Lessees’ attempts to have their rents suspended because of COVID-19 let down by French courts

COVID-19 and commercial lease agreements: Lessees’ attempts to be exempted from paying their rents let down by French courts

To fight against the spreading of COVID-19, the French Government ordered, from 14 March 2020, a shutdown of any establishment open to the public notably bars and restaurants which were closed until 2 June 2020.

In particular, it was no longer possible for such establishments to receive public for on-site catering activities even though they were authorised to organise take-away or "click and collect" sales for their customers.

Similarly, in May 2020, the French Government prohibited the reception of public in tourist residences while providing for an exemption for individuals electing domicile at such residences.

In this context, despite the fact that no suspension or cancellation of rental payments was provided for, some French lessees tried to rely upon civil law exceptions to request a suspension of rental payments in the form of a rent-free period or deferred payments. The main cases for exceptions that were raised involved force majeure and an alleged breach of the lessor’s duty to deliver the real estates.

Most of them were let down by French courts which refused to rule on such cases by way of general rule, holding, for instance, that the shutdown ordered by the French Government would be per se an event of force majeure or could be analysed as a breach of the lessor’s duty to deliver the real estate. French courts adopted a case-by-case analysis with their decisions relying upon an assessment of the lessee and the lessor’s good faith.

This trend in caselaw may be illustrated by two recent decisions of (1) the Presiding Judge of the Paris Commercial Court handed down on 28 October 2020 (Case no. 2020018320) and of (2) the Grenoble Court of Appeal handed down on 5 November 2020 (Case no. 16/04533).

The decision of the Presiding Judge of the Paris Commercial Court handed down on 28 October 2020

In a case where the lessor was assisted by our Paris litigation team, the lessee, a restaurant chain, indicated to the lessor that it refused to pay the rent for 19 rented restaurants for the lockdown period alleging that (i) the lockdown was an event of force majeure and that (ii) the lessor would have breached its duty to deliver the rented real estates.

The lessor initiated summary proceedings before the Presiding Judge of the Paris Commercial Court to request the Court to order the tenant to pay the rents for the 19 rented restaurants for the lockdown period.

By a decision dated 28 October 2020, the Presiding Judge of the Paris Commercial Court followed the arguments of the lessor by holding that it did not breach its duty to deliver the rented real estates since the lessee could use the restaurants – and actually did – to organise take-away and "click and collect" sales for its customers (as acknowledged by bailiff's reports). In addition, the Presiding Judge of the Paris Commercial Court held that this use of the rented restaurants by the lessee also proved that the lockdown did not prevent it from fully performing its activity, so that it was not an event of force majeure.

Lastly, the Presiding Judge of the Paris Commercial Court condemned the lessee’s bad faith against its lessor, considering that it should have negotiated with the lessor before taking such a radical decision.

In addition, it ought to be noted that in two decisions handed down two days before this decision, on 26 October 2020, the Presiding Judge of the Paris Judicial Court ruled in favour of other lessees by dismissing the lessors’ claims for payment of rents. Although the Presiding Judge of the Paris Judicial Court dismissed the lessees’ claims which relied upon force majeure and an alleged breach of the lessors’ duty to deliver the rented real estates, he held that the lessees acted in good faith by seeking an amicable solution with the lessors, so that the lessors’ claims were seriously challenged and the case could not be considered otherwise than on the merits.

Decision of the Grenoble Court of Appeal handed down on 5 November 2020

This case concerns a dispute between a lessee, which rented two apartments in a tourist residence under a commercial lease agreement, and its lessor, which notably alleged that the lessee was in breach of its contractual obligations since it always paid its rent late. During the proceedings on the merits, the lessor brought a new claim for the payment of rents corresponding to the first and second semesters of 2020.

The lessee challenged this claim on the same grounds as those raised before the Presiding Judge of the Paris Commercial Court, i.e. that (i) the prohibition of the reception of public in tourist residences by the French Government in May 2020 was an event of force majeure and that (ii) the lessor would have breached its obligation to deliver the rented premises. In addition, the lessee claimed that the prohibition to receive public in tourist residences ordered by the French Government in May 2020 was a "fait du prince" (i.e. French legal principle similar to force majeure, according to which an administrative act imputable to a contracting administration and unforeseeable at the time of the agreement may incur the liability of the State vis-à-vis its contracting party).

The Grenoble Court of Appeal granted the claim of the lessor with the same reasoning as that of the Presiding Judge of the Paris Commercial Court, holding that (i) the lessee cannot invoke force majeure to be exempted from paying rents since it did not prove that it could not pay, and since it was not prevented from performing any activity, as the law provided for an exemption for individuals electing domicile at such place. As for the alleged breach of the lessor’s obligation, the Grenoble Court of Appeal merely held that (ii) such breach was not proven since there was no provision in the lease agreement under which the lessee would be exempted from paying the rent in case of a low occupancy rate. Lastly, the Court held that the tenant could not claim the principle of "fait du prince" since this principle was not applicable in this case as the lessor was not an administration.

These two decisions seem to indicate that French courts intend to rule on such cases on a case-by‑case basis rather than as a general rule.

However, it ought to be noted that these are the very first decisions to be handed down on this topic relating to the first lockdown period. Other decisions may be handed down in the near future by other courts which may rule differently. Furthermore, to date, such claims have not been brought before the French Supreme Court so that its position is not known yet.

Lastly, on 28 October 2020, i.e. the same day as the decision of the Presiding Judge of the Paris Commercial Court, the French Government ordered a new shutdown for establishments open to the public. In light of the above, there is no doubt other lessees will take their chance to be exempted from paying rents for this new lockdown period and that other courts will have the opportunity to confirm or contradict this trend in caselaw.

Authored by Arthur Dethomas and Nicolas Rohfritsch