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19 July 2022
The measures adopted by the public authorities in combating the covid-19 epidemic led to the closure of many commercial and professional establishments and motivated the unilateral suspension of rent payments by certain tenants during the such closure periods.
Cases have been brought to court - most often by the lessors - seeking the payment of rent for the rented premises. To dispute the obligation to pay rent during periods of administrative closure, the tenants have drawn liberally from the following legal grounds:
The decisions handed down in the run-up to the Court decision dated 30 June 2022, whether at first instance or on appeal, did not make it possible to settle the debate in any clear manner (1).
Hence the great interest of the Court decisions handed down by the third civil law chamber of the French Supreme Court (“Court of Cassation”) on 30 June 2022: rejecting the various legal grounds that the tenants had relied upon, it held that the obligation to pay the rent was neither suspended nor neutralised during the lockdown (2).
The scope of these Court decisions is deserving of particular attention: the Court of Cassation clearly came down in favour of lessors by a decision which could extend beyond commercial leases alone (3).
Force majeure: force majeure has generally been excluded by the lower courts, mainly on the grounds that it does not apply to the obligation to pay a sum of money[1].
For example, the District Court (Tribunal judiciaire) of Paris rejected force majeure on the grounds that “it is a general rule that the debtor of a contractual obligation to pay a sum of money that has not been performed cannot exempt himself of this obligation by relying on an event of force majeure”[2].
Obligation to deliver (“obligation de délivrance”) / defence of non-performance (“exception d’inexécution”): on the merits, the courts have near-systematically refused to apply the defence of non-performance if there is no clearly identified breach by the lessor of his obligations under the lease.
For example, it has been held that the lessor did not owe any guarantee against a disturbance in possession (“trouble de jouissance”) due to the administrative closure of the tenant’s commercial premises or as to “the foot-traffic of the leased premises and the stability of the legal framework in which his business is carried on”[3].
Good faith (“bonne foi”): good faith is an essential principle, recalled on numerous occasions by the courts, this is to govern the “lessor/tenant” relationship during the performance of the lease.
The District Court of Paris has thus held that the tenant who “never formalised a clear request for a rebate on all or part of the rent and/or charges due, and never requested the easing of his obligations over a clearly determined period” had breached his duty to perform the lease in good faith and consequently, had to pay the entirety of the rent[4].
The courts therefore appeared to proceed with a case-by-case assessment of the conduct of the parties. Particular attention was paid to the degree to which each of the parties was open to discussion and to negotiating a possible adaptation of the financial conditions of the commercial lease during the periods of administrative closure.
Hardship (“imprévision”): As the legal provisions are not mandatory on public policy grounds, hardship is often excluded by contract so as not to affect the binding force (“force obligatoire”) of the commercial lease.
In any event, before the public health crisis, it had already been held that the statutory rule on hardship (imprévision) did not apply to commercial leases: “since the legal framework governing commercial leases contains numerous special provisions concerning the revision of the lease agreement (three-yearly revision, index-linked escalator clause), there is no need to apply the general provisions of the aforementioned article 1195, and they are to be excluded in favour of the special rules contained in the legal framework governing commercial leases”[5].
Moreover, numerous decisions have held that this legal ground did not fit the situation; this has been the case, for example, for the District Court of Paris which recently rejected hardship on the grounds that the purpose of this legal provision was not “to obtain the pure and simple annulment of instalments of rent and charges” but “to proceed with a lasting rebalancing, for the future, of the parties’ reciprocal obligations” and held that the tenant “could not […] unilaterally excuse himself from paying the rent and charges due” to the lessor on the ground that the latter “did not provide the desired response to his request to adapt” the lease[6].
In the same sense, the Court of Appeals of Paris considered that “while these provisions enable one party to demand of his fellow contractor the renegotiation of the contract, they do not excuse him from performing his obligations during the renegotiation”[7].
Loss of the leased thing (“perte de la chose louée”): Both the Court of Cassation and academic writings accept that the loss of the leased thing may be understood as loss of a legal nature which would then consist “in the impossibility, for the tenant, to have full enjoyment of the leased thing, even if it had not otherwise suffered any alteration of its substance”[8].
In the context of the public health crisis, however, decisions just prior to the Court decisions dated 30 June 2022 have given highly contrasting solutions:
The press release dated 16 June 2022 notes that the public prosecutor’s office before the Court of Cassation had produced a memorandum by the Ministry of Economy (Ministère de l’économie, des finances et de la relance) concerning the impact of the public health crisis on commercial rents, showing that:
In addition to the aid mechanisms referred to above, the government adopted measures to deal with the first wave of the outbreak that included the paralysing, under certain conditions and for a given period, of the effects of certain clauses in commercial and professional leases, notably penalty clauses and automatic cancellation clauses[11]. None of the measures adopted by the public authorities in the context of the public health crisis had undermined the obligation to pay rent, quite the contrary.
Besides, many tenants sought to have the courts grant payment deferrals (“délais de paiement”), up to a limit of two years, on the basis of the first paragraph of article 1343-5 of the Civil Code[12]. While most[13] of the decisions made the grant of such payment deferrals subject to proof of accounting or financial elements certifying “its cash-flow situation”[14] or “such as to substantiate […] its inability to pay the rent and […] serious prospects for paying off the debt”[15], the courts generally made broad usage of this power, without necessarily justifying the payment deferrals that they granted.
This attitude on the part of the lower courts, in the run-up to the ruling of the Court of Cassation, could be interpreted as a wish to discourage the enforcement attempts brought by some lessors, inviting the parties, in numerous decisions, to negotiate the terms for the performance of their agreements in good faith.
The questions put to the third civil law chamber of the Court of Cassation, which selected three “pilot” appeals to make its rulings, were as follows:
It is remarkable that the Court of Cassation announced, as early as 16 June 2022, the publication on 30 June of three decisions on the obligation to pay rent during periods of administrative closure[16], thereby lending itself to a “teasing” of a whole new genre.
Moreover, the Court of Cassation accompanied its decisions dated 30 June 2022 with the publication of a press release “concisely presenting [the] main legal contributions”[17] of these decisions.
This mode of communication, a brand new approach for the Supreme Court, is in line with the recommendations of the report by the advisory commission named “Court of Cassation 2030”: promoting “a Court that is visible, intelligible, accessible” and modelling a “proactive communication strategy, notably in cases of major public interest”[18]. This is a new approach to communication for the Supreme Court that we will doubtless have to get used to.
With these three Court decisions, the third civil law chamber of the Court of Cassation rejects the arguments raised by the tenants and clearly judges in favour of the lessors, confirming that the obligation to pay the rent was neither suspended nor neutralised during the lockdown.
Thus, in its press release dated 30 June 2022, it stated that:
“the general and temporary measure prohibiting opening to the general public does not cause the loss of the leased thing and does not constitute failure, by the lessor, to perform his obligation to deliver. A tenant cannot rely on it as an event of force majeure to avoid paying his rent”.
According to the Court of Cassation[19], “the prohibition on opening to the general public during a public health crisis could not be deemed equivalent to loss of the leased thing within the meaning of article 1722 of the Civil Code.
Indeed, this prohibition:
The merchants were not therefore entitled to claim a reduction of their rent”.
1° To deliver the leased thing to the tenant […]
2° To maintain this thing in a state to serve the use for which it was leased;
3° To procure for the tenant the peaceable enjoyment thereof during the term of the lease […]”.
According to the Court of Cassation[20], “the general administrative police measure containing a prohibition on opening to the general public does not constitute failure by the lessor to perform his obligation to deliver.
Therefore, the merchants could not rely on the mechanism based on the defence of non-performance to suspend payment of their rents.”
If the hindrance is temporary, the performance of the obligation is suspended unless the resulting delay justifies the cancellation of the contract. If the hindrance is definitive, the contract is cancelled automatically and the parties are released from their obligations under the conditions laid down in articles 1351 and 1351-1 [of the Civil Code]”.
According to the Court of Cassation[21], “it derives from article 1218 of the Civil Code that the creditor who has been unable to benefit from the counterpart to which he was entitled cannot obtain the cancellation of the contract or the suspension of his obligation by relying on force majeure.
Therefore, the Court of Appeals correctly held that the tenant, creditor of the obligation to deliver the leased thing, could not rely on force majeure in his favour”.
In one of the Court decisions dated 30 June 2022[22] in a case where the lessor “had carried out, just three weeks after the end of the lockdown, an enforcement measure against his debtor to obtain payment of the rent having fallen due during the closure of the premises, without any prior attempt at renegotiation of the contract to adapt it to the circumstances, other than a proposal to postpone one month’s rent in the form of a served summons to pay”, the Court of Cassation approved the decision of the Court of Appeals which, after having found that the lessor had proposed, in vain, to defer payment of the rent for April 2020, “deduced, in its absolute discretion to find the facts, that [the lessor] had taken the exceptional circumstances into account and therefore showed his good faith”.
The Court of Cassation has therefore come down clearly in favour of lessors by scrupulously eliminating, one by one, each of the various arguments raised by the tenants in the examined appeals:
Even though this argument has less commonly been raised before the lower courts, it may be noted that counsel for a tenant had argued that “if the obligation of one of the parties is no longer met, irrespective of the reason, the obligation of the other becomes without cause and cannot have any effect”.
The above plea did not succeed before the Court of Cassation, which logically appears to reject the argument that the “cause” (similar in effect to the English notion of "consideration" in contracts) may disappear during the performance of the contract.
It may also be noted that the Court of Cassation did not rule on hardship in the frame of its decisions dated30 June.
Since this legal provision is not a public order provision, hardship is often excluded by parties in their contract, so as not to affect the binding force of the commercial lease.
Some doubt could therefore remain for leases which do not provide with such express exclusion.
However, several arguments militate in favour of rejecting the theory of hardship in these contracts (cf. part 1). For example, it could be argued that the substantive conditions required for the application of article 1195 of the Civil Code (“change in circumstances unforeseeable at the time of conclusion of the contract”, “performance made excessively onerous”, etc.) are not met and, in particular, that the obligation to pay a rent (obligation to pay a sum of money) cannot be made “excessively onerous” to perform, as required by the legal provisions governing hardship.
The Court of Cassation’s rejection of arguments based on the loss of the leased thing (article 1722 of the Civil Code) or on the lessor’s obligation to deliver (article 1719 of the Civil Code) will clearly be limited to contracts for the rental of premises.
However, these notions are not specific to the law of commercial leases and should therefore apply mutatis mutandis to a commercial lease and to a civil lease or professional lease[24]. Besides, the Court of Cassation’s solution concerning force majeure (article 1218 of the Civil Code) or its rejection of the argument as to absence of “cause” during performance (see above) could be extended generally to contracts other than leases[25].
In the Court decision dated 30 June 2022 considering the issue of good faith[26], the Court of Cassation held that the lessor, “who had offered to defer payment of the rent for April 2020, carrying it forward to the 3rd quarter, or even the 4th quarter”, “had taken the exceptional circumstances into account and therefore showed his good faith”.
In doing so, the Court rejected the tenant’s argument criticising the lessor for having carried out “just three weeks after the end of the lockdown, an enforcement measure against his debtor to obtain payment of the rent having fallen due during the closure of the premises, without any prior attempt at renegotiation of the contract to adapt it to the circumstances, other than a proposal to postpone one month’s rent in the form of a served summons to pay”.
By the wording of this Court decision, it might seem relatively easy to demonstrate the lessor’s compliance with his duty to perform the lease in good faith. Nevertheless, although the courts make only a limited review of compliance with this obligation, that review is both patently made and based on a case-by-case assessment of the conduct of the parties. For the lessor, it was therefore important to be vigilant on this point during the public health state of emergency.
For tenants, moreover, this legal ground has a relative interest considering the applicable sanction: indeed, it is settled case-law that a breach of the duty to act in good faith gives rise to damages to compensate the suffered loss, but does not authorise the court to revise the contract[27] or, a fortiori, to suspend or neutralise the duty to pay the rent.
***
[1] A position that the Court of Cassation considers to be a general rule: Court of Cassation, commercial law chamber, 16 September 2014 No. 13-20.306. In this sense, Court of Appeals of Paris, 3 February 2021, 19/16222, Court of Appeals of Grenoble, 5 November 2020, 16/04533 and Commercial Court of Lyon, 17 November 2020, 2020J00420.
[2] District Court of Paris, 22 June 2022, 20/08161
[3] District Court of Paris, 25 February 2021, 8/02353
[4] District Court of Paris, 10 July 2020, 20/04516
[5] Court of Appeals of Versailles, 12 December 2019, No. 18/07183
[6] District Court of Paris, 22 June 2022, No. 20/08161
[7] Court of Appeals of Paris, 2 June 2022, 21/19284
[8] M. Planiol & G. Ripert, Traité pratique de droit civil français, Contrats civils [“Practical Treatise on French civil law, Civil Contracts”], LGDJ, 1932, No. 639
[9] District Court of Paris, 28 October 2021, No. 16/13087
[10] District Court of La Rochelle, 23 March 2021, 20/02428
[11] Ordinance No. 2020-306 of 25 March 2020 on the extension of deadlines expiring during the period of the public health state of emergency and the adaptation of proceedings during that period
[12] “The judge may, taking account of the debtor’s situation and considering the needs of the creditor, postpone or spread, within a limit of two years, the payment of sums due”.
[13] With one notable exception: a decision of the Commercial Court of Nancy of 16 December 2020 granted grace time without any substantiation being provided by the tenant, on the grounds that “it cannot be disputed that the administrative closures of so-called non-essential shops has had immediate and direct repercussions on their cash situation in the short and medium term”.
[14] Commercial Court of Lyon, 17 November 2020, 2020J00420 (merits).
[15] District Court of Grasse, 22 October 2020, 20/01120 (urgent/interlocutory proceedings).
[16] Press release of 16 June 2022: “Baux commerciaux et état d’urgence sanitaire - L’interdiction de recevoir du public et l’obligation des locataires de payer leur loyer“(“Commercial leases and public health state of emergency - The prohibition on opening to the general public and the obligation for tenants to pay their rent”).
[17] Ibid
[18] Recommendation No. 31 of the report by the “Commission de réflexion sur la « Cour de cassation 2030 ”
[19] Extract from the press release of 30 June 2022. The third civil law chamber of the Court of Cassation rejected this argument on the grounds that “The effect of this general and temporary measure, with no direct link to the contractually-defined intended use of the leased premises, cannot therefore be deemed equivalent to loss of the thing, within the meaning of article 1722 of the Civil Code” (appeal No. 21-20.190) or that “The effect of this general and temporary measure, with no direct link to the contractually-defined intended use of the leased premises, cannot be […] deemed equivalent to loss of the thing, within the meaning of article 1722 of the Civil Code.” (appeal No. 21-20.127).
[20] Extract from the press release of 30 June 2022. The third civil law chamber of the Court of Cassation rejected this argument on the grounds that “having noted that the leased premises had been made available to the tenant, who admitted that the impossibility of exploiting them as alleged by the tenant was solely due to the legislature, the Court of Appeals correctly deduced that the general administrative police measure prohibiting opening to the general public did not constitute a failure to perform the obligation to deliver” (appeal No. 21-20.190) or that “the effect of this general and temporary measure, with no direct link to the contractually-defined intended use of the leased premises, cannot be […] attributable to the lessors, such that they cannot be faulted for a breach of their obligation to deliver” (appeal No. 21-20.127).
[21] Extract from the press release of 30 June 2022. The third civil law chamber of the Court of Cassation, after having noted that “it derives from article 1218 of the Civil Code that the creditor who has been unable to benefit from the counterpart to which he was entitled cannot obtain the cancellation of the contract or the suspension of his obligation by relying on force majeure”, deduced from this that “Therefore, the Court of Appeals correctly held that the tenant, debtor of the rent, could not rely on force majeure in his favour” (appeal No. 21-20.190).
[22] Court of Cassation, 3rd Civil law chamber, 30 June 2022, No. 21-20.190.
[23] See below.
[24] For residential leases, the question appears generally moot since tenants were forced to stay at home, unless one were to consider the hypothesis of a tenant “stuck” abroad due to the pandemic and the banning of flights, and who was unable to use his home…
[25] Extract from the Court decision handed down on appeal No. 21-20.190 “It derives from article 1218 of the Civil Code that the creditor who has been unable to benefit from the counterpart to which he was entitled cannot obtain the cancellation of the contract or the suspension of his obligation by relying on force majeure. Therefore, the Court of Appeals correctly held that the tenant, debtor of the rent, could not rely on force majeure in his favour.”
[26] Court of Cassation, 3rd Civil law chamber, 30 June 2022, No. 21-20.190
[27] Court of Cassation, 3rd Civil law chamber, 15 December 2016, No. 15-22.844. It may also be recalled that, according to the Court of Cassation, “the rule that agreements are to be performed in good faith allows the court to sanction the unfair use of a contractual prerogative, [but nevertheless] it does not authorise the court to attack the very substance of the rights and duties agreed as law between the parties” (Court of Cassation, 3rd Civil law chamber, 9 December 2009, No. 04-19.923).
