Building law and regulation in Romania during Covid-19

A state of emergency was declared in Romania by Presidential Decree on 16 March, for one month. According to the President’s declaration of 6 April 2020, this will be extended by one more month.

Since 6 April 2020, the only COVID-19 specific regulations applicable to the construction sector are those in Government Emergency Ordinance No. 32/2020 that extend, after the end of March, the usual duration of the allowances granted to employees in the construction sector. This means that if a site is closed at the initiative of the beneficiary for safety reasons during the state of emergency, the affected employees will benefit from an allowance of 75% of the average gross basic salary for the three months before the suspension of the activity, for the entire duration of the emergency period.

Furthermore, other general regulations have been enacted with a potential impact on the construction sector, such as Law No. 19/2020 that provides for days off for a parent to supervise his/her children, given the suspension of the courses/temporary closure of the educational units. The allowance for this period is up to 75% of basic salary, but not more than 75% of gross salary, these net sums being settled by the state from the Guarantee Fund for the payment of salary claims and returned by the employer by the end of the fiscal year.

Several regulations have been enacted during the state of emergency concerning:

1. capping the prices for electricity and heat, natural gas, water, sanitation and fuels for the state of emergency at the prices on 29 March 2020;
2. deferring the payment by SMEs of rent and utilities for their registered offices (main or secondary) if they have discontinued their activity in whole or in part based on decisions issued by competent public authorities, on condition that such SMEs hold an emergency situation certificate issued by the Ministry of the Economy (an “ESC”);
3. no penalties for delays in executing contracts concluded with public authorities by SMEs that have discontinued their activity in whole or in part based on the decisions issued by the competent public authorities during the state of emergency and which hold an ESC;
4. for SMEs, no interest or penalties payments for due fiscal obligations and the suspension/non-commencement of enforcement procedures for budgetary debts until 30 days after the end of the state of emergency;
5. unemployment benefit partially subsidised by the State of up to 75% of the employee’s individual basic salary, but not more than 75% of the average gross salary, which is approximately EUR 844, for undertakings that reduce or temporarily discontinue activity in whole or in part, at their own initiative, as a result of the effects of the COVID-19 epidemic, provided that they hold an ESC, for the entire period of the temporary suspension of the employment contract at the initiative of the employer; and
6. a bonification granted to corporate income tax (CIT) payers, except microenterprises, due for the first quarter of 2020, if payed in advance (by 25 April 2020) of 5% for large taxpayers, 10% for medium sized taxpayers, and for microenterprises the payment of the income tax for the first quarter of 2020, by 25 April 2020, a 10% bonification on the due tax.

The COVID-19 pandemic cannot be deemed per se a force majeure event triggering immediate effects on the performance of agreements.

The procedure for ascertaining a force majeure event generally involves the Romanian Chamber of Commerce and Industry (the “CCIR”) being called on to issue a certificate of force majeure for each specific contractual relationship. Such certificates can be requested only if the respective agreement includes a force majeure clause. To have an analysis done, the parties would have to pay a EUR 500 fee. The response of the CCIR on the force majeure qualification is due within 15 days of the submission of the request together with the agreement and other relevant evidence.
 
The CCIR may eventually not consider every situation force majeure, and may not grant a certificate. Even if granted, a certificate’s effects are not automatic. Instead, the party with a force majeure certificate has to go to court to justify its non-compliance with an agreement, and the court could ultimately overrule the CCIR’s decision. Similarly, a fortuitous event is also subject to possible reassessment by a court. The courts’ activity during the state of emergency is also restricted to urgent cases only, so we would expect that a ruling on a force majeure event may be delayed until quite long after the end of the state of emergency.
 
Hence, assessing COVID-19 as a force majeure or a fortuitous event  must be done on a case-by-case basis, taking into account the particular circumstances, such as the extent to which the obligation to suspend the work applies to a certain employer, contractor or supplier, as the case may be, due to mandatory quarantine measures.

Another legal concept that may be useful to analyse in the COVID-19 context is hardship.

Hardship is defined as an exceptional change in circumstances during the contractual performance that makes one party’s obligations more onerous than the counterparty’s. However, hardship is not automatic. It is merely a defence to be raised in court against a claim by the other party. At face value, hardship appears to be a more acceptable solution in court than force majeure, but with the potential downside that the future of the entire contract is left in the court’s hands, as opposed to a certain set of obligations.

Hardship must be unpredictable, which COVID-19 qualifies as, and must occur after the conclusion of the agreement. If a court acknowledges hardship, it could decide to recalibrate the contract towards a more balanced set of conditions or terminate it under certain conditions. Most agreements concluded after the Romanian New Civil Code enacted in October 2011 usually exclude hardship as a cause for exoneration. As a result, a party should first check the relevant agreement to determine if this exclusion applies.

Finally, hardship cannot apply if the party invoking it did not take steps towards renegotiating the agreement outside the courts.

Termination could occur due to an impossibility to perform contractual obligations. Such impossibility could arise due to a shortage of materials or qualified employees, resulting from the measures that were taken by the authorities. The Romanian Civil Code provides that if the impossibility to perform an important obligation by one party is temporary, the counterparty can either: (i) suspend performance of its own correlative obligation; or (ii) terminate the agreement.

Any party can at any time during a suspension request the termination of the agreement. Depending on the actual wording of the relevant contractual clauses, such termination could be on notice or confirmed in court. In the absence of contractual provisions regarding termination on notice, the termination of a commercial agreement is unlikely to occur during a state of emergency because, according to the measures, court activities have also been restricted.
 
Given how new this situation is, we recommend that the parties communicate and maintain as much clarity as possible about each other’s position and the continuation of their contractual relationship.

Yes, the measures taken during this state of emergency would amount to a change in law. In principle, a change in law must be borne by the party that is affected by the change in performing its contractual obligations, unless otherwise set forth in the relevant agreement. In our experience, many of the construction contracts on the market, especially the international construction contracts standards or forms that regulate construction projects, would include relevant clauses regarding the change in law as a cause for a delay in the delivery of works, whereas the increase in labour costs that might be caused due to the shortage of site workers would be generally borne by contractors. An analysis on a case-by-case basis of each agreement is highly recommended to make a specific assessment on the impact of the changes in law brought by this pandemic to agreements in the construction sector.

Given that no specific measures were taken in the field of construction and that none of the general measures oblige construction sites to be closed down, activity on sites can continue, although subject to already existing protection measures resulting from health and safety labour regulations.

In addition, according to Government Emergency Ordinance No. 37/30 March 2020 on granting certain facilities for loans made available by credit institutions and non-bank financial institutions:

• mortgage loans granted before 30 March 2020 and which are not in arrears will be suspended at the request of the debtor for up to nine months, but no later than 31 December 2020;
• the maximum loan term may be extended by a period equal to the period during which the payment obligation has been suspended;
• this incentive is granted exclusively to debtors whose revenues have been directly or indirectly affected by the serious situation caused by the COVID-19 pandemic. Among others, debtors should have interrupted their activity in full or in part as an effect of the decisions issued by the competent public authorities, and hold an ESC ascertaining the decrease in revenues or proceeds by a minimum 25% in March 2020 compared to the average revenues and proceeds for January and February 2020, or the interruption of their activity in part or in full as an effect of the decisions issued by the public authorities. In addition, debtors should not be insolvent on the date the loan reimbursement suspension is requested.