BGI France - What about the payment of commercial and professional premises’ rents?

Since the beginning of the current health crisis, the question of rents remained unresolved in France. The governmental ordinance published on March 25^th, 2020, related to the payment of business rents (the “ordinance” [1]) provides the answers we all were expecting.

An ordinance in favour of very small business (VSEs) and small and medium size business (SMEs)…

This ordinance, in general, confirms the measures presented by the lessors associations and federations’ press release of March 20^th 2020, concerning the payment suspension of rents for the benefit of VSEs and SMEs. A governmental decree [2] will be enacted to precise the application of the ordinance’s provisions.

The ordinance covers only professional and commercial premises and indicates that:

“The persons mentioned in the article 1 of this ordinance cannot incur financial penalties (…) in execution of a cancellation clause, of a penalty and bonus clause, (…) as a consequence of the default of payment of rents or service charges related to their professional and commercial premises, notwithstanding any contractual stipulation and the provisions of articles L. 622-14 and L. 641-12 of the Commercial Code.”

The above mentioned provisions apply to rents and service charges for which payment is due between March 12^th, 2020 and two months after the cessation date of the health emergency declaration, enacted by the Bill of March 23^rd, 2020’s article 4. The duration of this health emergency declaration is, to this day, unknown, since no one can provide undoubtedly a date on which the measures of containment will cease, and therefore a date for the normal resumption of all economic activities cannot be fixed.

Therefore, during the entire health emergency declaration period [3] and two months after its end date, lessees are entitled to suspend the payment of rents and services charges.

… But not only them

The tenants and lessees who can benefit from such suspension are:

"Natural and private law juridical persons carrying out an economic activity who are eligible to benefit from the solidarity fund mentioned in the article 1 of the ordinance n°2020-317 of March 25^th, 2020 mentioned above. Those who continue their activities as part of a safeguard, judicial recovery or compulsory liquidation procedure may also benefit from these provisions upon production of a certificate from one of the legal agents designated by the judgment which set such procedure."

And the ordinance’s article 1 specifies:

"A solidarity fund is established for a period of three months, the purpose of which is to provide financial aid to natural and private law juridical persons exercising an economic activity particularly affected by the economic, financial and social consequences of the spread of the covid-19 and the measures taken to limit its spreading.

Its duration can be extended by decree for a period not exceeding three months."

It is important to note that the ordinance, thus, has an application field that is not limited only to VSEs and SMEs.

Tenant and lessees’ businesses asphyxiated

The governmental ordinance of March 25, 2020 respond to the urgent needs of companies that rent their premises, who must assume the commitments of their leases when their activity is greatly reduced or even halted.

However, this suspension of rents and charges only postpones the economic problems caused by the containment measures and it will have to be completed by other measures in order to avoid overdue rents, payments defaults and domino bankruptcies in the long term.

Why not consider, like it has been done for the payment of wages in a very efficient way, that the State could assume, under certain conditions (for example in proportion to the workforce placed in total or partial temporary unemployment) the enterprises’ rents during the containment period?

The objective of this measure would be to provide financial support with a more general and long-term approach, not only to individuals, but also to businesses throughout this health crisis and thus to bring back confidence and ultimately economic growth.

Sarah Lugan Lawyer - Paris Bar Association - NMW LAW Firm Lecturer at University Paris I Panthéon-Sorbonne

Philippe Reigné Fellow Associate Law Professor NMW LAW Firm Knowledge Manager #COVID-19 Manager

[1] Ordinance n°2020-316 of March 25^th, 2020, related to the payment of professional premises’ rents, water, gas and electricity bills regarding companies whose activity is affected by the spread of the covid-19 epidemic.

[2] Article 1: “The eligibility criteria for the provisions mentioned above are specified by decree.”

[3] Which is not to be confused with the “confinement period”.