Payment of commercial rents during the COVID-19 pandemic: First ruling in favor of a landlord by a Court of Appeal
According to the Court of Appeal of Grenoble, neither the exception for non-performance, nor the “force majeure”, nor the "fait du prince" may be legitimately claimed by the tenant to avoid the payment of its rent during the COVID-19 pandemic.
The Court of Appeal of Grenoble had to recently rule on a case where the tenant, the operator of a tourism residence (residence de tourisme), challenged its obligation to pay the rent during the first period of administrative shutdown due to the COVID-19 pandemic. In order to do so, the tenant claimed, among others, the “force majeure”, the "fait du Prince" as well as the exception for non-performance, on the grounds of an alleged breach by the landlord of its permanent obligation to provide the leased premises (and to guarantee the free use of such premises (“jouissance paisible”)) (CA Grenoble, 05-11-2020, n° 16/04533).
To dismiss its claim, the Court of Appeal ruled that the commercial lease had not made conditional the payment of the rent to a specific occupation of the premises, nor to any occupancy ratio. In fact, although the tourism residences (residences de tourisme) were required to close, the inability of the landlord to make the premises available to the tenant was not of its own doing, but was the result of administrative decisions made by the Government. Consequently, the Court of Appeal considered that the landlord had not breached its contractual obligations, preventing the tenant from conducting its business. The exception for non-performance which was raised by the tenant to refuse the payment of the rent was therefore unenforceable against the landlord.
In line with the foregoing, the Court of Appeal dismissed the "fait du Prince" argument, which it believed to be unfounded, on the grounds that it was a legal concept which only applies to the relationship between a public law entity and its co-contractor, which was not the case in this matter.
Lastly, regarding the “force majeure”, the Court of Appeal dismissed the argument on the grounds that the tenant failed to prove the existence of cash flow shortages that would have made the payment of the rent impossible. In addition, the Court stated that Article 10 of decree No. 2020-548 of May 11th, 2020, as amended on May 20th, 2020, while banning the hosting of clients in tourism residences (residences de tourisme), provided for an exemption for persons who had elected their domicile in such tourism residence. An activity was thus possible for these tourism residences although it was limited.
Hence, the Court of Appeal of Grenoble ruled that the tenant could not argue that there was an exception for non-performance, nor a "fait du Prince", nor a “force majeure” to oppose the payment of rent during the first period of administrative shutdown due to the COVID-19. This is the first decision issued by a Court of Appeal ruling on the merits of the sensitive subject of unpaid commercial rents due to the COVID-19 pandemic, and it is clearly in favor of the landlord.
It will be interesting to find out whether the decision of the Court of Appeal of Grenoble, which is clearly favorable to the landlord, will be upheld in future cases. Considering the new administrative measures - closures and restrictions of activities – imposed due to the COVID-19 pandemic since fall 2020, but also the number of decisions already issued in summary proceedings (référé) and soon to be heard on the merits, the months to come will be most instructive.
