Law and regulation of rental agreements in Monaco during Covid-19

Updated on 31.03.2020

1. Is a lessee eligible for rent reduction due to a significant decline in footfall and consequently its turnover as a result of COVID-19?

Not in principle. Under current Monaco legislation and case law - force majeure does not enable a party to a lease agreement to reduce the rent.

2. Is a lessee eligible to temporarily close its leased space - on its own initiative – and opt for rent reduction as a result of COVID-19?

Lessees may freely opt to temporarily close their leased space without any requirement of obtaining the lessor's prior consent, subject however not to be in violation of the contractual requirement which may have been provided in the lease, to maintain and operate commercial premises.
In the current COVID-19 pandemic context though, such risk of breach of duty by the lessee seems theoretical where Monaco Government has now imposed remote work for employees where not impossible.
As far as the duty to pay the rent for the leased space when closure happens at the lessee’s initiative, and even where the shutdown derives from the duty to favour remote work for employees, the lessee should not be in principle able to invoke a force majeure cause to claim a rent reduction.

3. Is a lessee eligible for rent reduction in the event its leased space is closed following an order by the Government as a result of COVID-19?

Whether or not lessees may argue that the Ministerial Decision dated March 18th, 2020 leading to the prohibition to open to public for "non-essential" commercial premises amounts to a certain type of force majeure justifying a claim in rent suspension during the epidemic period, will rely on whether the purpose of the lease agreement (i.e. the use of commercial premises) still exists and the leased premises are still usable for their intended use.
In such case, lessees may invoke a defence of anticipatory breach (“exception d’inexécution”) due to the failure from the landlord to make the leased space available in order to seek a rent reduction, but only however, if the lease agreement did not exclude this defence.
Monaco Government has enacted several measures to suspend the commercial rents on the commercial leases for the premises belonging to the State of Monaco. The Government has further strongly invited the private lessors to act with civic and to adapt and/or rescale the amounts due under the commercial leases during the crisis and is supervising closely any difficulties that may arise.

4. What kind of security is generally provided by a tenant in connection with a lease, a bank guarantee, a deposit or otherwise?

In Monaco, payments of commercial leases rents are mostly secured by cash security deposit, in the amount of 3 months of rent, but is largely dependent upon the terms of the lease agreement as there is no legal restriction to that regard.

In Monaco specific real estate market context, the termination of the commercial lease at the initiative of the lessee may seem purely theoretical in view of the market value of commercial leases in itself.
Where not paying rent does not seem to be a risk-free option in terms of default and associated consequences, legal options allow for the introduction of claims for rent reduction and delays of payment. Also, lessees may try to request the renegotiation of the lease agreements (rent amount and dates of payment), by invoking the general contractual duty of lessors to act in good faith during the performance of agreements in case of change of circumstances, such as the COVID-19 pandemic context.

Portrait ofSophie Marquet
Sophie Marquet
Partner
Monaco