Covid-19 | Payment of rent and water/gas/electricity bills for professional premises leased by businesses

Version updated on 15 May 2020

Emergency Law No. 2020-290, adopted on 23 March 2020 to tackle the Covid-19 epidemic, authorises the French government to introduce measures “enabling microenterprises […] affected by the spread of the epidemic to defer in full or spread the payment of rent and water, gas and electricity bills for professional or commercial premises without suffering the financial penalties and suspended, interrupted or diminished service normally applicable in the event of non-payment” (Article 11(I)(1)(g)). The emergency law specifies that the Government can make these measures applicable retroactively to 12 March 2020 where necessary and can legislate in such respect by means of ordinances.

Accordingly, on 25 March 2020, the Government issued Ordinance No. 2020-316 (available in French here) (the “Business Premises Ordinance”). Under the Business Premises Ordinance, provided they satisfy certain conditions, tenants of professional or commercial premises can benefit from special protective measures regarding the payment of: (i) rent and tenancy charges owed under their leases, and (ii) their electricity, gas and water bills.

An implementing decree was subsequently added to the Business Premises Ordinance (Decree No. 2020-378 of 31 March 2020, available in French here). It incorporates, by reference, certain provisions of Decree No. 2020-371 of 30 March 2020 on the solidarity fund set up for businesses particularly affected by the economic, financial and employment repercussions of the Covid-19 epidemic (the “Solidarity Fund”). This latter Decree was amended by Decree No. 2020-394 of 2 April 2020, then by Decree No. 2020-433 of 16 April 2020 and available in French here), and most recently by Decree No. 2020-552 of 12 May 2020 (available in French here). As a result, in order to ascertain which businesses can benefit from the Government’s new measures, we need to consult all the above-mentioned decrees.

Furthermore, and in accordance with subsection I of Article 1 of the Law No. 2020-546 of 11 May 2020, the state of public health emergency declared by Article 4 of the Law No. 2020-290 of 23 March 2020 to tackle the Covid-19 epidemic has been extended until 10 July 2020 inclusive.

ELIGIBILITY

Based on the relevant legislative instruments, as detailed above, it transpires that the protective measures of the Business Premises Ordinance regarding payment of rent and water/fuel bills are in fact only available to tenants that are “French tax resident private individuals or legal entities operating an economic activity” and that “satisfy the conditions and criteria defined under paragraphs 1 and 3 to 8° of Article 1 and under paragraphs 1 and 2 of Article 2 of Decree No. 2020-371 aforementioned”.

However, it should be noted that paragraphs 1, 6 and 8 of Article of this Decree have been repealed, so that for these private individuals or legal entities to benefit from the provisions set out in the Business Premises Ordinance, they shall meet the following cumulative conditions:

1. Not be in compulsory liquidation as of 1 March 2020;
    
2. Have no more than ten employees (threshold calculated as set out under Article L.130-1(I), French Social Security Code);
    
3. Have a turnover of less than EUR1,000,000 in the last financial year (or, for businesses that have yet to complete a full financial year, average monthly revenue of less than EUR83,333 between their date of establishment and 29 February 2020);
    
4. If constituted as an association, be subject to corporate tax or employ at least one employee;
    
5. Not be controlled by a commercial company (as defined under Article L.233-3, French Commercial Code);
    
6. Business either (i) banned from opening to the public between 1 March 2020 and 31 March 2020, or (ii) having suffered revenue losses of at least 50% (down from the 70% initially announced) over the period between 1 March 2020 and 31 March 2020 as compared to:

• the same period in 2019; or
• for businesses established since 1 March 2019: their average monthly revenue over the period between their establishment and 29 February 2020; or
• for individuals who were on sick leave or maternity leave between 1 March 2019 and 31 March 2019 or legal entities whose owner was on sick leave or maternity leave over the same period: their average monthly revenue between 1 April 2019 and 29 February 2020.

It is in theory possible to interpret the two conditions indicated by (i) and (ii) under point 6 above as being cumulative: Article 1 of Decree No. 2020-378 of 31 March 2020 refers to subsections 1 “and” 2 of Article 2 of Decree No. 2020-371, despite the fact that they appear in this latter Decree as alternative conditions (separated by “or”). However, in view of the Government’s objectives and the wording of Article 2 of Decree No. 2020-371 of 30 March 2020, we believe they should be treated as alternative rather than cumulative conditions.

In order to demonstrate that they satisfy the above cumulative conditions and are therefore eligible for the protective measures provided by the Business Premises Ordinance, individuals and legal entities aforementioned shall produce:

(i) a sworn statement affirming that:

• the business satisfies the above criteria,
• all information declared is accurate, and
• the business was up-to-date with all of its tax and social security payments at 31 December 2019 (unless it had agreed a payment plan with the relevant authorities); and

(ii) acknowledgement of receipt of an application for financial aid from the Solidarity Fund.

In view of the second point above, in order to be able to benefit from the Business Premises Ordinance, private individuals and legal entities must not only be eligible for aid from the Solidarity Fund but have actually applied for such aid. Applications should have been submitted online at the latest on 30 April 2020 (unless exceptions apply), together with the above-mentioned sworn statement, an estimate of the business’s revenue losses and its bank details.

Any “private individuals or legal entities operating an economic activity” whilst in bankruptcy, safeguard or insolvency proceedings can still benefit from the measures of the Business Premises Ordinance provided they supply a statement from one of their court-appointed administrators. The criteria for such cases and the documentation to be supplied requires further analysis.

Note that although the French Parliament had initially specified that microenterprises (as defined under Decree 2008-1354 of 18 December 2008: i.e. enterprises with no more than 10 employees and annual turnover or a balance-sheet total of less than EUR 2 million) would be allowed to benefit from the specific measures on payment of rent and tenancy charges, the Business Premises Ordinance and its first implementing decrees have added conditions that significantly restrict the scope of application of these measures. However, Decree No. 2020-433 of 16 April and Decree No. 2020-552 of 12 May 2020 have relaxed eligibility criteria for the Solidarity Fund and, consequently, the conditions for benefiting from the provisions of the Business Premises Ordinance.

PAYMENT OF RENT AND TENANCY CHARGES

The Business Premises Ordinance provides that “financial penalties, late-payment interest, damages, fines, termination or penalty clauses or clauses providing for the forfeiture or activation of any security deposits or guarantees” will not apply to any eligible businesses that fail to pay rent or tenancy charges (i) on their professional or commercial premises when (ii) payable between 12 March 2020 and the end of two months after the state of public health emergency has been lifted. This corresponds to midnight on 10 September 2020 at the very earliest, given that emergency law 2020-290 of 23 March 2020 stipulated that the state of public health emergency would be lifted at midnight on 23 May 2020, this has been extended by the Law No. 2020-546 of 11 May 2020 until 10 July 2020 inclusive, subject to a new extension or early termination).

Accordingly, although the Business Premises Ordinance does not expressly authorise tenants to miss rent payments, it protects them if they do so, by preventing landlords from implementing the remedies or guarantees available to them under the relevant lease for any non-payment of rent or tenancy charges over the period in question, thus overriding any lease terms in this respect.

We also note that:

• the Government has expanded the scope of this measure to encompass “tenancy charges” (whereas the emergency law referred solely to “rent”), but does not clarify the practical terms for the deferral or spreading of payments;
• the Business Premises Ordinance does not specify whether the landlord’s remedies for non-payment will be “unblocked” at a later date (and if so, when). It is in fact entirely possible that landlords may end up having to forfeit any unpaid rent and tenancy charges for the above-mentioned period.

PAYMENT OF ELECTRICITY, GAS AND WATER BILLS

On a similar basis, the Business Premises Ordinance also prevents utility suppliers from suspending, interrupting or diminishing service or terminating contracts for the supply of electricity, gas or drinking water to the above-mentioned eligible businesses further to any non-payment by the latter of their bills between 26 March 2020 and the end of the state of public health emergency (i.e. midnight on 10 July 2020 at the earliest). Moreover, it prohibits electricity suppliers from reducing the wattage supplied to such businesses over the same period.

One point on which the provisions of the Business Premises Ordinance on payment of water and fuel bills differ from those regarding rent and tenancy charges is that suppliers are required to grant any requests from eligible business clients for deferral of payment instalments due between 12 March 2020 and the end of the state of public health emergency and cannot claim any financial penalties, costs or compensation from their clients in such respect. In such cases, payment of the deferred sums is to be spread equally between the subsequent instalments owed over a period of no less than six months starting from the end of the month after the state of public health emergency is lifted.

Note: in respect of rent and water/gas/electricity bills for business premises, in addition to the above-mentioned provisions and the legal mechanisms available under ordinary French law on private contracts (i.e. force majeure, statutory hardship (imprévision), good faith, court-ordered payment extensions, etc.), Ordinance 2020-306 of 25 March 2020 on the extension of deadlines and adjustments to legal proceedings during the state of public health emergency, as amended by Ordinance No. 2020-427 of 15 April 2020 (available in French here) lays down a general provision that is not, in theory, subject to any conditions in terms of eligibility and by the Ordinance No.2020-560 of 13 May 2020 (available in French here)

Thus, Article 4 of Ordinance No. 2020-306 of 25 March 2020 (as amended by Ordinance No. 2020-560 of 13 May 2020) provides in particular that “any fines or penalty, termination or forfeiture clauses, when applicable in the event of non-performance of an obligation by a specified deadline, will be deemed ineffective or not triggered for any deadlines falling [between 12 March 2020 and  23 June 2020 inclusive]”. It also specifies that “if the debtor fails to perform its obligation, any such fines or clauses will only resume their full force beyond such date after a period i.e. from 24 June 2020, equal to that between 12 March 2020 (or the date on which the obligation was created, if later) and the date on which the obligation should have been performed.”

Ordinance No. 2020-306 nonetheless stipulates that its provisions do not apply “to any deadlines or measures that are already covered by other adjustments made under or resulting from the emergency law adopted on 23 March 2020 to tackle the Covid-19 epidemic”.

We note in particular that:

• under Ordinance No. 2020-306, landlords seeking to apply contractual remedies for non-payment of any sums due under their leases can in theory still do so, but the effects of such remedies will be postponed until after 24 June 2020 on a pro rata basis (as opposed to after a “fixed” period of two months as from the date on which the state of public health emergency is lifted, as had previously been decreed);
• paradoxically, the provisions of Ordinance No. 2020-306, to which tenants that do not satisfy the eligibility criteria for the Business Premises Ordinance may turn, are actually more accessible and simpler to implement than the Government’s measures designed specifically to protect the VSBs most affected by the crisis.

♦ ♦ ♦

Gide’s Real Estate Transactions & Financing practice group is available to answer any questions you may have in this respect. You may also get in touch with your usual contact at the firm.

This legal update is not intended to be and should not be construed as providing legal advice. The addressee is solely liable for any use of the information contained herein and the Law Firm shall not be held responsible for any damages, direct, indirect or otherwise, arising from the use of the information by the addressee.

>> Click here to read the legal updates of Gide’s multidisciplinary taskforce set up to answer all your legal issues relating to Covid-19.