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Force majeure, a remedy for COVID-19?

27/03/2020

To date, more than 150 countries have been affected by the Coronavirus pandemic.

Apart from the health aspects, the repercussions of the pandemic on the global economy are already considerable. From a macroeconomic point of view, the Monegasque Government has recently announced extraordinary measures for businesses.

In day-to-day business life, and that of any « contractor », performance of the many agreements composing our economic fabric is becoming difficult or even impossible. Paying rent, suppliers, bank loan instalments – so many essential contracts the performance of which has been compromised.

In this context, is there a legal solution to protect ourselves from the consequences of contractual non-performance?

The concept of force majeure, sometimes thought to be obsolete, is nonetheless one of the most effective solutions to deal with this. However, we need to fully understand its meaning, and the legal regime.

Force majeure is indeed known to Monegasque law, which defines it as an event that is « unforeseeable, external and compelling or insuperable » (Court of Appeal, Order of 29 September 2015).

Article 1003 of the Monegasque Civil Code provides that non-performance due to an event of force majeure shall not give rise to the granting of damages.

Does COVID-19 necessarily constitute an unforeseeable, external and compelling event?

A legal examination of each individual case is of course necessary.

Despite this, you may have the solution at hand without being aware of it.

An examination of your contracts may reveal the existence of a force majeure clause that defines the concept and, better still, stipulates for example that an epidemic is an event of force majeure providing grounds for non-performance.

In that case, you may have a solution to your problem. You will, however, need to comply strictly with the procedure, including, for example, how notice is to be served on the other party or the time allowed for calling the clause into play.

The consequences of an event of force majeure may also be stipulated in your agreements:  no liability, termination of the contract or even the suspension of performance – there are many different terms that may be applicable.

Be careful though, not to be faced with a nasty surprise: a clause may provide for your liability being incurred even in the event of force majeure!

In the immediate future, what should you do with the call for rents and charges for the second quarter of 2020?

Depending on whether you are a landlord or a tenant, it will be necessary to assess on a case-by-case basis according to the provisions of the lease and the specific activity, in light of the Decision of the Minister of State dated 18 March 2020, whether the obligation to deliver the leased asset by the landlord can be met, and correlatively, whether the plea of non-performance may justify the suspension or even cancellation of the payment of rents and charges.

It should therefore be noted that the exceptional events which the Principality of Monaco, like the rest of the world, is experiencing do not necessarily justify non-payment of rentals and therefore do not necessarily allow the contractual provisions relating to termination to be waived, whatever the drop in turnover, since the force majeure invoked systematically is, in some respects, unfounded.

In the circumstances and depending on the specifics of each case, landlords will be advised, in the interest of economic recovery and in light of the obligation to perform the contract in good faith, to consider payment terms such as monthly or other installments of the rent.

As you will have understood, there are ways of reducing the impact of COVID-19 on your contractual commitments without compromising your relationships with your business partners.

Authors

The picture of Stephan Pastor
Stephan Pastor
Avocat Associé | Partner
Monaco
The picture of Daniel Goldenbaum
Daniel Goldenbaum
Middle Associate
Monaco
The picture of Sophie Marquet
Sophie Marquet
Avocat Associé | Partner
Monaco