Can I get a rent reduction due to COVID-19?
Juan Ramón Correas [Lawyer]
The “rebus sic stantibus” clause is what would normally be alleged by the tenants as the main legal argument to obtain a rent reduction, in the current circumstances. This clause, which is not written in any Law, but recognised by the scientific doctrine and applied by the Courts, needs an event as its trigger and demands some requirements to be applicable and recognised by the Courts:
- Change of circumstances. The event should involve a rupture of the economic cause of the contract, which originally was impregnated with a balance on the obligations of the parties.
- That the event was unexpected and impossible to prevent. It demands that the situation created by the event where not included within the risks assumed by each party, according with the normal development of the contract (expressly or implicitly).
- It must constitute a real burden for the party damaged. The impact of the change of circumstances should be very relevant, “excessive”, in connection with the economic base affecting the constitution of the contract. Not any economic damage will be eligible to apply this clause: it should really be relevant and excessive for these purposes.
- Subsidiarity. The rebus sic stantibus clause will not operate if there are provisions in the contract to provide the effect that the damaged party is looking for.
The mentioned requirements are based in the Sentences granted by the Supreme Spanish Court (amongst other, Sentences of 30 June 2014 and 15 October 2014), and are just a resume of a much longer and motivated legal exposition. It is true that in the mentioned Sentences the requirements demanded by the Courts to apply the clause have been reduced from previous Sentences, and a more flexible application from that moment onwards has been defended. However, the application still (and always) should be applied cautiously and always considering the particular circumstances of the case, as the contracts are Law to the signing parties and they should be interpreted and executed according with the good faith principles (art. 1.091 and 1.258 Spanish Civil Code).
Taking this into consideration: Is the present situation created by Covid-19 enough to apply the “rebus sic stantibus” clause and, consequently, get a rent reduction? As mentioned before, there is not a clear general answer. An individual and specific study of each situation should be made before providing a specific recommendation, taking into consideration many factors as the wording of the contract, the particular economic situation of the landlord and tenant, etc.
One thing that we can recommend without any doubt: it would always be better trying to achieve an agreement with the other party than imposing our position. Normally, the initiative would be taken by the tenant (the party that would have his business closed or damaged), contacting the landlord and promoting an agreement (normally a rent reduction, but also suspension or delay in payment). It is also true that some landlords have preferred to contact directly with their tenants to offer them possibilities to sort out the difficult situation.
If a possible negotiation has totally failed and there is no other alternative for the tenant, that would be the only possible scenario where we would then recommend to consider the possibility of taking the initiative and start actions (including, if necessary, going to Court) to get a positive effect (normally a rent reduction). It is uncertain how Courts will react to these cases, but sometimes desperate times require desperate measures.
We hope that the previous information is helpful, but please do not hesitate to contact us with any question or comments.
Please note that the information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues.