Spain’s coronavirus hotel closures: mitigating the risks

By virtue of Royal Decree 463/2020 (‘the decree’), published on 14 March 2020, the Spanish government has declared a state of emergency initially for 15 days and extended this week for a further period until 12 April 2020.

The decree includes, among other things, restriction of cross-border and internal travel, closure of establishments open to the public (with certain exceptions) and confinement (with very limited exceptions).

Additionally, the decree enables the health ministry to amend, limit or expand the measures, sites, facilities and activities set out in the decree under the scope of the state of emergency measures.

As a result, the health ministry has enacted the close-down of hotels, similar tourism establishments and short-term accommodations, campsites, caravan parks and any other similar establishment throughout the country. Only surveillance, security and maintenance services are permitted to continue.

The deadline for closing premises was 26 March 2020.

Opening to the public is permitted for those establishments that host clients who, at the time of the declaration of the state of emergency, were staying in a constant and seasonal mode. provided that their occupants have the infrastructure, in their own living spaces, to be able to meet basic needs.

However, these establishments may not admit new customers until the suspension referred to above has ended.

According to a new Ministry of Transport order, certain specific hotels and hostels (as set out in the order) may remain open for workers involved in providing essential services

The close-down will remain as long as the state of emergency is in effect.

With tourism being Spain’s biggest sector (contributing 15 per cent of the country’s GDP), below we consider the practical steps to identify disruptive factors, manage the risk and mitigate the impact on the industry.

What are the impacts of coronavirus on Spanish tourism?

Coronavirus has impacted domestic and foreign travel: since 17 March 2020, all Spanish land borders have been closed – only Spanish citizens and residents in Spain, cross-border workers and those persons who prove force majeure causes or situations of need are allowed to cross the borders.

Spanish maritime and air borders are still open, but the Spanish government has plans to close them if it deems it necessary.

In addition:

•  restrictions on non-essential movement (ie except for food shopping and medical care) have been imposed;
•  the EU has proposed that all non-essential travel across the EU should be suspended for 30 days; and
•  the US State Department has issued an extraordinary advisory urging Americans not to travel overseas and to return to the United States

All this has resulted in mass cancellations of travel and hotel bookings in both the short and the longer term.

Due to the state of emergency – and the order to close hotels – most hotel chains have announced they are relaxing their cancellation policies and are reducing their employees’ working hours or suspending their employment contracts due to force majeure.

Tenants and operators are reportedly already claiming force majeure or change of circumstances explicitly or tacitly to seek relief from their contractual obligations.

Merlin Properties, the largest SOCIMI (Spanish REIT) in Spain, has already announced its decision to forgo 100 per cent of the rent of all shops and hotels closed as a result of the state of emergency and orders issued by the government.

Owners, in turn, are looking at their obligations and options, including under relevant insurance and finance agreements.

Lenders too are following the situation very closely, taking into account the impact on the financial capacity of their clients and the potential measures that the government could take to help such a strategic sector in the economy.

Is coronavirus or its consequences an event of force majeure or change of circumstances (rebus sic stantibus)? 

For more information, see our briefing on the implications of coronavirus for Spanish law contracts. 

Practical tips to manage risks 

•  Consider whether your insurance policies cover the outbreak or its knock-on effects.
•  Assess what rights and obligations you have and what you need to do to protect or meet them. For example, be aware of notice requirements that are preconditions to exercising a force majeure clause or insurance protection, or that are required under finance or duty of care agreements. Freshfields’ contract review AI tools can assist by quickly identifying and extracting key contractual provisions in multiple contracts. By leveraging this technology, we can deliver substantial time savings compared to a manual review.
•  Keep a detailed record of how the consequences of the coronavirus outbreak are impacting your performance – this may be useful in later disputes.
•  Consider carefully the text of any communication or record that is created, working on the basis that what you write may be later scrutinised by the other party’s lawyers and by a court.
•  Beware of creating unhelpful internal documents and maximise the availability of legal privilege, when available in the relevant jurisdiction.
•  Check effective dispute resolution provisions are in place.
•  Consider the longer-term relationship with your counterparties, and whether force majeure, change of circumstances or other principles might be used as leverage to negotiate a sensible commercial solution to current issues.