Global menu

Our global pages

Close

Coronavirus – Commercial leases in shopping centres – France

  • France
  • Coronavirus
  • Coronavirus - Country overview

20-03-2020

Clients engaged in the commercial real estate sector are wondering about the impact of the coronavirus outbreak on commercial leases already in place, more specifically in shopping centres.

The information below describes the main rights and obligations of the tenant and of the landlord which, from our point of view and regarding the situation known as of today, might be impacted.

This memorandum is based on consideration of provisions we have negotiated previously for some retail leases in commercial centres. It does not intend to pretend to be general and it remains essential for clients to seek detailed and specific advice in regards to the provisions of their specific commercial leases.

The elements in this memorandum are based on the sanitary situation in France at the date of drafting.

As the situation evolves rapidly and as we do not know what will be the next governmental measures adopted, the content of this memorandum might have to be re-evaluated on a regular basis.

Landlord Covenant for Quiet Enjoyment

Basis for the rule (law, market practice….): under article 1719 of the French Civil Code, landlords have to ensure proper delivery and quiet enjoyment of the premises, which is also a usual provision in leases.

Applicability in the current context: the closure of stores not essential to French living, enforced by the French government, following the coronavirus pandemic appears to constitute a case of force majeure, in application of article 1218 of the French Civil Code (cf below: Force Majeure).

Consequently, the performance of this obligation could be rightly suspended by landlords.

Landlord Covenant to Provide Services

Basis for the rule (law, market practice….): leases usually provide for a clause on services due by landlords to their tenants, such as cleaning of the common areas, advertising etc.

Applicability in the current context: the closure of stores not essential to French living, enforced by the French government, following the coronavirus pandemic appears to constitute a case of force majeure, in application of article 1218 of the French Civil Code (cf. below : Force Majeure).

Consequently, the performance of this obligation could be rightly suspended by landlords.

Landlord’s right to terminate the lease (termination provision)

Basis for the rule (law, market practice….) : In-line with article L 145-41 of the French Commercial Code, the landlord is entitled to terminate the lease agreement if the tenant fails to fulfil only one of the charges and conditions of the lease, or to pay a single instalment or fraction of an instalment of the rent or occupancy indemnity and/or the ancillary payments on their due date, or in the event of non-fulfilment of one of the conditions and obligations of the Lease, one month after a notice to pay or a summons remaining without effect for one month.

Applicability in the current context: landlords will have issues to activate the termination provision of the lease, according to us, if the tenant does not comply with the obligations of the lease which could legitimately be suspended as regards the Force Majeure theory (cf. below: Force Majeure).

Rent and charges payment

Basis for the rule (law, market practice….): obligation under article 1728 of the French Civil Code. Usually in French shopping centres, rent is partly based:

  • on a fixed amount
  • on a variable amount, equal to a percentage of the turnover calculated

Applicability in the current context: tenants must pay rent and charges at due date. However, this obligation could eventually be suspended (in a limited period of time) if the tenant could demonstrate that in the actual pandemic context, it was prevented from doing so and that the events were irresistible as provided by article 1218 of the French Civil Code (cf. below: Force Majeure). From our point of view, it could be difficult for global corporations to justify a suspension of rents and charges but this would depend on the appreciation of the factual elements of each case by the judges (the courts being sovereign for such appreciation).

In addition, the French President declared on 16 March that rent would be suspended for struggling small businesses (PME). A decree would be welcome to describe accurately the measures to be taken.

In any case:

  • tenants can still try and seek to negotiate rent reductions and abatements, which will depend on the good will of the Landlord
  • tenants shall analyse its insurance “loss of exploitation” if any

Trade and Operating Obligation

Basis for the rule (law, market practice….): In-line with article L145-1 of the French Commercial code, tenants shall operate within the store during the performance of the lease.

In addition, some leases provide that tenants must maintain the premises in a permanent and total state of actual and normal operation; accordingly: stock the store with a complete and sufficient variety of merchandise, maintaining sufficient staff in order to provide clients with adequate service, open and close the store at fix hours.

Applicability in the current context: the closure of stores not essential to French living, enforced by the French government, following the coronavirus pandemic appears to constitute a case of force majeure, in application of article 1218 of the French Civil Code (cf. below: Force Majeure).

Consequently, the landlord could not blame the tenant if during this period, it does not open its store, has not sufficient stock and staff.

Maintenance and Repair Obligations

 Basis for the rule (law, market practice….): obligation under article 1714 of the French Civil Code. The parties may provide for a specific clause, that can differ from the legal text.

Indeed, most leases provide that tenants have to ensure the correct maintenance, operation, safety and cleanliness of the premises and its immediate surroundings, windows, accessories, equipment and storefront, to renovate and repaint them as often as necessary and, if relevant, replace anything that cannot be repaired and keep the installations of any type, in good operating condition.

Applicability in the current context: The closure of stores not essential to French living, enforced by the French government, following the coronavirus pandemic appears to constitute a case of force majeure, in application of article 1218 of the French Civil Code (cf. below: Force Majeure).

Consequently, the landlord could not blame the Tenant if during this period, it would not be able to perform this obligation.

Right to renegotiate the lease (rent in particular) by the tenant

Basis for the rule (law, market practice….): Article 1195 of the French Civil Code develops the theory of hardship and the possibility for the co-contractor affected by the imbalance to renegotiate the contract or even refer the matter to the court to revise or terminate the contract, subject to certain reservations, in order to avoid unforeseeable imbalances (cf. below: Hardship theory).

However, most frequently, commercial leases provide that each Party assumes the risk of changing circumstances, unforeseeable on the signing date hereof, even if this would render the fulfilment of the Lease excessively expensive for it, while waiving the provisions of article 1195 of the French Civil Code.

Applicability in the current context: from our point of view, at this stage and as regards the usual drafting of leases we have seen, the theory of hardship might not justify a renegotiation of the conditions of the leases (cf. below: Theory of Hardship).

Automatic termination of the lease

Basis for the rule (law, market practice….): most frequently, commercial leases provide that tenants can only terminate the lease in case of a serious default from their landlords.

However, in some cases, the lease can be automatically terminated on the basis of article 1218 of the French Civil Code and the force majeure.

Applicability in the current context: Article 1218 of the French Civil Code states that the if the effects are temporary, the performance of the obligation is suspended unless the delay resulting therefrom justifies termination of the contract. If the effects are definitive, the contract is automatically terminated and the parties are discharged from their obligations (without damages being due) (cf. below: Force Majeure).

According to us, the effects of the coronavirus event are not definitive. Consequently, in the current situation, we do not consider leases to be automatically terminated on this basis.

Force majeure under French Law

Article 1218 of the Civil Code (applicable to contract signed after entry into force of ordinance dated 10 February 2016) defines force majeure as: “the occurrence of an event which is beyond the control of the obligor, which could not have been reasonably foreseen at the time of the entry into of the contract and the effects of which cannot be avoided by appropriate measures and which prevents performance of its obligation by the obligor.

“If the effects are temporary, the performance of the obligation is suspended unless the delay resulting therefrom justifies termination of the contract. If the effects are definitive, the contract is automatically terminated and the parties are discharged of their obligations (without damages being due).”

The parties may provide for a specific clause on the force majeure, whose terms can differ from its legal definition with a list of exclusions or a restrictive list of events considered as force majeure.

French case law in relation to disease outbreaks had a tendency to reject the qualification of force majeure (Court of Appeal of Besançon, January 8th, 2014 – n°12/02291 ; Court of Appeal of Nancy, November 22nd, 2010 – n°09/00003 ; Court of Appeal of Basse-Terre, December 17th, 2018 – n°17/00739).

In regards to article 1218 of the French Civil Code, the pandemic of coronavirus seems however to meet the requirements of force majeure, unlike previous epidemics and pandemics.

Indeed, the coronavirus puts people with pre-existing health problems and older people at risk of severe and life-threatening effects, without any treatment having been found at this stage.

The virus is thought to be spread by coughs and via contaminated surfaces, such as handrails and door handles in public places.

As a consequence, China and Italy, and now France are on lockdown to curb the coronavirus epidemic.

In France, from March 17, 2020, you can only go out to work if you cannot do otherwise, to shop for groceries, for health reasons.

At this stage, it appears that (i) the coronavirus is beyond the control of the debtor, (ii) could not have been reasonably foreseen for commercial leases which were signed before the outbreak and (iii) the effects of which cannot be avoided by appropriate measures and which prevents performance of its obligation by the debtor.

In view of the above, you could assume that coronavirus was an unforeseeable and irresistible event constituting a force majeure case but this is subject to court decisions.

It is probable that tenants will not be able to claim validly coronavirus as a force majeure case to justify the non-payment of rent unless they are able to strongly demonstrate they were prevented from doing so because of the circumstances. And precisely, the judges will have to appreciate in concreto the factual situation in each case, bearing in mind that the judges are sovereign for such appreciation.

The theory of hardship under French Law

Following the entry into force of Ordinance No. 2016-131 dated 10 February 2016 reforming the general regime of French contract law, and rules of evidence (that is for contracts entered into after October, 1st 2016), new article 1195 of the French Civil Code enshrined the theory of hardship and the possibility for the co-contractor affected by the imbalance to renegotiate the contract, or even refer the matter to the court to revise or terminate the contract, subject to certain reservations, in order to avoid unforeseeable imbalances.

To do so, three conditions have to be met:

  • unforeseeability occurs where there is an “unforeseeable” change in circumstances at the time of signing the contract
  • the unforeseeability makes the performance thereof “excessively onerous” for a party
  • the party has not accepted to bear the risk of such excessively onerous performance

If all these conditions are met, the affected party may in particular ask its co-contractor to renegotiate the contract. The party must nevertheless continue to perform the contract during the negotiations.

As for the force majeure situation above, the judges will have to appreciate in concreto the factual situation in each case, bearing in mind that the judges are sovereign for such appreciation.

Click here to download the briefing

For more information contact

< Go back

Print Friendly and PDF
Subscribe to e-briefings