COVID-19: Spanish commercial and industrial leases

By virtue of Royal Decree-Law 15/2020 (‘the decree’), published on 23 April 2020, the Spanish government has adopted a moratorium to help tenants of properties devoted to a business activity (including industrial leases) whose activity has been affected by the COVID-19 crisis. For further detail, please see our briefing on the legal implications of COVID-19 for business in Spain (PDF). 

Our briefing on the implications of COVID-19 for Spanish law contracts (PDF) discussed some general principles applicable under Spanish law, such as force majeure and rebus sic stantibus (change of circumstances). 

Among the decree's statements of purpose, the government has expressly mentioned that “… force majeure does not offer an ideal solution because it does not adjust the distribution of risk between the parties, although it may justify contractual termination in the most serious cases… Specific regulations should be provided in line with the "rebus sic stantibus" clause developed by case law, which allows for the modulation or modification of contractual obligations if the required conditions are met...”.

The new rules have been controversial. Taking into account the above, many scholars and legal experts (and not-so-experts) are asking themselves the following three questions.

1. Do the new regulations supersede force majeure and rebus sic stantibus?

Considering the decree focuses on the moratorium of rent payment, in our view it is clear that force majeure does not apply. After all, despite the coronavirus, the bank system and other payment channels are still available.

Regarding rebus sic stantibus, even if it is indeed superseded, the immediate consequences are not clear. The new regulations only affect certain tenants (the self-employed, and small and medium-sized enterprises) and certain landlords (public housing entities or 'large-scale holders') under certain circumstances.

2. Are tenants who do not qualify for the predetermined moratorium under the new regulations entitled to claim that the rebus sic stantibus principle applies?

One answer is that the government regards only certain tenants as being entitled to ask for the rebalancing of the agreement in view of the COVID-19-induced change of circumstances. Therefore it has set out specific regulations in line with the "rebus sic stantibus" clause only for such tenants.

But this answer does not seem reasonable. The decree does not mention, explicitly or implicitly, any such selective entitlement, which would leave non-qualifying tenants in a worse situation than before. The government has never expressed any such intention (at least not publicly) and the consequences of such an interpretation would seem contrary to a long tradition of application of the rebus sic stantibus principle under Spanish law (even given its restrictive application).

3. Are tenants under the scope of the decree limited to requesting the moratorium provided for? Or are they still entitled to claim for a more ambitious rebalancing of the conditions of the agreement under the rebus sic stantibus principle?

Again, the decree does not set out any kind of exception or limitation. That said, the rebus sic stantibus principle has been applied by the Spanish Supreme Court restrictively, so it would be necessary to evidence why an adjustment beyond the decree is required. Courts will in any case take into account the new regulations as a frame of reference.

Finally, we must not overlook the fact that new regulations have been approved 'in the eye of the storm', with the state of emergency still in place. As a result, it is very difficult for the government or indeed anyone to assess the real impact of corona crisis. And the argument that the impact of COVID-19 had been underestimated when the decree was passed could – depending on how events unfold – gain strength . 

The decree was only passed last week, so it is not yet clear what position the courts will take regarding this matter and will probably be some time before the first resolutions are issued. 

It is also possible that additional new regulations could still be passed. For example, some scholars concerned about excessive litigation in the short to medium term are proposing new laws to, among other things, reduce all tenants' rent by an amount equivalent to the reduction of income caused by the COVID-19 situation.