Spain -  Urgent measures to support economic activity in Catalonia Commercial premises

Decree Law 34/2020, which was published last Thursday, October 22nd in the Official Journal of the Catalan Government (Generalitat de Catalunya) and is already in force, takes account of the serious and unpredictable situation created by Covid-19 and, in order to preserve the continuity of business and avoid an increase in litigation, it adopts an expeditious solution, consisting of introducing rules for the modification of contractual conditions in the absence of agreement between the parties.

The rules are applicable to contracts signed from January 1995 onwards, when, as a result of the current pandemic, measures are decreed by the competent authority to suspend the performance of business activity (closure of stores) or to restrict commercial activities (reduction of capacity).

Tenants may ask their landlords for a reasonable and equitable modification of the conditions of their contract in order to re-establish the balance of benefits, all in accordance with the requirements of good faith and fair dealing.

From the moment the landlord receives the request, he must refrain from issuing any invoice for payment by the tenant until the monthly period for negotiating the contractual modification has elapsed or until the date of the agreement, if earlier. If negotiations fail, the following rules apply:

• In the case of the suspension of business activities: the rent and other current amounts owed by the lessee must be reduced by 50%.

• In the case of partial restriction of the material use of the property, the rent and other amounts must be reduced in a proportion equal to 1/2 of the loss of use of the property, objectively measured by the reduction in capacity or hours worked, or by other limitations that may be imposed by law. In other words, if capacity is reduced by 40%, the tenant may deduct 20% of the agreed amounts.

• The tenant can demand that the landlord use any guarantee amounts (guarantees, deposits, etc.) for the total or partial payment of the rent or other amounts that have become due. The security deposit and any other guarantees that have been deposited with the competent official body are excluded. Then, the tenant will have one year from the disappearance of the circumstances that caused the closure or limitation of capacity to restore these guarantees, or until the end of the contract if its duration is shorter.

• The lessee may choose to withdraw from the contract without penalty in the event that the measures taken by the competent authority are prolonged for more than 3 months in the course of a year, provided that he gives one month's notice to the lessor and does so no later than three months after the cessation of the measures.

Decree Law 34/2020 will undoubtedly be the subject of many legal discussions, but what is clear is that, for the time being, tenants can start submitting their requirements by requesting modification of their contractual conditions, without prejudice to any agreements that may have been reached before its entry into force.

Read More News