Effects of the officially ordered closure of shops/restaurants/etc. on existing leases

The Ordinance 2 on Measures to Combat Coronavirus (COVID-19) (COVID-19-Ordinance 2) which was issued by the Federal Council on 13 March and already amended on 16 and 18 March, in article 6 para. 2 includes the obligation to close publicly accessible facilities to the public. As a result, various businesses from a wide range of sectors are forced to close their operations. Namely shops, restaurants and hairdressing salons are affected.

Is the rent still owed?

Many affected tenants are therefore currently wondering whether they will have to continue paying the rent. At the same time, landlords are also confronted with various inquiries from affected tenants, who demand answers. The only thing that is clear at present is that there is no precedent for the extraordinary situation that has been in force since 17 March 2020.

Specifically, the question arises in each case whether the closure of the business ordered by the authorities constitutes a defect in the sense of tenancy law, which grants the tenant corresponding rights (cf. article 259a et seqq. of the Swiss Code of Obligations, CO). This question has not yet been clarified, at least not by the highest court, which is why there is considerable legal uncertainty for both, tenants and landlords. If a defect is affirmed, the tenant has the possibility, based on article 259d CO, to demand a reduction of the rent (in individual cases up to 100% possible), which should be reported to the landlord. At least in this respect it is clear that affected tenants are not entitled to the option under article 259g CO (deposit of the rent), as the “defect” – if the situation were to be qualified as a defect by the courts at all – cannot be remedied by the landlord.

Moreover, the current situation also raises the question whether the tenant can rely on other legal bases in order to avoid having to pay the rent – at least in part – as a result. In particular, a (judicial) contract adjustment via the so-called clausula rebus sic stantibus could be considered. This presupposes (i) that the circumstances change so fundamentally after the conclusion of the contract that a serious equivalence disruption occurs and (ii) that this change in the relationship was neither foreseeable nor avoidable at the time the contract was concluded (see also BGE 135 III 1 E. 2.4, with references).

Depending on further developments and after some time, tenants could also be given the opportunity to terminate the lease agreement extraordinarily on the basis of article 266g CO. However, whether this instrument is at all suitable for tenants will ultimately depend on economic considerations. It should be emphasized in this respect that even in this case the statutory period of notice must be observed. Since this period is generally six months for commercial premises (article 266d CO), in many cases an approach based on this provision is probably not a solution for affected tenants in the existing situation.

Individual case consideration should be decisive

The answers to the questions raised must be assessed separately in each individual case and on the basis of the existing lease agreement. One factor that plays a role is whether the lease agreement contains a provision for the existing situation (e.g. a force majeure clause) – which in practice is likely to be rare, but not impossible. If lease agreements even contain an operating obligation for the tenant – which is common in shopping centers, among other places – the situation becomes even more complicated.

Examination of a possible insurance is indicated in any case

In any case, it is advisable for both, tenants and landlords, to urgently check whether insurance benefits can be claimed for such a business interruption. This depends on the specific situation and in particular the applicable insurance contract. The contractual documents must therefore be consulted and assessed separately in each individual case. It is advisable to contact the insurance company directly in order to check any coverage or other support from the insurance company.

Discussions between the parties are advisable

Obviously, the current situation can endanger not only the existence of tenants but also that of landlords – because the landlord in turn has to pay his/her/its bills. In view of the legal uncertainty that has been pointed out – and also taking into account of the global and national scope of the problem – it is highly advisable that the parties to the lease agreement seek a compromise and, if at all possible, agree among themselves. It is particularly important to bear in mind that judicial disputes can last months, if not years. As solutions are needed now, neither party has an interest in bringing the case to court objectively speaking. A conceivable pragmatic solution could for example be a temporary deferral of the rent payments, provided the landlord can afford it. In this respect, on 19 March 2020, the Geneva Real Estate Chamber (representing landlords in the canton) and the State of Geneva signed an agreement inviting the parties to discuss the situation and, where possible, agree on the deferral of commercial rents based on the tenant’s long‑term economic viability.

At any rate, notwithstanding the terms of the possible settlement, we would advise that both parties make their concessions with any and all necessary reservations to ensure that neither party waives any of his/her/its rights (e.g. the tenant pays the rent, subject to a further reduction, or the landlord grants a deferral of payment without admitting to the existence of a defect).

Foreseeable regulations/solutions by politics?

Under current law, there is no state support for rent payments, such as there is for wage payments under labour law on short-time working.

However, on 27 March 2020, the Federal Council decided to extend payment deadlines in cases where the tenants are in arrears in the payment of rent or accessory charges due to COVID-19-Ordinance-2, thus mitigating the risk of landlords terminating lease agreements. Consequently, should a landlord wish to terminate a residential or commercial lease, he/she/it is obligated to grant a deadline of minimum 90 days to the tenant for payment of the arrears (instead of the 30-day deadline provided in article 257d CO). Likewise, a landlord may terminate the lease of furnished rooms, parking spaces or other comparable facilities by giving 30-days’ notice (instead of 2 weeks as provided in article 266e CO). Furthermore, also in usufructuary lease relationships in the sense of article 275 et seqq. CO the period for the payment of the rent due under article 282 para. 1 CO is extended from 60 to 120 days under the same conditions.

In addition to these measures, the Federal Council already on 20 March 2020 decided on further far-reaching measures, including liquidity support for companies. For example, affected companies may receive loans of up to 10% of turnover quickly and easily (up to max. 20 million), with amounts up to CHF 500,000 to be paid out immediately by the banks.

Moreover, on 24 March, the Federal Council set up a task force under the leadership of the Director of the Federal Housing Office (FHO), made up of leading players of the real estate sector, to find solutions to this difficult situation. Therefore, we can reasonably expect that politicians – at least for some of the issues raised – will present short-term solutions before the courts can/must deal with them. However, on 8 April, the Federal Council announced that it would refrain from intervening in the private-law relations between tenants and landlords. Instead, it is urging the tenants concerned to find “constructive and pragmatic solutions through dialogue”. At the same time, the Federal Council has instructed the Department of Economic Affairs, Education and Research (WBF), together with the Department of Finance (EFD), to monitor the situation in the area of commercial leases and to report to the Federal Council by autumn 2020.

Finally, the cantons are encouraged to find ad hoc solutions. As an example, on 6 April, the Geneva landlord organizations (USPI Geneva and the Geneva Real Estate Chamber) entered into an agreement with the State of Geneva and ASLOCA, which establishes a voluntary assistance program for landlords who wish to support their commercial tenants. Thus, the State of Geneva undertakes to indemnify the landlord who agrees to exempt the tenant from all or part of the rent for the month of April 2020 and to suspend the payment of accessory charges. The compensation amounts to up to 50% of the rent in the event of a total discount and is paid by the State within 30 days. This measure is aimed at very small companies and self-employed individuals whose rent does not exceed CHF 3,500 (excluding accessory charges) per month and who do not have sufficient reserves or liquid assets, provided they were not in arrears in the payment of the rent before 17 March 2020. The cantons of Vaud and Fribourg adopted similar solutions for small businesses by accepting to pay up to CHF 2,500 per commercial lease (or even up to CHF 3,500 in the canton of Fribourg for restaurants) for the months of May and June 2020, provided the lessor waives one-month rent during this period.