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Are health emergencies, mandatory shutdown and economic crisis enough to suspend rent payments?

The government's social distancing measures adopted to contain the spread of the SARS-Cov2/CoViD-19 pandemic have generated a fervent debate among legal experts as to whether it is possible to resort to general principles of law to mitigate the economic impact on tenants. This topic was also the focus of a research by the Massimarium Department of the Supreme Court of Cassation, published on July 8th, 2020, and taken up – inter alia – by an interesting order issued by the Court of Rome on December 16th, 2020 (File No. 45986).

Subject matter of the above-mentioned proceeding was a petition for eviction on non-payment of rent and for court's order of payment of the rents accrued during the period of mandatory shutdown of the commercial activity carried on by the tenant (i.e. March through May, 2020). Objecting to the release of the property, the tenant requested a reductio ad aequitatem of the rent. The tenant argued that the economic crisis arising of the pandemic had led to a 72.72% reduction of its turnover between March 1st and August 31st, 2020, thus affecting the underlying contractual relationship and resulting in the impossibility to perform its obligations under the agreement and to fully benefit from the enjoyment of the rented property.

The Court of Rome overruled the tenant's petition, by denying: (a) both the existence of a landlord's obligation to revise contractual terms (allegedly grounded on a good-faith principle); and (b) the authority of the judge to adjust the parties' contractual will, by overcoming the private nature of the contractual relationship.

The Court of Rome ruled for the non-applicability of such remedies as usually provided by law to overcome potential alterations of the contractual balance on the grounds that the given scenario – in particular – :

  1. 1.cannot be construed as a case of supervening impossibility to perform ("sopravvenuta impossibilità") – even of partial nature ("sopravvenuta impossibilità parziale") – thus not allowing resort to the remedies provided under, respectively, Secc. 1256 and 1464 of the Italian Civil Code (i.e. termination, withdrawal, reductio ad aequitatem or suspension of the performance). In fact: (a) the landlord has uninterruptedly fulfilled its obligation to deliver and maintain the property in a condition to be utilized in accordance with the contractually agreed purpose; and (b) the property was kept occupied during the mandatory shutdown; and (c) the mandatory shutdown is not of definitive nature;

  2. not a case of supervening excessive contractual burden ("eccessiva onerosità sopravvenuta") since the property has maintained its rental value and the supervening burden for the tenant is not of objective nature, but it is related to its personal conditions (i.e. a loss of income), thus excluding resort to the termination of the contract pursuant to Sec. 1467 of the Italian Civil Code.

The Court of Rome – as a general remark – pointed out that:

  1. (a)Lawmakers have recently passed ad hoc regulations, offering specific measures to cure contractual alterations due to the CoViD-19 pandemic (e.g., Law Decree No. 18/2020, the so-called "Cura Italia"). If a general remedy already existed, capable to possibly provide for a suspension, reduction or cancellation of the rents due, ad hoc regulations or measures of this kind would not have been passed; and

  2. (b)the Court of Cassation has long since ruled that, in the event of a reduction or diminution in the enjoyment of the property, the tenant is never allowed to refrain from paying the rent, or to unilaterally reduce it.

DISCLAIMER: the content of this news is for informational purposes only and neither represents, nor can be construed as a legal opinion