Article 14 of the Law provides, for certain lessees exercising an economic activity affected by an administrative policy measure and meeting eligibility criteria to be defined by an implementing decree, for the neutralisation of contractual penalties and legal remedies available in principle to lessors to recover unpaid rent and rental charges during the period in which the economic activity is affected (the "Neutralisation Measures").

However, the start and end dates for the application of such Neutralisation Measures raise certain practical questions. For its part, the relationship between the Neutralisation Measures and the provisions of Ordinances No. 2020-306 and No. 2020-316 of 25 March 2020 should not, in theory, pose any particular difficulty.

Note: Article 14 of the Law also contains provisions relating to the suspension, interruption and reduction, including by termination of contract, of the supply of electricity, gas or water to lessees benefiting from the Neutralisation Measures for non-payment of their bills. These provisions are not discussed in this note.

MATERIAL SCOPE OF NEUTRALISATION MEASURES

Beneficiary lessees

The Neutralisation Measures apply to lessees meeting the following cumulative conditions:

1. be a natural or legal person of private law;

2. carry out an economic activity "affected by an administrative policy measure taken in application of paragraphs 2° or 3° of section I of Article 1 of Law No. 2020-856 of 9 July 2020 organising the end of the state of public health emergency, or of paragraph 5° of section I of Article L.3131-15 of the Public Health Code, including when it is taken by the representative of the State in the département (region) in application of the second paragraph of section I of Article L.3131-17 of the same code";

3.    meet "eligibility criteria" that will be specified in an implementing decree, it being specified that this decree will determine "the workforce and turnover thresholds of the persons concerned, as well as the threshold for loss of turnover recorded as a result of the administrative policy measure^[1]".

The "administrative policy measures" referred to in Article 14 of the Law are mainly those that:

• regulate the opening to the public, including the conditions of access and presence, of one or more categories of establishments open to the public as well as meeting places;
• regulate the temporary closure of one or more categories of establishments open to the public as well as meeting places;
• regulate gatherings of persons, meetings and activities in public places and in places open to the public.
• order the provisional closure and regulate the opening, including the conditions of access and presence, of one or more categories of establishments receiving the public as well as meeting places.

The Law extends until 16 February 2021 the state of public health emergency, and until 1 April 2021 the transitional regime allowing the Prime Minister to regulate public access to establishments receiving the public (ERP) or even prohibit it if it is impossible to enforce compliance with health protocols, so that "administrative policy measures" falling within the scope of Article 14 of the Law could be taken or extended until 1 April 2021.

Penalties paralysed

The Neutralisation Measures prevent the implementation of the following sanctions for the beneficiary lessees:

1. Interest, penalties and financial measures for late or non-payment of rent and/or rental charges;

2. Actions, sanctions or enforcement measures for late or non-payment of rent and/or rental charges (including, in particular, the implementation of any penalty clause or resolutory clause provided for in the lease);

3. Real or personal securities guaranteeing the payment of rent (which includes, in particular, mortgages, pledges, sureties, etc.); and

4. Precautionary measures (including, in particular, precautionary seizures from bank accounts, etc.)

The Neutralisation Measures apply regardless of the clauses provided for in the lease, Article 14 specifying that "any stipulation to the contrary, in particular any resolutory clause or clause providing for forfeiture due to non-payment or late payment of rents or charges, shall be deemed unwritten".

However, the Neutralisation Measures do not preclude compensation^[2] between the sums owed by the lessee and the lessor, which implies that the lessor is itself liable to the lessee^[3] for sums of money.

Furthermore, the Neutralisation Measures do not affect the payment of rent and rental charges due by the lessees under their leases, regardless of the period concerned.

The rents and rental charges concerned

The Neutralisation Measures apply "to the rents and rental charges [relating to business or commercial premises and] due for the period during which the business activity is affected by a policy measure" referred to above.

The wording of Article 14 could raise difficulties in determining "the period during which the business activity of the undertaking is affected by a policy measure" (see below).

TEMPORAL SCOPE OF NEUTRALISATION MEASURES

Date from which Neutralisation Measures apply

It follows from the wording referred to above that the date from which Neutralisation Measures apply is the moment when the activity of the beneficiary lessee begins to be "affected by a policy measure" referred to above.

In practice, this could for example correspond, for many activities, to 29 October 2020 at midnight, i.e. the date of entry into force of Decree No. 2020-1310 imposing a new lockdown.

In addition, the Law specifies that Article 14 "applies as of 17 October 2020".

The general nature of the administrative policy measures referred to above and the ambiguity of the term "affected" could, however, lead to a different interpretation, taking into account previous measures. It therefore seems desirable that the implementing decree should provide further details on this subject.

End of Neutralisation Measures

The Neutralisation Measures apply, for beneficiary lessees, "until the expiry of a period of two months from the date on which their activity ceases to be affected by a policy measure" referred to above.

Article 14 specifies that:

1. Interest or financial penalties can only be due and calculated from the expiry of the two-month period "from the date on which their activity ceases to be affected by a policy measure";

2. Enforcement proceedings that would have been initiated by the lessor against the beneficiary lessee for non-payment of rent or rental charges due are suspended until the expiry of the same two-month period.

A strict reading of Article 14 of the Law could lead to considering that the Neutralisation Measures will end on the date on which the economic activity of the lessee effectively ceases to be "affected" (in the sense of "impacted") by administrative policy measures, which could lead, in practice, to significant difficulties of application.

However, the explanatory memorandum of the amendment presented by the Government to introduce the Neutralisation Measures into the Law states that these will end "two months after the end of the measures restricting the professional activity".

In reading Article 14 of the Law in the light of the aim thus pursued by the public authorities, the conclusion could be that the date of termination of the application of the administrative policy measures themselves should be used to determine the date of termination of the Neutralisation Measures, irrespective of the impact that they may continue to have on the economic activity of the lessee.

Articulation with Ordinances No. 2020-306 and No. 2020-316

The paralysis of sanctions referred to in Ordinance No. 2020-306 ceased on 24 June 2020. Consequently, the Neutralisation Measures provided for in Article 14 of the Law do not overlap with the provisions of such Ordinance.

As the paralysis of sanctions referred to in Ordinance 2020-316 ended in principle on 30 September 2020 (with the possibility for eligible lessees to apply for the Solidarity Fund until 30 November 2020), the provisions of Ordinance 2020-316 and Article 14 of the Law could complement each other for lessees eligible for the two schemes.

However, and subject to the provisions of the implementing decree to be published, the scope of application of the Neutralisation Measures provided for in Article 14 of the Law is likely to be broader than that of the provisions of Ordinance No. 2020-316:

• their benefit no longer depends on the eligibility of the lessees in question to the solidarity fund set up by the public authorities, but rather on the impact of the administrative policy measures on their economic activity;
   
• the Neutralisation Measures apply to a more extensive set of sanctions and remedies than those referred to in Article 4 of Ordinance No. 2020-316.

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[1] The wording of Article 14 of the Law recalls that used in Article 1 of Ordinance No. 2020-316, stating that "the criteria for eligibility [for the solidarity fund] for the above-mentioned provisions are specified by decree, which determines in particular the workforce and turnover thresholds of the persons concerned as well as the threshold for loss of turnover observed as a result of the public health crisis".

[2] Within the meaning of Article 1347 of the Civil Code. The latter provides that "compensation is the simultaneous extinction of reciprocal obligations between two persons. It takes place, to the extent that it is invoked, on the date on which its conditions are met."

[3] This was the case, for example, in a case that gave rise to a decision of the Paris Tribunal Judiciaire on 10 July 2020 (No. 20/04516), which authorised, on the basis of good faith, a set-off between the sums owed reciprocally by the lessee and the lessor. In this case, the lessor owed the lessee an overpayment of rent in execution of a decision handed down by the Paris Court of Appeal.

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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.

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