Due to the latest world events resulting from the pandemic of the new coronavirus, it is evident the economic and legal consequences that will shake the whole society from the suspension of commercial activities in order to contain the viral spread.
An important question at this stage we are facing is how contractual relations will remain given the exceptional situation faced by contracting parties, especially in the case of tenancy relations, one of the most affected sectors and one which demands great care, in view of the possibility of tenants being unable to honour their rents.
One cannot deny the mandatory force of a contract due to the essentiality of legal security, but the judicial review due to extraordinary and unpredictable events, such as a pandemic, which cause an excessively onerous provision, is possible. Therefore, would the theory of unpredictability based on article 317 of the Civil Code apply?
This rule provides for the revision of contracts due to unforeseeable events that cause a manifest disproportion between the value of the provision and the value of its performance, also recalling articles 478 to 480 of the CC, which provide for the contractual rescission due to excessive onerosity due to such events.
In fact, the COVID-19 pandemic may come to characterize an extraordinary and unpredictable event, making the provision become excessively onerous. Current jurisprudence already understands contractual revision in situations like these, but legal security over contracts is still a great and relevant instrument of economic protection.
Thus, what will happen to lease contracts in face of the pandemic's impact? Should tenants continue to pay the rents under the terms agreed upon or is there the possibility of reviewing the rental contracts in force? At the same time, it is also important to change the perspective of analysis and think about the landlords who, most of the time, use the rents as primary income and depend on the revenue for their livelihood, i.e., the revenue from rents is part of their subsistence.
The best situation is to interpret the contractual system as a whole, that is, both parties of the lease agreement will face some type of difficulty and will have to give in, since there is still no ideal scenario. Therefore, what is recommended is an amicable negotiation attempt between the contracting parties to renegotiate the rents with a consensual solution, analyzing the peculiarities of each case, without the need for immediate intervention by the judiciary.
However, if negotiation is not possible, the big question is how the Judiciary will assess the problems that may occur with the lease contracts.
It is already possible to see the normative movements due to the pandemic of the new coronavirus, and among them is a Bill number 1179/2020 made by Senator Antonio Anastasia, which provides for the Emergency and Transitional Legal Regime of Legal Relationships of Private Law in the period of the Coronavirus pandemic (Covid-19), bringing in some of its articles exactly the issue of leases of residential properties.
The bill was approved on April 3, however, with a substitute text seeking to resolve the issue of default in urban lease agreements in this troubled phase. Article 10 of its original text provided that residential tenants who suffer economic and financial alterations, due to dismissal, reduction in working hours or reduction in remuneration, could totally or partially suspend payment of rents due from 20 March until 30 October, and after that period they could pay the rents due in instalments. However, according to the Federal Senate, the ideal is to leave this subject to private negotiations, since the legal system already has tools to authorise contractual revision depending on the case. Therefore, article 10 of the Bill's original text was deleted by the Senate.
In addition, the project also foresees, in its article 9, that no preliminary injunctions will be granted for the eviction of urban real estate. With the vote in plenary, the article was maintained with the exception that eviction actions must be filed after March 20, 2020 and will be valid until October 30, 2020.
Therefore, we must wait for the law to be published to come into force. However, it is worth remembering that, both for residential and commercial leases, the search for negotiation, consensus and self-composition, leaving the judiciary out of the issue is always the best solution for all contracting parties, who must seek reasonableness, balance and agility.
Posted by: TCT Lawyers, updated on: 09/04/2020
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