Covid-19 and time extension measures: have commercial leases been forgotten?

22/04/20
Covid-19 and time extension measures: have commercial leases been forgotten?
 

Law No. 2020-290 of 23 March 2020

Ordinance No. 2020-306 of 25 March 2020

Ordinance No. 2020-427 of 15 April 2020

Report to the President of the Republic on Ordinance No. 2020-306 of 25 March 2020

Report to the President of the Republic on Ordinance No. 2020-427 of 15 April 2020

Circular of 26 March 2020 presenting the provisions of Title I of Ordinance No. 2020-306 of 25 March 2020

      Since a state of health emergency has been declared for a period of two months from the entry into force of Law No. 2020-290 of 23 March 2020, i.e. through May 24 as it stands, the Government decided an extension of a number of deadlines due to expire during the period of health emergency. The matter is currently governed by Ordinances No. 2020-306 of 25 March 2020 and No. 2020-427 of 15 April 2020.  

1 - For example, according to Article 5 of Ordinance No. 2020-306 of March 252020:

In the event that an agreement can only be terminated during a specified period or that it is renewed without notice within a specified deadline, this period or deadline shall be extended, if it expires during the period defined in paragraph I of Article 1, for two months after the end of this period.’   Is this text applicable to notices for leave or to requests for renewal that may be filed in respect of commercial leases and that both have the effect of terminating them (Article L. 145-9 of the Commercial Code)?   First of all, it is necessary to clarify the scopes rationae temporis and rationae loci together with the effects of this provision.
  • On the scope ratione temporis: periods or deadlines concerned are those expired or due to expire between March 12, 2020 and one month following the lift of the state of public health emergency, i.e. 24 June 2020 (the ‘protected period’).
  • On the scope ratione loci: in addition to mainland France, this provision is applicable to the islands of Wallis and Futuna. However, it is not in force in French Polynesia and New Caledonia.
  • On the effects: this provision provides for an extension of the periods or deadlines applicable to terminate or revoke the lease agreement, which would have expired during the ‘protected period’ for a period of two months after the expiry of the ‘protected period’, i.e. as it stands until 24 August 2020.
  More specifically, with respect to the issue at hand, which falls within the scope ratione materiae of this measure, the latter is applicable to those agreements which:
  • can only be terminated during a specified period of time; or
  • are renewed without notice within a specified term.
  1-1 It should first be noted that commercial leases do not seem to fall within the category of ‘agreements (...) renewed without notice within a specified period of time’, except in the case of specifically agreed contractual arrangements (in particular a promise by the lessor to renew under the same terms and conditions). Indeed, failing a notice for leave or a request for renewal issued at the end of the lease, the written lease is not renewed, unless otherwise stipulated, but tacitly extended (Article L. 145-9 of the Commercial Code). In other words, it is standard procedure for a commercial lease to continue after its term for an indefinite period, with each party having the faculty, during its tacit extension, to issue a notice for leave at any time.   1-2 On the other hand, it is questionable whether commercial leases are likely to fall into the category of agreements that ‘may only be terminated during a specified period’, particularly in view of the time limits applicable to notice for leaves and requests for renewal. A brief reminder of the main features of the system, subject to a number of contractual arrangements (e.g. longer notice periods for the notices for leave), is as follows:
  • With respect to a notice for leave issued by the lessor or the lessee at the lease term: at any time, except in cases of abuse, at least 6 months before the term. In the event of lateness, the notice for leave is not void but will take effect during the period of tacit extension, at least six months after its issuance and for the last day of the calendar quarter (Article L. 145-9 of the Commercial Code).
  • In the case of a notice for leave issued during the period of tacit extension by the lessor or the lessee: at any time, at least six months in advance and for the last day of the calendar quarter (Article L. 145-9 of the Commercial Code.).
  • With regard to a notice for leave that may be issued by the lessee who has applied for his retirement rights under the pension scheme to which he is affiliated or who is eligible for a disability allowance granted under that scheme: at any time, at least six months before the date of leave (Article L. 145-4 of the Commercial Code).
  • In the event of a notice for leave issued at the end of a three-years period by the lessor or the lessee: at any time, except in cases of abuse, at least six months before the end of the three-year period concerned (Article L. 145-4 of the Commercial Code). In the event of lateness, leave is not null and void but will take effect at the end of a forthcoming three-years period or at the next useful deadline (Cass., 3rd civ., 7 July 1975 - 10 February 2015 - 16 December 2014).
  • Concerning the request for renewal delivered by the lessee in view of the lease term: during the 6 months preceding the term (Article L. 145-10 of the Commercial Code).
  • In the event of a request for renewal issued during the period of tacit extension by the lessee: at any time with effect from the first day of the calendar quarter following the issuance of the request (Articles L. 145-10 and L. 145-12 of the Commercial Code).
  Some of these deadlines may appear to be equivalent to notice periods (end of lease notice for leave to be delivered at least 6 months before the lease term, for example). Others seem to frame the periods during which the right to terminate the lease may be exercised, which may seem to be either broadly defined (right to terminate the lease at any time through the issuance of a notice for leave or of a request for renewal during the period of tacit extension) or more limited (right to request the renewal of the lease in view of its term only in the last 6 months preceding it).   However, Article 5 of Ordinance No. 2020-306 of 25 March 2020 is applicable ‘when an agreement can only be terminated during a specified period. Strictly speaking, this text refers only to the sole right to terminate an agreement within a specified period and not to the notice periods that may be attached to it.   An example of the application of this provision, provided under the terms of a Circulardated 26 March 2020 presenting the provisions of Title I of Ordinance No. 2020-306 of 25 March 2020, may also be enlightening:   ‘An insurance policy has been arranged. In the event of specific events, Article L. 113-16 of the Insurance Code allows each of the parties to cancel the contract within three months of the date of the event. If the event occurred on 20 December 2020, the period for cancellation expires on 20 March, i.e. during the legally protected period provided for under Article 1 of the Ordinance. Consequently, each party will still be able to terminate the contract within two months of the end of this period, i.e. within three months of the end of the state of emergency.’   This example does indeed concern a case in which the agreement is not renewed without notice and in which it is the very right to terminate which is limited in time, independently of any notice. This example evidences that the scope of the measure covers agreements for which the right to terminate is limited in time.   Some of these periods appear to be equivalent to notice periods (end-of-lease notice for leave to be delivered at least six months before the term, for example). Others seem to provide a framework for the periods during which the faculty to terminate the lease may be exercised, which may appear to be either broadly defined (faculty to terminate the lease at any time as to notices for leave or requests for renewal delivered during a tacit extension period) or more limited (faculty to request renewal of the lease with a view to its term only in the last six months preceding it).   Can it then be considered that the faculties to issue a notice for leave or a request for renewal constitute faculties to terminate the lease ‘only during a specified period’?   This seems at first sight to be difficult in most cases regarding end-of-lease notices for leave, notices for leave in view of retirement rights and requests for renewal. Indeed, since the lease that has reached its term is, unless otherwise stipulated, tacitly extended for an indefinite period, and since, in the course of a tacit extension period, both the notice for leave and the request for renewal may be issued at any time, it would seem that the period during which they may be delivered may be ‘indefinite’:
  • In the event of a notice for leave, this period could indefinitely be extended beyond the term of the lease;
  • in the event of a request for renewal, this period could indefinitely be extended beyond the last six months of the lease.
On the other hand, it could be argued that a notice for leave at the end of a three-years period could only be issued for a specified period corresponding to the duration of the three-years period reduced by 6 months and 1 day.   However, it seems that it is not the faculty to issue the notice for leave but the more general right to terminate the agreement which should only be exercisable ‘during a specified period’. In particular, it could be argued that late termination of the lease at the end of one three-years period will in any event take effect at the end of the following period, so that it would be hasty to consider that the lease could only be terminated ‘during the period in question’. Should this be the case, the difference in treatment with the three-years residential lease which, failing a notice for leave, would be tacitly renewed for the same period but which could, on the other hand, benefit from Article 5 of Ordinance No. 2020-306 of 25 March 2020 because of its tacit renewal, is likely to be badly perceived in practice.

2- Could it then be considered that commercial leases would be likely to fall within the scope of Article 2 of Ordinance No. 2020-306 of 25 March 2020 as amended by Ordinance No. 2020-427 of 15 April 2020 under the terms of which:

‘Any act, appeal, legal action, formality, registration, declaration, notification or publication prescribed by law or regulation under penalty of nullity, penalty, lapse, foreclosure, prescription, unenforceability, inadmissibility, lack of effects, automatic withdrawal, application of a special regime, nullity or lapsing of any right whatsoever and which should have been accomplished during the period mentioned under Article 1 shall be deemed to have been done in time if it has been done within a period which may not exceed, as from the end of that period, the time legally prescribed for taking action, within a limit of two months.’ Under the terms of the Report submitted to the President of the Republic relating to Ordinance No. 2020-427 of 15 April 2020:   ‘Article 2 is intended to clarify the meaning and scope of Article 2 of Ordinance No. 2020-306 of 25 March 2020. Article 2 of this ordinance does not constitute a suspension, or an extension of the time limit initially set for taking action. The mechanism implemented by this article simply allows the act or formality carried out up to the end of the initial period, calculated from the end of the period referred to in Article 1 (state of public health emergency + one month), within the limit of two months, to be deemed validly accomplished. The aim is to enable what could not have been done during the period of public health emergency plus one month to be accomplished a posteriori (and as if the deadline had been met). This mechanism can only apply if the time limit for action is ‘prescribed’ by statute or regulation, ‘under penalty’ of a penalty or forfeiture of a right.’   However, there is no penalty for late termination of a commercial lease. Moreover, since the termination of the lease is only delayed, it may seem difficult to consider that the right to terminate the contract unilaterally would be forfeited as a result. The same could be considered to be true of a request for renewal which, presumably late in relation to the term of the lease, will only have its effects deferred.   There would, however, be a case in which it could be considered that the delayed request for renewal or the delayed notice for leave would entail the ‘forfeiture of a right’ for one or other of the parties. This would be that of a lease with a contractual duration of 9 years governed by Articles L. 145-33 and L. 145-34 of the Commercial Code in the absence of a clause to the contrary, which by the effect of a tacit extension, would approach an effective duration of 12 years. Indeed, the rent of such a renewed lease is subject to the principle of capping according to the index variation, provided that its effective duration does not exceed 12 years, since then the rent of the renewed lease would, by the effect of the law, be set at the rental value (Article L. 145-34 of the Commercial Code). Depending on whether this rental value is higher or lower than the amount of the capped rent, either of the parties who do not terminate the lease before it exceeds an effective duration of 12 years will be deprived of the faculty to avail themselves of the principle of capping the rent of the renewed lease.   It remains to be determined, however, whether such a facultywould be considered a ‘right’ within the meaning of Article 2 of Ordinance No. 2020-306 of 25 March 2020.   In the end, it would appear that the commercial leases have, with rare exceptions that remain to be clarified in any event, generally been forgotten by the governmental measures enacted under the terms of Ordinances No. 2020-306 of 25 March 2020 and No. 2020-427 of 15 April 2020. This is regrettable in view of the extended postal delays and the more difficult delivery of extrajudicial documents. For this reason, it can only be recommended that any person wishing to issue a notice for leave or a request for renewal during the health emergency period should anticipate this step as much as possible and not count on the benefit of the governmental measures for extending deadlines, as they are currently drafted.     [interne id="44073"]
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