In these times when the country's economic situation is affected by the social and health contingency, one of the hardest-hit markets is that of commercial real estate leases. The restrictions decreed by the government have prevented the development of the corporate purposes of micro, small, medium, and large entrepreneurs, in some cases partially and in others entirely.
We face a problem that affects both the lessor who lives off the rents, and the lessee who conducts their business on the premises. Thus, in seeking solutions, the Ministry of Housing, City and Territory announced through Decree 579 of March 15, 2020, some measures aimed at mitigating what happened, which will be in effect from the entry into force of the Decree until June 30, 2020.
These measures include:
- The prohibition of evicting lessees from the premises and suspending any action tending to this;
- The prohibition of making adjustments to the rent higher than the current one, with the condition that once the Decree's term ends, the monthly payments will be paid with the annual adjustment that corresponded, adding to these the percentage value of the increases not charged to date;
- Likewise, it suggests agreeing on special stipulations for the payment of the rent, in which the charging of default interest, penalties, indemnities, or sanctions arising from the law or agreements between the parties is prohibited. Thus, in the event of not reaching an agreement, it will be the lessee's obligation to pay the full rent, and in the event of eventual non-compliance, they will pay the lessor current interest at a rate equivalent to fifty percent (50%) of the Current Bank Interest Rate (TIBC), in the consumer and ordinary modality.
In this regard, it should be considered that the lease contract arises from the autonomy of the private will of the parties, which is recognized to adapt their interests and create rights and obligations. This faculty of autonomy is key to managing situations like the one currently being experienced in our country, so it is essential, in the first instance, to reach a common agreement on solutions that generate a balance for the parties, taking into account the situation they are in.
In this way, force majeure becomes relevant, considered according to article 64 of the Civil Code as “the unforeseen event that it is impossible to resist, such as an earthquake, the capture of enemies, acts of authority exercised by a public official, etc.” Which ultimately is an exemption from liability in the event of breach of contractual obligations, to the extent that its 2 main elements, unforeseeability and irresistibility, are configured and a judge recognizes its existence. This has been stated by the Supreme Court of Justice in a ruling of July 26, 2005, where it indicated the following:
“(…) it is held that according to article 1 of Law 95 of 1890, force majeure or fortuitous event is configured by the concurrence of two factors: a) that the event is unforeseeable, that is, that under normal circumstances of life, it is not possible to contemplate its occurrence in advance. On the contrary, if the event could reasonably have been foreseen, because it is a normal event or of frequent occurrence, such event does not structure the unforeseeable element; and b) That the event is irresistible, that is, that the agent cannot avoid its occurrence nor overcome its consequences.” (emphasis added)
The foregoing indicates that the 2 elements of force majeure must be concurrent for its configuration. Therefore, not all cases of commercial leases arising from the calamity can allege this cause. Undoubtedly, all will have special treatment according to the conditions contractually agreed and the impact that the measures from authority exercised by a public official have had, as is the case of COVID-19.
Thus, to achieve the different agreements, it is important to recognize whether or not the corporate purpose for which the property was leased is being executed, all in accordance with the exceptions of the most recent Decree 531 of March 2020, in which some sectors of the economy have their operation conditioned or prohibited.
In such a way, if the commercial purpose is being partially executed on the premises, it will be possible to reduce the rent to what the parties consider prudent and according to the income that the lessor is generating. In this case, proving force majeure will depend on particular circumstances, which suggest that the lessor did everything within their power to exploit their commercial purpose, but the contingencies prevented it. In this regard, the Supreme Court of Justice determined that “When the same conditions of the defendant and given the nature of the event, no other person could have faced its disturbing effects. In such conditions, it would not be viable to deduce liability, since no one is obliged to the impossible” (CSJ SC1230-2018, 25 Apr.).
But if, on the other hand, the property is not being used for any commercial activity, the main reason for which the lease contract originated would be distorted, opening different possibilities such as termination of the contract due to force majeure, relying on the fulfillment of its 2 elements (irresistibility and unforeseeability); extension with a considerable decrease in the monthly rent, since it would not be fair to acquire the obligation to face over time the full payment of money that never entered the business model; and finally the total forgiveness of the rent, while the health emergency lasts, this being the ideal but most complex scenario.
Whatever the agreement, it must be made through a written document or other instrument that makes clear the modifications or commitments acquired regarding the lease contract and avoids future litigation or controversies. Force majeure cannot be an excuse for non-compliance; on the contrary, it must be an instrument that contributes to negotiation, provided there are solid arguments that allow it to be alleged in the face of the impossibility of fulfilling obligations.
Undoubtedly, it is a time that requires tact and awareness to understand the situations surrounding the parties, always keeping in mind that through the agreement of wills, what is desired can be achieved, as long as one does not act against public order, good customs, and of course the interests of each party.
Author: Sebastian López l Attorney Consultant AZC