Belgian Supreme Court rules on the consequences for commercial lease agreements of the lock-downs during the COVID-19 pandemic
The Supreme Court (“Hof van Cassatie/Court of Cassation”) overruled on 26 May 2023 a decision that determined that Article 1722 (old) Civil Code (a partial or total “destruction” of the leased premises) does not apply for the tenant that can not operate its premises due to the measures taken by the Belgian Government in order to prevent the spread of the COVID-19 pandemic, because there was only a temporary impossibility and thus only a temporary loss of enjoyment. So this might open the door for a tenant to claim a reduction or full waiver of the rent that was due during the lock-down period(s).
1. The “destruction” of the leased premises (Art. 1722 old Civil Code): a difficult qualification
Let’s briefly go back to 2020, when the Belgian Government took several (temporary) measures in order to prevent the further spread of the COVID-19 pandemic, including the closure of most of the commercial businesses for a certain period of time. Consequently, many companies occupying space under a commercial lease agreement suffered a huge income loss, but still had to continue paying the rent.
The discussion immediately arose whether these governmental measures could be qualified as a de facto “disorder” that triggers Article 1722 (old) Civil Code. According to this article, a (commercial) lease agreement automatically ends if the leased premises are completely destroyed by accident or by an event of force majeure during the term of the lease. If the leased premises at stake are only partially destroyed, the tenant may, depending on the circumstances, either reduce the rent or even demand to end the lease.
Considering that these governmental measures did not prohibit every trade with the public and that several companies could organise alternative activities (such as take-away or delivery activities), the qualification of this “destruction” under Article 1722 (old) Civil Code had to be analysed case by case. Subsequently, there was a lot of discussion within jurisprudence whether a reduction of the rent for the period of the lock-down could be granted to the tenant.
Until now the majority of justices of peace condemned the tenant to pay the full rent during the period of closure based on the lack of any event of force majeure. Moreover, the Justice of the Peace of Ghent ruled specifically that the operator of a fast food chain had to pay the full rent as it could continue its business with take-away activities, so there was neither a destruction of the leased premises, nor an incapability to enjoy the lease. However, in some other cases, the tenant was condemned to pay only part of the rent based on a partial destruction of the leased premises under Article 1722 (old) Civil Code. Lastly, there is also case-law on cases where the payment of the rent during this lock-down period was fully dismissed under Article 1722 (old) Civil Code. So, no clear line was to be found in the judgments of the justices of peace.
Therefore, one could argue that there was an urgent call for clarity regarding the question whether the governmental measures taken in the context of the COVID-19 pandemic could be qualified as a total or partial “destruction” of the leased premises under Article 1722 (old) Civil Code.
2. Clarity with the judgment of the Supreme Court of 26 May 2023
2.1 First attempts of the Supreme Court
Already in 1980, the Supreme Court stated that the “destruction” of leased premises under Article 1722 (old) Civil Code does not only include “material destruction” but also “judicial destruction”.
In December 2022, the Supreme Court added some clarity in the discussion about the “destruction” of the lease agreement due to the governmental measures taken in the context of the COVID-19 pandemic. Moreover, the Court of Cassation stated that the reasoning applied by the Court of Appeal, i.e. “the landlord did not infringe on its obligation to grant a quiet enjoyment”, constitutes a violation of Article 1722 of the (old) Civil Code.
2.2 Judgment of 26 May 2023
With its judgment of 26 May 2023, the Supreme Court removed any doubt on the impact of the aforementioned governmental measures under Article 1722 (old) Civil Code.
According to the Supreme Court, Article 1722 (old) Civil Code assumes that the impairment of enjoyment of the leased property results from a permanent or temporary inability of the landlord to provide the tenant with the enjoyment promised under the lease agreement due to an accidental event or force majeure. This is the case when the accessibility to the general public of the leased premises is no longer possible in whole or in part as a result of governmental measures to combat the COVID-19 pandemic.
In its judgment of 23 May 2023, the Supreme Court states that force majeure, which prevents a party from fulfilling its obligations, suspends the performance of the obligations arising from a reciprocal contract if this prevention is only temporary and the contract can still be usefully performed after the agreed period. It follows that, when the impossibility, due to force majeure, for the landlord to provide the tenant with the “enjoyment” promised in the lease agreement is only temporary and the contract can still be usefully performed after the agreed period, the obligations arising from the lease are suspended and must be performed again when this impossibility ends.
Considering the above, the inability to continue operating the commercial business in the leased premises due to governmental measures taken to stop the spread of the COVID-19 pandemic, can no longer be qualified as “temporary loss of enjoyment” but should be qualified as “a temporary impossibility” as stated in Article 1722 (old) Civil Code.
The Supreme Court has brought further clarity in the analysis of Article 1722 (old) Civil Code regarding the qualification of the governmental measures taken in the context of COVID-19 as a “temporary destruction” of the lease agreement under this Article 1722 (old) Civil Code. Subsequently the suspension of obligations can be applied as it is a case of temporary force majeure.
A tenant can now use this judgement in relation to its claim for dismissal of the rent for the period of time that the commercial business was not publicly accessible due to the governmental measures taken in the context of the COVID-19 pandemic.
However the importance of this judgement is “relative”. First of all, it is to be noted that in more than 95% parties reached an amicable agreement with respect to the impact of the COVID-closures. Secondly, the question will be whether the tenant – after this cooling-off period – will reopen the discussion with its landlord to claim the rent paid for the lock-down period in 2020 or choose a peaceful continuation of its business and tackling the issue of a considerable indexation due to high inflation as of mid 2022. Lastly, also for the future, it is to be noted that Book 5 of the Civil Code entered into force on 1 January 2023 introducing the legal concept of hardship for new agreements (be it that parties are free to exclude application thereof).
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