The Government of Catalonia has approved Decree Law 34/2020, of October 20, on urgent measures to support economic activity carried out in leased business premises. This law empowers business owners to initiate negotiations with landlords to mutually agree on a reduction in their monthly rent. As of October 22, 2020, tenants of commercial premises that are closed or have limited use due to COVID-19 restrictions can renegotiate their rent.
We inform you that Decree Law 34/2020, of October 20, on urgent measures to support economic activity carried out in leased business premises, has been published in the DOGC of October 22, which authorizes the reduction of rent in leases of business premises in which commercial or industrial activities are carried out in cases in which the competent authority imposes restrictions or the suspension of the activity as a result of COVID-19, which came into force on October 22, 2020.
Modification of the contract terms
The aforementioned regulation establishes that if, as a consequence of the COVID-19 pandemic, the competent authority decrees measures to suspend the development of the activity or to restrict the material use of real estate leased for the performance of industrial and commercial activities, in contracts signed from January 1, 1995 onwards, the lessee may request from the lessor, by registered mail or other reliable means, a reasonable and equitable modification of the terms of the contract, in order to restore the balance of obligations and in accordance with the requirements of good faith and honesty in dealings.
The aforementioned requirement is of paramount importance, since it is from the date it is made that the effects of the rent reduction detailed below will become effective, and it is from the date on which the lessor receives the requirement that it is prohibited from issuing the invoice for the corresponding monthly rent (it will be necessary to wait for the expiration of a month to negotiate or for an agreement to be reached before said period).
Applicable rules in the absence of agreement between the parties
If the parties do not reach an agreement through negotiation or mediation within one month from the date of the request, the following rules will apply:
- If the authorities have decreed the suspension of the activity carried out in the leased premises, the rent and other amounts due must be reduced by 50% while the suspension lasts.
- If the authorities have decreed a partial restriction on the use of the leased property, the rent and other amounts due must be reduced by a proportion equal to half the loss of use of the property, objectively measured by the reduction in capacity or hours, or by other limitations imposed by law. That is, if the authorities decree a reduction of the capacity of the leased premises to 30%, there is a 70% loss, so the rent and related amounts must be reduced by the amount resulting from applying the percentage of 50% to the 70% loss (a 35% rent reduction).
It should be noted that the fact that home delivery or collection services are carried out in the leased premises does not prevent the application of the reduction of rent and similar amounts that correspond according to the above assumptions, so the tenants will also benefit from the corresponding reduction of rent.
Furthermore, once the rent and amounts due have been reduced accordingly, the tenant may require the landlord to apply, in whole or in part, to the obligation to pay the aforementioned rent and other amounts due that have become due, all amounts that the tenant has paid to the landlord as security for the fulfillment of its obligations, except for the mandatory security deposit and other guarantees deposited with the competent official body. In such a case, the tenant must repay the aforementioned guarantees applied to the debt within one year from the date on which the circumstances that led to the rent reduction cease to exist, and in any event, before the termination of the contract if its term is shorter.
The rule also provides that if the suspension of activity lasts for more than three months in the course of a year, the lessee may terminate the contract without penalty from the moment that circumstance occurs, while it is maintained and up to three months after the complete cessation of the measures, provided that it notifies the lessor in a reliable manner one month in advance.
Transitional arrangements. Previous agreements
The rule states that the regulated reduction measures may be applied regardless of whether the parties had reached any agreement prior to the entry into force of the rule, i.e., October 22, 2020.
Regulations governing contract modification due to unforeseen changes in circumstances
The rule establishes that within two years from October 22, 2020, as proposed by the competent department in civil law, the Government must prepare and approve a bill to incorporate into the Catalan legal system the general regulation necessary for the restoration of contractual balance in cases of unforeseen change of circumstances.
You can contact this professional office for any questions or clarifications you may have.
Warm regards,
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A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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