The object of this memo is to give a short overview of the application hereof in various situations.
THE MEASURES TAKEN BY THE DANISH GOVERNMENT ON 17 MARCH 2020 AND EXTENDED ON 23 MARCH 2020
1. Various requirements to be met by shops and retail business during operating hours with public access.
2. Temporary closing of nightclubs, bars, restaurants and cafés until 13 April 2020 except take-away from restaurants and cafes.
3. Temporary closing of shopping centers and department stores until 13 April 2020 except grocery shops and pharmacies with direct access from outside.
THE GENERAL CONCEPT OF FORCE MAJEURE
Force majeure is a concept that could exempt a party of liability in the form of damages for not fulfilling said party´s contractual obligations.
The concept could also have the implication that a party would either temporarily or permanently be relieved from fulfilling its contractual obligations.
The basic requirement for a force majeure situation, is that there is an impediment outside the relevant party´s control that could not have been foreseen and could not have been avoided making it impossible for the party to fulfill its obligations.
To put the concept into practical use the two key obligations in commercial leases are:
Party | Obligation |
Landlord |
Provide the agreed premises
|
Tenant |
Pay rent
|
THE SPECIFIC QUESTIONS
1. Could a tenant be exempted from paying rent due to the requirements stated above under Section A and the closing under Section B, or be justified to claim a proportionate reduction in rent?
The requirements under Section A do not impact the tenant’s possibility to use the premises. The premises may remain open however subject to complying with the imposed requirements. Already based on that fact, the tenant cannot refer to these requirements as grounds for not paying the rent or a proportionate reduction.
With respect to the temporary closing of various businesses (Section B) it should be noted that the prohibition is issued against the tenants’ business, and not the premises.
This is under customary lease agreements the responsibility of the tenant (often stated as a standard clause in Danish Commercial Lease Agreements), and if not agreed, the tenant is in most circumstances more likely to bear the responsibility of operating lawfully.
The tenant would then have to argue that force majeure has made it impossible for him to perform his obligation of paying the rent, due to lack of revenue/funds.
The tenant would not be successful in claiming that the obligation to pay the rent is suspended due to the general principle that force majeure provisions rarely extend to purely payment obligations.
The banks are currently still operating, and it is still possible to transfer funds or even pay cash and objectively speaking nothing limits the tenant from paying the rent.
References to articles 18, 22 or 23?
In our view, it is not possible for the tenant to request a proportional reduction in the rent cf. Article 23 of the Commercial Lease Act (“the Act”), for circumstances that the landlord is not responsible for.
According to Article 22 it is only possible to claim a reduction if the intended use was not possible due to regulation etc., in force at the time of the conclusion of the lease.
The provision in Article 18 in the Act also allowing for a proportional reduction in the rent deals with the condition of the premises or supply (to the premises).
2. Could a Landlord be relieved from the obligation to provide the premises at the tenant’s disposal?
This discussion is relevant with respect to shopping centers and department stores where the temporary closing is aimed at the landlord.
In this case, the landlord would be able to claim being exempt from liability due to force majeure since the ban makes it impossible for the landlord to (temporarily or permanently depending on the nature of the ban) fulfill its primary obligation (provide the agreed premises).
Consequently, the Landlord is not liable for the tenants’ losses due to the temporary closing, but on the other hand the tenants are probably not obligated to pay rent since the landlord is not able to provide the agreed premises.
For further questions, please do not hesitate to contact us.
Tobias Vieth
Email: atv@lundgrens.dk
Mobil: +45 3060 2224
Alessandro Traina
Email: atr@lundgrens.dk
Mobil: +45 2612 1922
