Thoughts on royal decree laws 11/2020 and 15/2020 in relation to leases
Thoughts on royal decree laws 11/2020 and 15/2020 in relation to leases
Spain Corporate Commentary
We analyze certain doubts about interpretation arising from some of the provisions enacted due to the crisis caused by COVID-19 in relation to leases.
The declaration of the state of emergency by Royal Decree 463/2020, of March 14, 2020, as a result of the pandemic created by COVID-19, with the consequent suspension of certain economic activities and widespread confinement of the general public, has created a fragile economic situation, with an uncertain outcome, in response to which various decree laws have been enacted, among them royal decree laws 11/2020, of March 31, and 15/2020, of April 21, which, among other matters, seek to define certain urgent measures in relation to residential and nonresidential lease agreements.
This piece is drawn up to compile certain doubts about interpretation arising from some of the provisions enacted, assuming that the recent nature of the provisions analyzed and the –logical– lack of case law in this respect means that definitive conclusions cannot be offered, and it will be necessary in all cases to follow a case-by-case analysis of the various contracts which may be affected and the evolution of the judicial rulings which will undoubtedly be issued in the coming months and years.
In this respect, and for the purposes of this analysis, we will distinguish between issues related to the parties, concerning the conditions to be fulfilled by lessees and/or lessors for the application of the measures provided in the royal decrees, and issues related to the scope of the subject matter and duration of those measures.
Thus, in relation to the parties, the following issues arise:
1) First of all, as regards the measures provided in Royal Decree-law 15/2020 relating to nonresidential leases, we find that it seeks to establish measures to “reduce the cost for small and medium-sized companies and the self-employed persons”, and when defining the small and medium-sized companies that may benefit from those measures it points out that it is necessary “that the limits established in article 257.1 [of the Capital Companies Law] are not exceeded”. That article 257.1 contains the requirements to be met by a company in order to be able to draw up an abridged balance sheet and abridged statement of changes in net worth, and specifies that in two consecutive fiscal years, as of the year-end date for each of them, at least two of the requirements set out in the same article (relating to the asset figure, the earnings figure for the fiscal year and the number of workers) must be met at that company.
In the light of this, the question arises whether, in order to benefit from the measures provided in Royal Decree-law 15/2020, all the requirements provided in that Article 257.1 must be met, or whether it is sufficient to satisfy with those requirements in the terms of the above-mentioned article itself, since the provision in the royal decree is simply a reference (for which reason it would be sufficient to comply with two out of three in two consecutive financial years).
2) Secondly, the question arises as to whether for the satisfaction of those requirements in order to have the status of a small or medium-sized company, and therefore, to benefit from the measures provided in Royal Decree-law 15/2020, it is sufficient for this to occur at the lessee company or what should be the effect of that lessee company’s possible membership of a group of companies under corporate and tax legislation and whether, in such cases, it is necessary to analyze the lessee’s position from a broader perspective which prevents it from claiming those measures as a mere special purpose vehicle.
3) Similarly, it must be considered whether lessor SPVs which per se do not have the status of a “large owner”, but which form part of a group of companies under corporate and tax legislation which does have such characteristics, can be regarded as a “large owner”, a concept that is referred to in both royal decrees (meaning any individual or legal entity that owns more than 10 pieces of urban real estate, excluding garages and storage facilities, or a floor area exceeding 1,500 m2).
4) Furthermore, it is necessary to consider the necessary observance of the requirements relating to the parties imposed by the royal decrees examined throughout the entire payment moratorium for rent (we will consider later the doubts also raised by such period), or whether it is sufficient to meet those requirements (vulnerable situation, suspension or reduction of business, etc.) at the time of original request for the moratorium, irrespective of the subsequent vicissitudes as regards the declaration of the state of emergency, vulnerable situation or business situation.
5) Finally, the question may be raised as to whether the royal decree laws examined constitute an absolute definition of the lessees that can seek a supervening temporary alteration of the provisions of their contracts, limited to the measures contained in those decree laws, or whether, on the other hand, the possibility remains open to lessees that do not meet the requirements provided in the royal decrees to seek a temporary modification of the terms of their contracts as a consequence of the application of the rebus sic stantibus principle and, if so, whether the application of that principle is in turn restricted to the application by analogy of the measures provided in the royal decrees to any other cases of “nonvulnerable” lessees. Furthermore, the question arises as to whether the lessees who effectively meet the requirements provided in the royal decrees can, under the aforementioned rebus sic stantibus principle and given the fact that those decree laws do not expressly forbid it, commence judicial proceedings aimed at the adoption of measures other than those ordered by law, such as the suspension of the contract, amendment or even termination.
After considering the above-mentioned issues relating to the parties, attention is now needed to certain doubts regarding the subject-matter scope and duration of the measures contained in the royal decree laws analyzed and, in particular, the following:
1) First of all, the question may be raised as to whether the moratorium or grace period provided in the royal decrees apply strictly to leasehold rents (bearing in mind that the royal decrees specifically refer to “rent”) or whether sums usually referred to as “amounts equivalent to rents” (basically common expenses) should be considered to be included, and the that which this may have since such expenses are usually due to the lessor’s structural costs or expenses necessary to maintain the leased real estate.
2) Finally, the question may be raised as to how the maximum periods of application of the measures provided in the royal decrees should be calculated and, specifically, the reference to the fact that “under no circumstances” may they exceed four months, and whether that period refers exclusively to any months after the lifting of the state of emergency or whether the duration of the state of emergency itself should be deemed to be included in that period.
In conclusion, we consider that royal decree laws 11/2020, of March 31, and 15/2020, of April 21, leave all these considerations open, and that it is not possible to reach uniform conclusions applicable to all cases. Given the situation in which we are placed, a reconsideration of the circumstances existing in each of the cases is advisable, where it seems unlikely that positions defending to the utmost the interests of one of the parties will be supported by the courts. Therefore, it becomes more necessary than ever, by means of bona fide negotiations, to analyze the specific cases considering first of all the provisions of the contracts and obviously the terms which may have been agreed between the parties in the course of the pandemic, and to manage to balance the parties’ interests by means of not only a literal but also a teleological and systematic interpretation of the provisions, since until specified by legislation and case law, it is difficult to reach categorical conclusions.