Building law and regulation in Peru during Covid-19

1. Is there construction-relevant COVID-19 regulation?

There is no specific regulation related to the construction sector. However, due to the COVID- 19 pandemic, on March 15th, 2020, the Government of Peru issued the Supreme Decree No. 044-2020-PCM, declaring a state of emergency throughout the national territory which implied: (i) mandatory social isolation (“quarantine”), (ii) closure or restriction of road traffic; (iii) temporary closure of borders; (iv) restrictions on internal traffic and other measures for a period of fifteen (15) calendar days, which has been extended until April 12th, 2020.

2. Subsidies and other government support for employer, contractor and other involved parties? (generic, high level only).

The Government of Peru in order to mitigate the contingencies generated in the country’s economy due to the state of emergency decreed by the Supreme Decree No. 044-2020-PCM, as mentioned in numeral 1 above, issued the Urgent Decree 33-2020 and the Superintendence Resolution 64-2020/ SUNAT, dated on March 27th and 30th, 2020 respectively. 

In the provisions issued by the Government of Peru mentioned above, the following was established: 

  1. Workers were authorized to freely dispose their CTS (Service Time Compensation) for up to the sum of S/ 2,400.00 (Two Thousand Four Hundred and 00/100 Soles). The CTS is a benefit that workers perceive for the labour relationship with their employer, and the employee can use it and withdrawn it at the moment when the employment relationship ends.
  2. The suspension of withholding and payment of the contribution to the Private Pension System for the month of April 2020. 
  3. The Government of Peru will provide a subsidy for the private sector employers so that they can pay the wages of their employees. The subsidy will be given to the companies for each registered worker whose salary does not exceed S/ 1,500.00 (One Thousand Five Hundred and 00/100 Soles).

In this case, we consider that force majeure is not refer to the COVID-19 pandemic, but to the acts considered as force majeure would be those carried out by the authority’s or the Government of Peru due to the COVID-19 pandemic. 

However, the decision taken by the Government of Peru, by virtue of Decree Supreme No. 044-2020-PCM, could be considered force majeure, if this decision causes that one of the parties of a contract is unable to fulfil its obligation. Therefore, it will be necessary to review case by case to verify whether a relation has been generated between the decision made by the Government of Peru and the impossibility of fulfilling the obligations by any of the parties. 

In the construction contract, it is clear that the execution of the works will be paralyzed during the state of emergency. Therefore, the contractor may inform to the owner that it will be impossible to fulfil the obligation of execute the construction, until the state of emergency ends. In this particular case, we are facing a temporary impossibility, which will generate that the fulfilment of the obligation is suspended for the entire period of force majeure, in this case, the state of emergency.

Finally, it is necessary to mention that in construction contracts is very common that the parties establish the following: (i) a regulation on the suspension of the construction or the execution of the construction, considering the reasons for the occurrence of the mentioned suspension; (ii) consequences of the suspension, such as whether the term should be extended and who will assume the expenses generated during said period; and, (iii) the remedies that the parties may use to handle the damages generated by the suspension, such as the termination of the construction contract.

4. Does the Epidemic give rise to termination rights to either party?

The Peruvian civil code establishes that it is possible to terminate a contract in the following scenarios: (i) if it becomes impossible (definitively and not temporarily) to fulfill the obligation of any of the parties for causes not attributable to any them; and (ii) in cases of excessively onerous obligations for any of the parties due to the occurrence of an extraordinary and unpredictable event. 

Considering that the state of emergency decreed by the Government of Peru will be temporary, we do not consider that the parties can terminate the contract due to the impossibility of fulfilling their obligations. However, it will be necessary to analyze case by case to verify if it is possible that one of the parties could terminate the contract. In order to analyze case by case it should be necessary to consider the following: (i) the context of the contract; (ii) the terms and conditions of the construction contract;  and, (iii) the particular characteristics of the parties, and their capacity or possibility to fulfill the obligations established in the contract. 

Finally, as it is mentioned above, it is very usual that the parties establish in the construction contract, the faculty to terminate the contract if occur the suspension of the contract for a long period of time.  

5. Do the measures currently being taken in relation to the Epidemic amount to change in law? What are the price and time consequences?

As mentioned in the numerals 1 and 2 above, so far, the Government of Peru has taken several measures that have produced changes to the Peruvian Law, and the most important is the State of Emergency that ordered mandatory social isolation (Quarantine), which has caused the suspension of commercial activities, except for activities related to sourcing, supply and sale of necessary goods and services to protect the public health. Hence, the activities related to construction are suspended.

6. Are there any other issues relevant to COVID-19 the construction industry should be aware of?

Considering that the activities related to construction will be suspended during the state of emergency, the following uncertainties exist: (i) the quantity of days that the emergency state will last; (ii) if all commercial activities will be reactivated once the state of emergency has ended; and, (iii) whether the Government of Peru issues new restrictions that not allow the normal or regular execution of activities related to construction. 

Portrait ofCarolina Gajate
Carolina Gajate
Partner
Lima