On September 17, 2020, a press release from the Constitutional Court became public, with a decision ruling that Decree 797 of 2020 was unconstitutional. Recalling the content of this Decree, this was enacted to temporarily allow the unilateral termination by lessees of the lease agreements in properties destined to bars, casinos, cinemas, theaters, religious services among others, with the payment of one-third of the penalty clause or the value of one month's rent in the case a penalty clause had not been agreed upon. Although this ruling has not been published yet, we will analyze the positions on which the Court based its decision.
First, it should be noted that this ruling is the result of the automatic jurisdictional control of legislative decrees during states of emergency, which include the declaration of an Economic, Ecological, and Social Emergency. To that extent, the Constitutional Court examines, through a formal and material control, that these decrees issued under the state of emergency comply with the Constitution.
For the formal control, the Constitutional Court verifies: (i) that the decree has been duly signed by the President and all the ministers, (ii) that it has clear motives, and (iii) that it has been decreed in the development of the state of exception and during the term of its validity. With respect to material control, the principles that guide states of emergency are verified, among which are the principles of (a) purpose; (b) material connection; (c) sufficient motivation; (d) absence of arbitrariness; (e) intangibility; (f) no specific contradiction; (g) incompatibility; (h) necessity; (i) proportionality, and (j) non-discrimination. Therefore, if the constitutional review reveals a failure to comply with one or more of these criteria, the decision must be to declare the Legislative Decree unconstitutional.
According to the press release, the main reasons that led to the declaration of unconstitutionality of Decree 797 of 2020 were that it did not meet the requirements of necessity and no specific contradiction. Regarding these requirements, the Constitutional Court has considered that principle of necessity refers to the fact that the decrees are indispensable to achieve the purposes that gave way to the declaration of the state of emergency. Therefore, the Court analyzes its necessity from a factual and a legal point of view, verifying whether the measure helps to overcome the crisis or to mitigate its effects; and if there are no other legal provisions that were sufficient or adequate to achieve the same objectives. Regarding the requirement of non-contradiction, the examination consists on the verification that the measures do not contravene the Constitution of international treaties.
By reviewing the amicus curiae briefs on whether the Decree should be declared constitutional, the positions from ACECOLOMBIA, ASOFONDOS, and COLCAPITAL stand out. They requested the declaration of unconstitutionality of the Decree 797 of 2020 arguing that its effects did not contribute to overcoming the crisis and, in fact, made it worse. This was because the government assumed that the lessee was the weak party in the agreement, ignoring that many people in the real state sector have their only income from a single rent. Moreover, the government motivated this Decree by stating that it was a way to protect employment by reducing fixed costs and thus maintaining the payroll, but this was widely questioned because if the business lacks a space to provide goods and services, there was no reason to preserve employment, nor a way to ensure that such savings were invested in payroll. Additionally, it was not considered that the untimely termination of the lease agreements could significantly devalue the investments of individuals in private equity funds whose underlying assets are leased real estate.
On the other hand, it was also censured that the government did not consider that both the civil and commercial coded have suitable mechanisms to alleviate the extraordinary economic conditions brought by the collapse in the economy, such as the application of the rebus sic stantibus theory. Likewise, it was questioned that even though a previous Decree on the subject of lease agreements (Decree 579 of 2020) existed, it was not mentioned at all in its provisions.
It was also observed in the amicus briefs, that there was an intrusion on the autonomy of the will of the parties, which is part of the essential core of the free development of human personality. As part of the analysis, the parties were not allowed to participate in the modification or extinction of their contract terms, by granting one of the parties the power to determine the early termination of the agreement. The fact that the government did not enable the parties to enter into negotiations or use ADR’s was widely criticized.
Therefore, it is clear from these briefs that the decree could not improve the economy after the collapse or provide the necessary resources to the companies to continue operating, thus blurring its necessity. Another conclusion is that there were available legal mechanisms that were sufficient to overcome the crisis without affecting a constitutional right such as the right to free development of human personality.
As stated in previous occasions, the government has not met the expectations with the measures adopted regarding lease agreements during the state of emergency. It is now evident that the government did not have enough legal grounds to adequately support the measures taken. Therefore, this led to a state of legal uncertainty for those individuals who executed agreements or made decisions based on Decree 797 of 2020 and now face the fact that those agreements might not be binding since they could be vitiated. It is imperative to know the final content of the ruling to determine the legal effects of the declaration of unconstitutionality.