Commercial rent payments in Italy

To date, we have listed several decisions relating to this issue.

The proceedings were mainly summary proceedings. A few decisions are decisions on the merits of the case (some being specific litigations on enforcement)

It is currently difficult to identify a clear trend in the case law, especially as many summary judgments have found that there are serious challenge for the grounds on which the plaintiff has brought the matter before the court and that those would need to be definitely settled by a trial judge. Moreover, there are still too few decisions on the merits to allow final conclusions to be drawn.

Subject to future case law on the merits, no argument put forward by the tenants before the courts currently enables them with certainty to escape their obligation to pay rent, although the grounds relating to (i) the performance of the contract in good faith ex article 1375 of Italian Civil Code and upon the principle of correctness and solidarity set out by article 2 of Italian Constitution and (ii) the partial loss of the rented property currently seem to be the most likely to be accepted by the judge in order to grant an application for suspension/decrease of the Covid-19 rent.

Numerous decisions, rendered in summary proceedings but also on the merits (Court of Venice, 30 September 2020), consider, because of the parties’ obligation to perform the contract in good faith, the necessity, in the case of the existence of unforeseen and serious events such as pandemics, of the balancing of the principle of the binding nature of the contract with the principle rebus sic stantibus when "as a result of events subsequent to the stipulation of the contract or unknown at the time of this or, again, outside the sphere of control of the parties, the balance of the relationship is substantially distorted". It is preferable to maintain the contractual relationship and renegotiate it, rather than have it cease and fall definitively.

Therefore, only when the conditions present at the moment of stipulation remain unaltered, the contract must be respected in its initial formulation; but when new elements distort the structure placed at its foundation, the damaged party must be able to review and re-establish its content, placing as constant the respect of the duty of correctness in front of the protection of the principle of preservation of the contractual balance.

This is in no way in conflict with another fundamental principle, namely negotiating autonomy, preserved by cooperation between the parties.

Therefore, the party damaged by the partial default of others has the right to propose the renegotiation of the contract in the light of the supervening modification of the economic and legal structure caused by unforeseeable events; the counterparty, for its part, will be required to enter into negotiations and collect the proposal, being able to refuse disproportionate claims or strictly personal assessments and particular economic convenience.

Pursuant to art. 1374 of Italian Civil Code therefore, the contract obliges the parties not only to what is expressed in the same, but also to all the consequences arising therefrom according to law, custom or equity.

The principle of good faith pursuant to art. 1375 Italian Civil Code constitutes an essential foundation of the contractual relationship, from its formation to its possible evolution. The parties are always required to bargain while respecting the constitutionally guaranteed duty of solidarity (art. 2 Cost.) which also justifies a revaluation of the rent in the face of the occurrence of an excessive onerousness of the performance due to unforeseeable and exceptional events.

In Rome, with an order dated August 27, 2020, in a case in which the judge was asked to order the guarantee not to be enforced or to order a reduction in the rent, the Court ruled that "there arises (...) on the basis of the general clause of good faith and fairness, an obligation on the part of the parties to negotiate in order to reach a new agreement aimed at restoring balance to the contract within the limits of the normal risk of the lease". In this case the Court of Rome stated a reduction of the rent (i) up to 40% for the months of total lockdown and (ii) up to 20% for the months from June 2020 to end of March 2021.

To the extent that the landlord is not able, due to force majeure, to comply with its main obligation under the lease agreement (i.e. to ensure that the tenant is able to use and enjoy the business concern or the property leased), the tenant would in our view be entitled to a pro-rata rent reduction for the period of non-use of the shop.

In this regard, on 29 May 2020 the Court of Rome resolved a case in which a tenant of a retail shop in a shopping centre in Centre of Italy claimed against the landlord in order to obtain a reduction of the rent for the lockdown period as well as for the months following to the lockdown period. The Court of Rome decided that tenant of retail shops in shopping centres shall be entitled to a reduction up to 70% of the rent exclusively for the lockdown period for the following reasons:

1. the relation between landlord and tenant is regulated by a business lease agreement (i.e. object of the agreement is the enjoyment and use in favour of tenant of a going concern composed by right to exercise business activity in the premises as well as right to use premises, common services, licence, etc.).
2. due to lockdown, landlord was not able to allow tenant to enjoy the right to exercise its business activity within the shopping centre and the premises nor to use common services;
3. the only right for tenant during lockdown was the use of the premises as deposit of its goods;
4. the rent is parameted on all the rights granted by landlord to tenant, not only to the use of premises;
5. in any case, tenant must pay ancillary costs set forth by business lease agreement also for the lockdown period;
6. thus, the rent shall be reduced in proportion to the rights and serviced not enjoyed by tenant during lockdown;

In light of the above described decision, it would be possible that tenants will claim for a reduction of rent. In such case, landlord should grant a rent reduction up to 70% of rent exclusive for the lockdown period while tenant shall pay the entire ancillary costs.

In the same sense, the Court of Venice, with sentence 30/9/2020, noted - in a case of eviction for arrearage intimated for non-payment of rent by a company use or at least has been able to use the premises in a reduced manner in the months from March to May 2020 - that "we cannot speak of absolute impossibility of enjoyment, but a albeit significant partial impossibility, since the availability of the premises in and of itself considered never failed," that it is "relevant the reference to art. 1464 cc. concerning the partial overcoming impossibility and that previews in head to the part whose performance of itself has not become impossible the choice between the reduction of the performance and the withdrawal" and that therefore "it seems opportune to find an agreement on the quota of reduction".

Under Italian law there is no statute providing a definition of force majeure. However, there are statutory provisions regarding hardship and frustration of contracts. Official orders might be regarded as “factum principis” i.e. legal or governmental resolutions which make the fulfilment of an undertaking impossible, independently from the will of the debtor. In this sense, a “factum principis” due to a pandemic might be regarded as a force majeure event.

Article 1218 of the Italian Civil Code states that debtors who do not duly fulfil their obligations shall pay damages, unless it is impossible to fulfil the obligation as a result of an event outside of the debtor's control. With reference to frustration of a contract, article 1256 of the Italian Civil Code states that the obligations under the contract shall end when, due to an event outside the debtor's control, its fulfilment becomes impossible. If the impossibility is temporary, the debtor, during the temporary impossibility, shall not be liable for the delay. However, the obligation shall end if the impossibility lasts until the debtor can no longer be obliged to execute its obligation or the creditor no longer has an interest in enforcing it. 

Article 1454 of the Italian Civil Code states that where performance by one party has become only partially impossible, the other party is entitled to a corresponding reduction in the performance due by it and may also withdraw from the contract if it has no appreciable interest in partial performance. Therefore, unless there are specific provisions within the lease agreements regarding force majeure events, tenants would in our view be entitled to suspend rent payments during the period of the restrictive measures adopted to limit Covid-19. 

In addition, according to article 1467 of the Italian Civil Code if the obligation of one of the contractual parties becomes excessively onerous due to unpredicted and extraordinary events (i.e. force majeure events) such party may ask for the termination of the contract. Termination cannot be requested if the excessive onerousness falls within normal entrepreneurial risk. In any case, the counterparty may avoid termination by offering a fair amendment of the contract. Our view is that termination of the lease agreement due to financial hardship based on a temporary situation would be difficult. Depending on the duration of the current situation and the lasting economic impact on the tenant, this might become a valid basis for the latter to terminate the lease agreement in the future. 

According to article 27, paragraph 8 of Law 392/1978 (i.e. the “Tenancy Law”) tenants paying a rent less than EUR 250,000 shall be entitled to terminate their lease for "serious reasons" by giving 6 months’ notice. 

In this sense, the Court of Macerata sentenced on October 28, 2020, that the "compliance with the containment rules constitutes only an abstract cause of force majeure, the impact of which in the concrete case must be demonstrated by the tenant".

When the Italian legislator, in the pandemic emergency, wanted to introduce the possibility for the parties to renegotiate the economic conditions of the contract or the right of the tenant to ask for the reduction of the rents, it said so explicitly. This was limited to certain specific categories of parties in relation to leases of gyms, swimming pools or sports facilities owned by private parties (see art. 216, paragraph 3, legislative decree no. 34 of May 19, 2020).

None of the other provisions issued by the emergency legislator authorizes the tenant to unilaterally suspend the payment of lease fees in both residential and commercial leases, even when the activity carried out has been interdicted by the emergency measures. Therefore, there has been a succession of pronouncements of the jurisprudence of merit aimed at reaffirming the principle that, even in the presence of closures of commercial activities established ex lege, the tenant (commercial operator unable to exercise the activity) is not allowed to refrain from paying the rent or to reduce it independently.

Rome Court, May 29, 2020 (hearing of May 29, 2020) pointed out:"(...) As for the request for suspension, the reference to emergency regulations does not offer any elements in the direction indicated by the plaintiff: it is sufficient to observe, as effectively deduced by the counterparty, that there is no general regulation that provides for a suspension of the obligation to pay rent. The absence, on the one hand, of a general rule that dictates a discipline for all long-term relationships and the presence, on the other, of a myriad of special rules cited by the appellant's defense (suspension of the terms for the payment of certain taxes; extension of the terms for the payment of mortgage instalments and loans; suspension of procedural deadlines) requires us to acknowledge that the legislator has intended, in relation to certain, albeit numerous, cases, to take steps to facilitate the situation, but has not made any provisions regarding the amount and the time of payment of commercial lease or company rental fees. It is therefore not possible to apply here any rule suspending the obligation to pay business rentals taken from the emergency regulations adopted to date, for the reason - as simple as it is decisive - that such a rule does not exist; consequently, there is no room for a precautionary measure of mere deferment of the contractual terms of payment of the business rental (and even more so of the debt accrued in the previous period)".

In the same opinion, the Court of Rome, on December 16, 2020, further clarified that "even if it were deemed that the balance of contractual obligations had been significantly altered (.... ) due to the epidemiological emergency situation from Covid 19, it must be observed, however, that the same legislator has already adopted compensatory mechanisms suitable to restore a synergies balance, or to reduce the imbalance" with this making not even the various legal instruments abstractly usable for the correction of any alterations of the contractual synergies (such as the termination of the contract for supervening total impossibility of the performance by the lessor, the reduction of the rent due to supervening partial impossibility (again of the service charged to the landlord), the temporary impossibility for the tenant to fulfil the service charged to him).

Nor - as affirmed by the Court of Pordenone, July 3, 2020 - could the reference to article 91 of the Italian Decree lead to a different solution. In fact, the provision merely introduces the absence for the tenant of obligations to pay damages and/or the accrual of forfeitures or penalties, but not the automatic suspension sine die and/or the cancellation of the obligation to pay rent/rent.

The Court of Tempio Pausania, December 21, 2020, no. 298 pointed out that the total or partial suspension of the tenant's obligation (a circumstance that the Tribunal did not consider proven in the case in question) is only legitimate if the landlord's counter-performance is completely lacking, otherwise constituting an alteration of the contractual synallagma that determines an imbalance between the parties' performances.

Therefore, if on the one hand the compensatory mechanisms foreseen by the emergency legislator authorize to consider that the tenant is not allowed to unilaterally suspend the payment of the rent or temporarily reduce its amount, on the other hand such suspension would be abstractly possible only if the landlord's counter-performance is completely lacking.

On the other hand, the emergency decree has determined a very peculiar hypothesis of absence of the landlord's counter-performance, distinguished by the fact that, following the loss of the possibility for the tenant to carry out the commercial activity, the right to use the premises has remained, even though in the most limited use such as a warehouse and/or goods deposit. Such lack is not, then, definitive but is limited in time.

This has induced the first commentators to make their own that by now granitic jurisprudence (affirmed for the case of vices of the rented thing that diminish in an appreciable way the suitability to the agreed use) which does not allow the tenant to abstain from paying the rent or to reduce it unilaterally. The so-called self-reduction of the rent (i.e. the payment of the rent at a lower rate than the one agreed upon) is an arbitrary and illegitimate fact of the tenant, which causes the loss of the synergies of the agreement even in the hypothesis in which such self-reduction is made by the tenant in order to restore the balance of the contract, disturbed by the landlord's default and consisting in the defects of the leased property. In fact, art. 1578 c.c. does not give the tenant the right to make any self-reduction; but only the right to ask, necessarily to the judicial authority, the termination of the contract or a reduction of the consideration as the power to assess the importance of the imbalance between the performance of the contracting parties is devolved only to the judge (Cass. section 3, June 26, 2012 no. 10639).

The total suspension of the performance of the tenant's obligation would be legitimate only if the landlord's counter-performance were to fail completely. Therefore, the tenant who has continued to enjoy the property, although the same has supervening defects, can not suspend its entire performance (consisting in the payment of rent) because it would lack the proportionality between their respective failures, being able to justify only a reduction in rent proportionate to the extent of the lack of enjoyment, the above in analogical application of art. 1584 Civil Code, or the request for termination of the contract due to supervening lack of interest (in the same sense, Court of Cassation May 12, 2017 no. 11783; Court of Cassation December 17, 2014 no. 26540; Court of Cassation October 8, 2008 no. 24799; Court of Cassation April 11, 2006 no. 8425; Court of Cassation April 3, 2004 no. 7772; Court of Cassation June 18, 1999 no. 6125; Court of Cassation October 5, 1998 no. 9863; Court of Cassation May 17, 1983 no. 3411).

Suspension of payment of the fee must, in fact, be in accordance with loyalty and good faith (Court of Cassation January 10, 2008 no. 261). Which is to be excluded in the event that the tenant continues to enjoy the property, and at the time when he is asked to pay the rent, assumes the unusability of the property to the agreed use, because in this way it makes the proportionality between the respective performances fail. Therefore, in such a case, in order to conform his behaviour to good faith, the tenant can only ask for a reduction of the rent proportionate to the extent of the lack of enjoyment, by analogy to the provisions of art. 1584 Civil Code or can ask for the termination of the contract (Cass. July 13, 2005, n. 14739).

The Italian legislator has only intervened marginally to dictate a discipline of commercial leases in progress at the date of approval of the emergency measures and which, in a certain way, could meet the purpose of reconciling the opposing needs of the holders of the relationship (on the one hand that of the lessor to the collection of rents and on the other that of the tenant not to become the only subject to suffer the consequences of the closure of the activities imposed by authority).

Decree Law no. 18 of March 17, 2020 (so-called "Cura Italia"), converted with amendments into Law no. 27 of April 24, 2020, established:

1. In Article 54 ter: "In order to contain the negative effects of the epidemiological emergency from COVID-19, throughout the national territory is suspended, for the duration of six months from the date of entry into force of the law converting this decree, any executive procedure for the foreclosure of real estate, referred to in Article 555 of the Code of Civil Procedure, which has as its object the debtor's principal residence". Decree Law no. 137 of October 28, 2020 (the so-called "Ristori Decree"), converted by Law no. 176 of December 18, 2020, extended the suspension period until December 31, 2020;
2. in art. 91: "compliance with the containment measures set out in this decree is always assessed for the purposes of the exclusion, pursuant to and for the purposes of articles 1218 and 1223 of the Italian Civil Code, of the debtor's liability, also in relation to the application of any forfeiture or penalties connected with delayed or omitted compliance" (paragraph added to art. 3 of Law Decree no. 6 of February 23, 2020);
3. in art. 103, paragraph 6: "The execution of release orders for properties, including those for non-housing use, is suspended until September 1, 2020". Suspension extended to December 31, 2020 by Law Decree no. 18 of March 17, 2020 - the so-called "Decreto Cura Italia" - converted with amendments into Law no. 27 of April 24, 2020. A further term that art. 13, paragraph 13, legislative decree no. 183 of December 30, 2020 (the so-called "milleproroghe"), converted with amendments into Law no. 21 of February 26, 2021, has deferred to June 30, 2021 "limited to release measures adopted due to failure to pay the fee on the due dates and (...)".

Legislative Decree no. 34 of May 19, 2020 (the so-called "Relaunch Decree"), converted with amendments into Law no. 77 of July 17, 2020, art. 216, paragraph 3, provided that: "the suspension of sports activities, ordered by the decrees of the President of the Council of Ministers implementing the aforementioned Decree-Laws No. 6 of February 23, 2020 and No. 19 of March 25, 2020, is always assessed, pursuant to Articles 1256, 1464, 1467 and 1468 of the Civil Code, starting from the date of entry into force of the same implementing decrees, as a factor of supervening imbalance in the balance of interests agreed with the lease of gyms, swimming pools or sports facilities owned by private entities.

As a result of this imbalance, the tenant is entitled, limited to the five months from March 2020 to July 2020, to a corresponding reduction in the rent which, subject to proof of a different amount by the interested party, is presumed to be equal to fifty percent of the contractually established rent".