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With this Royal Decree-Law Spanish Government offers instruments to mitigate the impact of the Covid-19 crisis in the drastic fall in income in small and medium-sized enterprises (SME) and professionals that were either forced to suspend their activity or indirectly affected by their clients or suppliers in these circumstances.
The aim is to provide a legal instrument to moderate or reduce rental costs from non-residential urban leases of premises used by SME, self-employed and professionals in their business or professional activities, (retail stores, warehouses, offices, etc.) regulated under the current Law 29/1994 of November 24 on urban leases(“ULL”) or industry leases – it should be noted that leases regulated by the previous urban lease legislation are left out.
This Royal Decree bases its solutions on the “rebus sic stantibus” jurisprudential doctrine (to a certain extent equivalent to the hardship of Anglo-Saxon Law), which allows to moderate contractual obligations provided that certain requisites are fulfilled by the cause of the imbalance: unforeseeable and inevitable risk, disproportionate onerousness of the obligation due and contractual good faith, it all to reduce operating costs of SME and the self-employed, let’s see:
Self-employed (individual and professional entrepreneurs) whose premises are used in performing their activities and are duly registered within the Regime of Self-Employed Workers (RETA) of the Social Security or admitted analogous mutuality.
SMEs whose size must not exceed at least 2 of the following parameters: (a) total assets do not exceed 4 million euros; (b) total net sales do not exceed 8 million euros and ( c) maximum 50 workers.
- Impact of the Covid-19 crisis and how to prove it:
They must prove that they are affected in any of the following ways:
a) Their activity has been directly suspended by Royal Decree 463/2020 of March 14, declaring emergency or by order of the competent authorities, which must be proved by a certificate from the Tax Agency, or the competent body.
b) They have suffered a reduction in the sales of the calendar month prior to which the deferral is requested by at least 75% compared to the average monthly sales in the same quarter of the previous year. This will be initially proved by submitting a sworn statement based on the accounting information and income and expenses, although the Lessor may require seeing the lessee’s accounting books.
- Benefits and procedures to request them:
The lessee must request and apply for these measures, by notifying so to the lessor within 1 month from the entry into force of this Royal Decree-Law (that is, until May 23, 2020). The measures vary depending on whether the Lessor falls into either one of the following two groups:
a) Public housing institute or “Large Property Holders” (defined as natural or legal person owning more than 10 urban properties -excluding garages and storage rooms, or a built-up area of more than 1,500 m2).
In the case of Landlords in this group, the measures consist of a moratorium and installment program on the payment of the lease rent, without interest or penalty, covering automatically the period of time “that the state of emergency lasts and its extensions and subsequent monthly installments, extendable one by one, if that period were insufficient in relation to the impact caused by COVID-19, without exceeding a total of four (4) months in any case ”. The literal wording of this legal provision could give rise to interpretative doubts, that is, whether the 4-month limit includes the alarm period or is additional to it.
This moratorium is mandatory for the Landlord – unless the parties have reached a moratorium or rent reduction agreement.
The moratorium shall apply from the next monthly rent immediately subsequent to the notice given by the Tenant -It is not clear whether the moratorium benefit covers the days from March 14, 2020, the start date of the state of emergency-, by splitting the rents for that period into installments within a period of two (2) years, counted from: (a) the moment in which the aforementioned situation -economic impact due to the Covid-19 crisis- is overcome, or b) the end of the term of the four (4) months mentioned above (whichever is earlier), in any case, within the term of the lease agreement or its extensions.
b) Lessors other than the above:
The Royal Decree-Law establishes that the lessee “… may request a temporary and extraordinary deferral in the payment of the rent provided that said postponement or a rent reduction had not been mutually agreed by both parties.”
The rule does not provide for a maximum deferral period or any automatic effect, nor what happens if the lessor does not agree with the request. The analogous norm that was issued to protect tenants of habitual residence, contemplated the possibility that the small landlord would not accept the proposal and so credit lines of the Official Credit Institute were established for this purpose.
If the parties freely agree to postpone or reduce the rent in such a case, within the framework of said agreement the parties are allowed to use the legal deposit to the total or partial payment of one or some monthly rent but the lessee must replace such legal deposit within (1) year term from the date of the agreement or within the remaining term of the contract, if less than one year.
- Implications of undue application of the temporary and extraordinary postponement in the payment of the rent.
The new legal provision expressly establishes that the tenants who benefit from these measures without meeting the established requirements will be liable for the damages and losses caused and the expenses generated and without prejudice to the other responsibilities that may arise.