Further to the emergency crisis caused by the COVID-19 pandemic, the French government went from limiting large gatherings to organising the lock-down of the entire country.
In this context, Emergency Act No. 2020-290 dated 23 March 2020 (the "Act") creates a state of health emergency allowing the government to take specific temporary measures by ordinance, i.e. without having to go through Parliament. At this stage, the state of health emergency has been declared for a period of two months as from 24 March 2020, but may be extended.
What does this mean for landlords and tenants?
The Act allows the government to pass legislation "allowing the full deferral or staggering of the payment of rent, water, gas and electricity bills relating to professional and commercial premises and to waive financial penalties and suspensions, interruptions or reductions in supplies likely to be applied in the event of non-payment of these invoices, for the benefit of microenterprises [...] whose activity is affected by the spread of the epidemic" or "amending, with due regard for reciprocal rights, the obligations of corporates carrying on an economic activity with regard to their customers and suppliers [...], in particular in terms of payment periods and penalties and the nature of the counterparts".
Through a series of 30 ordinances published since 26 March 2020, the government has specified emergency measures that would be of interest to landlords and tenants, including:
The setting up of a solidarity fund to provide financial assistance to very small businesses1
The emergency fund aims to provide financial assistance to very small businesses, with 10 or less employees, an annual turnover below €1 million and a taxable profit below €60,000 during the previous financial year and not being controlled by a commercial company within the meaning of Article L. 233-3 of the French Commercial Code.
This fund has a very limited duration of three months, which may be extended for a maximum of three months (i.e. a total of six months).
A specific scheme regarding payment of rents and utility supplies2
Landlords are barred from activating automatic termination clauses or to invoice penalties, late payment interest, or other financial penalties, or clauses providing for forfeiture or even to call upon third-party guarantees, due to non-payment of rents or service charges relating to professional or commercial premises due between 12 March 2020 and the expiry of a period of two months after the end of the state of health emergency.
This scheme is however solely available to very small businesses eligible to the solidarity fund.
A general scheme regarding payments under contracts3, that would be available to tenants not eligible to the specific scheme.
A party is barred from activating penalty payment, automatic termination clauses, penalty clauses or clauses providing for forfeiture against the other party that failed to comply with an undertaking that was due between 12 March 2020 and the expiry of a period of one month after the end of the state of health emergency. Such penalty payment or penalty clauses shall take effect and be enforceable as from the expiry of a period of one month after the end of that period if the debtor has not performed its obligation before that time.
This general scheme can be applied to leases and would allow tenants to postpone payments without risk of forfeiture or penalty. However, landlords may still call upon third-party guarantees to cover any unpaid amounts.
An automatic extension of the period during which one party may oppose the automatic renewal of the contract4
Where an agreement may be terminated only during a fixed timeframe or is automatically renewed if not terminated during a fixed timeframe, that timeframe shall be extended, if it expires between 12 March 2020 and the expiry of a period of one month after the end of the state of health emergency, by two months after the end of that period.
This scheme would apply to services or utility agreements, or even to civil leases, that usually provide for automatic renewal provisions.
If you have any questions on the issues raised in this article please get in touch.
1. Ordinance No. 2020-317 dated 25 March 2020 and Decree No. 2020-371 dated 30 March
2. Ordinance No. 2020-316 dated 25 March 2020
3. Ordinance No. 2020-306 dated 25 March 2020
4. Ordinance No. 2020-306 dated 25 March 2020
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