Coronavirus: Do tenants of commercial premises have to continue to pay their rent when they can no longer carry out their commercial activity there?

Following the entry into force of Ordinance 2 COVID-19, many businesses such as bars, restaurants, hairdressing salons and others are no longer allowed to carry out their commercial activity in order to slow down the spread of the coronavirus. 

As a result, many find themselves short of cash, while bills continue to be issued. Will businesses still have to pay their rent when their premises can no longer be used? We answer that here.

In principle, no! There are several legal grounds for reducing or even abolishing the rent because of the coronavirus measures. 

We will discuss these 4 reasons:

  1. Default of the rented object (Art. 259d CO)
  2. Subsequent impossibility of execution (Art. 119 CO)
  3. Notion of exorbitance (Art 97 al. 1 CO)
  4. Adaptation of the contract by a judge

 

  1. Defect of the rented object 

A rented object is said to be defective when its use in accordance with the contract is hindered. Article 259d of the Swiss Code of Obligations defines it as follows. 

The lessee shall also not be liable for the occurrence of the defect. 

In the situation at hand: If a business premises is rented out, but this activity can no longer be carried out there, then the rented item has a defect. 

The use of the rental can be explicitly mentioned in the contract. However, an implicit reference is also legally valid. 

A defect can be material (dishwasher or broken oven), but also legal. It is to this type of defect that Federal Council Order 2 COVID-19 relates. Indeed, certain commercial premises can no longer be used following its entry into force. 

Faced with a default, the tenant is entitled to request a proportional reduction in the rent, which is then completely abolished. Lawrence advises you to send a written request by registered mail. In order to avoid disputes that could lead to eviction for non-payment of rent, please make sure to explain the reasons. Our lawyers specializing in lease law can draft this letter for you. 

The reduction/removal of the rent is possible, even if the landlord cannot do anything about the default! 

 

This solution is advantageous, because the presence of the default can be reasonably justified in view of the current situation. 

 

  1. Subsequent impossibility of execution

If the lessor is unable to perform after the signing of the lease agreement, this is considered a subsequent impossibility of performance within the meaning of Art. 119 CO. 

The landlord cannot perform his part of the contract, i.e. provide his tenant with business premises, because the latter will not be able to operate them as such.

As the lessor cannot offer the premises defined by the clauses of the lease contract for legal reasons (Ordinance 2 COVID-19), the rent will not be payable. This remains valid even if it is not his fault. 

Under Swiss law, the parties must imperatively fulfill their obligations in order to claim a counter-performance. 

The difficulty with this remedy is the definition of impossibility. This term is highly interpretable, as is the lease contract. It is more difficult to prove an impossibility than a defect, for example, because it is not clearly defined by Swiss law. 

 

  1. The concept of exorbitance

It is also possible to use a “common sense” motive, exorbitance in the sense of Article 97 para. 1 CO. 

Exorbitance complements the concepts of default and impossibility and is used to justify the payment of rent. For example, it may be possible to provide the service, but not to perform it. For example, a certain service cannot be demanded in good faith.

If one studies the situation of the coronavirus, the renting of a commercial premises is certainly possible, but the rent to be paid will not correspond to the tenant’s expectations. It is therefore “exorbitant” to charge the rent fixed in the lease contract. 

It is thus an argument touching on reason and making it possible to solidify the arguments proposed by the default or impossibility of execution.

 

  1. Adaptation of a contract by the judge

It is also possible to have the lease agreement reviewed by a judge. This is possible when the parties are faced with an unforeseeable event that strongly changes the contractual relationship. 

It is clear that the coronavirus crisis is creating an imbalance between landlord and tenant. The latter obtains less cash, but still has to pay the rent for his commercial premises. 

According to the principle of good faith, case law authorizes, in case of force majeure, the adaptation of the contract by a judge, as long as it has not been signed without reserve. 

It will then be up to the judge to study the contract and the situation in order to decide what to do with the rent. 

This method is recommended because the situation undoubtedly allows for the intervention of a judge. It will remain to convince the landlord to submit to it!

 

In conclusion, commercial rents can be reduced or even eliminated. There are various legal remedies and arguments to make this possible. The strategy to adopt will depend on each case. 

Before taking the legal route, we recommend that you try to reach an amicable agreement. Many agencies have already been very understanding in offering rent reductions. Contact your landlord, it is very likely that he understands your situation and will not demand rent from you.

Our Lawrence lawyers will be able to advise you on this subject and take full charge of your case in these difficult times, at a reduced cost!

 

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