The consequences of COVID-19 on commercial lease agreements

In pandemic times, is it possible to renegotiate commercial lease contracts?

With the current world pandemic scenario due to COVID-19 (“Coronavirus”) and the consequent State of Public Calamity and Quarantine recently decreed in the State of São Paulo, there is a widespread concern among landlords and tenants of commercial properties regarding the impacts that the pandemic can bring to their respective businesses.

On the one hand, we have the tenant who, as a result of the quarantine decree, had his income drastically reduced or even ceased. On the other side we have the landlord, who often has the values ​​arising from the lease contracts as his primary source of income.

Given this scenario, the best way to avoid greater losses and guarantee the survival of the projects, would be the extrajudicial renegotiation of commercial property lease contracts. It is true that the moment of crisis requires understanding and solidarity from all.

In this sense, Article 18 of Law No. 8,245 / 91 (Tenancy Law) provides that the parties, by mutual agreement, may renegotiate a new rental amount, as well as insert or modify the value adjustment clause. In addition, even if not expressly provided for in the Tenancy Law, in view of the exceptional situation, it is possible for the parties to adjust, for example, a reduction or discount of the rent values ​​for a specific term, corresponding to the sales recession period suffered by the lessee as a result of the compulsory and provisional closure of its establishment.

In addition, the parties are allowed to agree to not readjust this year, among other benefits to the tenant whose establishment was compulsorily closed, all guided by the common sense and good faith of the parties involved, always seeking the economic and financial balance of the contract, in order to prevent one party from bearing greater losses than the other.

However, we know that the ideal scenario for extrajudicial negotiation is not always the case. Given this, the question arises: what to do when the parties do not reach consensus through extrajudicial negotiation?

It is necessary to emphasize that we understand the pandemic due to the Coronavirus as a typical situation of unforeseeable circumstances or force majeure.

Thus, based on the premise that the pandemic resulting from the Coronavirus is a typical exclusion of liability, as provided for in art. 393, sole paragraph, of the Civil Code, the causal link in the obligations and responsibilities arising from the tenant relations directly affected by the pandemic would be broken, even removing the constitution of the debtor in arrears, as provided in art. 396 of the Civil Code.

Notwithstanding the understanding that the Coronavirus is a typical fortuitous or force majeure situation, it is emphasized that the force majeure and the fortuitous case have two basic aspects. The first is that it will only exempt the debtor from losses that he has not expressly taken responsibility for. The second is that it must come from a necessary fact, for example: failing to pay rent, since the establishment had been compulsorily closed, failing to earn enough income to meet its obligations; cause and effect of a Force Majeure that it was not possible to foresee, prevent or prevent in the conclusion of the contract.

Thus, the debtor who is in default before the decree of the quarantine status, should not be covered by the exclusion of liability benefit, as his default arises from reasons other than those caused by the quarantine.

Following the questioning, although in tenant cases the Tenancy Law is applicable, which foresees in its article 19 the possibility of proposing a Revisional Action for rent only after three years of validity of the contract, in view of the exceptional situation, there being no provision in the Law special that deals with the contractual review for unforeseeable reasons, the provisions of art. 317 of the Civil Code, and a Revisional Action of the commercial lease agreement can be proposed based on the Theory of Unpredictability.

The referred article states that: “when, for unpredictable reasons, there is a manifest disproportion between the amount of the installment due and the moment of its execution, the judge may correct it, at the request of the party, so as to ensure, as much as possible, real installment value. ”

In addition, the filing of said Revisional Action is also based on the provisions of articles 478, 479 and 480 of the Civil Code, which, in short, provide that, in the contracts of continuous execution, if the performance becomes excessively burdensome for one of the parties, due to extraordinary and unpredictable events, it is possible to plead for its revision, in order to correct the excessive burden borne by one of the parties.

Thus, notwithstanding the regulatory provisions of the lease contracts provided for in the Tenancy Law, the specifics of the Civil Code must be observed, which complements and regulates what does not contain an express provision in a special law, in order to allow the renegotiation of contract contracts of commercial leases in critical periods

The professionals at Araújo & Policastro Advogados are on hand to give more details about the possibilities of renegotiating lease contracts as a result of the pandemic caused by COVID-19.