of First Instance No. 1 of Valencia, which in the interim agreed to reduce the monthly rent of a hotel by 50% from June 2020 until sentencing, and to maintain this as of March 2021 if the legal restrictions on capacity and cross-border access by European tourists remained in place.

Shortly afterwards, on February 22, 2021, Court of First Instance No. 26 of Barcelona, ​​in its Order No. 70/2021 in an action relating to a hotel business lease agreement, resolved a request for interim measures filed by the lessee, agreeing to: (a) require the bank not to enforce the lessor’s guarantee; (b) prohibit the enforcement of the guarantee by the lessor; (c) prohibit the filing of a demand for contractual termination due to non-payment of rent; (d) suspend the obligation to provide a new bank guarantee; and (e) reduce the obligation to pay rent by 50% from the start date of the state of emergency in March 2020. A duration of 10 months is established for all the agreed measures from the date of the ruling, unless there are circumstances that make their extension or modification necessary.

Finally, on April 7, Court of First Instance No. 56 of Barcelona, ​​in its Order No. 187/2021, agreed to lower the rent paid by a company managing a catering business by 50% for the duration of the judicial procedure.

In conclusion, it should be borne in mind that some of the rulings described above are not final, and that we are facing a really complex situation regarding application of the rebus sic stantibus clause, and that there are currently no clear regulations or precedents in the Courts, since until now they have never had to face the consequences in the contractual sphere of such a serious situation that has such devastating effects in all areas; for this reason, we at VENTURA GARCÉS will continue to analyse any future rulings very closely.