By Vitor Ferrari, Rafael Mello and André Jerusalem

Considering the declaration of a pandemic of SARS-Cov-2, the cause of COVID-19, by the World Health Organization (WHO), the rapid escalation of the disease in Brazil, and the adoption of measures by government authorities such as the closure of public places, shopping malls and businesses in general, with some exceptions, it is necessary to recognize the imminent risk to the economy of companies that operate and serve in shopping centers. It is true that because this is a rental, many of the challenges faced by companies will also be borne by tenants who reside in rented properties, but since this is a more delicate matter, since it involves fundamental rights, we will address the topic in a separate article.

It should also be noted that on March 20, 2020, the National Congress approved a measure to declare a state of national public calamity until December 2020, and a similar measure was adopted on the same date by the Government of the State of São Paulo.

Much has been said about the undeniable occurrence of force majeure or, as it is called in international doctrine, act of god doctrine. However, little is heard about the theories of unpredictability (art. 317 of the Brazilian Civil Code) and excessive burden (art. 478 of the Brazilian Civil Code). Let us see:

Art. 317. When, for unforeseeable reasons, there is a manifest disproportion between the value of the payment due and that at the time of its execution, the judge may correct it, at the request of the party, in such a way as to ensure, as far as possible, the real value of the payment.

Art. 478. In contracts of continued or deferred performance, if the performance of one of the parties becomes excessively onerous, to the extreme advantage of the other, due to extraordinary and unforeseeable events, the debtor may request the termination of the contract. The effects of the judgment that decrees it shall be retroactive to the date of citation.

So, in the face of the COVID-19 pandemic, an unpredictable situation that requires the closure of stores and businesses with absolutely significant losses, including a drop in revenue to zero and, in some cases, loss of perishable stocks, how should we deal with obligations related to monthly rent, condominium fees and other monthly expenses, depending on each contract?

It is not possible to be simplistic to the point of stating that there is a force majeure event and that all rents and expenses remain unchanged, since there is also a notable incidence of unpredictability and excessive burden, especially if we consider that the rented spaces are not being used for any purpose.

It is necessary to consider the magnitude of the facts, as well as the situation that many will find themselves in, not only tenants, but also landlords, who certainly have no interest in keeping their properties vacant in the midst of an imminent crisis. Thus, both landlords and tenants, sometimes corporations managing shopping centers, will find themselves obliged to necessarily re-discuss and amend their contracts, aiming at rebalancing the contract in view of the exceptionality of the situation, as well as maintaining the activities and contractual relationships beyond the end of this crisis, which will undoubtedly come to an end at some point.

Ideally, the issue should be handled with common sense. However, it is certain that the relationship between individuals may not be resolved commercially and may end up being taken to a judicial resolution, with the adjustment or even the termination of lease agreements signed in commercial establishments, whether in shopping centers, malls or “street stores”.

Obviously, the following points must be weighed up:

• Due to a force majeure event, the commercial property that is the subject of the lease agreement is not serving the purpose for which it was contracted, even against the will of the tenant company, which causes an excessive burden to the tenant who, among other factors, will be prevented from using the leased premises, and will not be able to earn income to support the subsistence of his business, and within the scope of the subject, the payment of rent and maintenance of the business activity;

• In turn, the lessor, who owns the property intended for general commerce, is responsible for all the charges related to it, such as condominium fees and taxes, and as stated above, it is not in his interest to keep it empty. However, if the contract were to continue normally, with a property that will temporarily not fulfill the purpose for which it was contracted, this would result in an obvious imbalance between the parties.

The Brazilian Civil Code, in general terms, seeks to protect the parties from distortions in obligations caused by unexpected situations such as the COVID-19 pandemic, allowing, to the limit, the Judiciary to impose readjustment or rebalancing of the contractual relationship, given the unpredictability of the facts and the excessive burden imposed.

Unfortunately, this situation of imbalance and unexpected burden will be experienced by thousands of tenants and landlords of commercial properties, and it is recommended that negotiations be initiated between the parties to grant reductions or grace periods, both to maintain the viability and continuity of the commercial relationship and to prevent disputes or the unwanted vacancy of properties.

Finally, we would like to remind you that at this time, the most important thing is to use common sense and to preserve rights in a properly guided and guided manner, so that, once the pandemic is over, we can resume activities and allow the perpetuation of the businesses of all interested parties.

We are available to our clients to mediate negotiations for contractual rebalancing and also, if necessary, to obtain legal protection in more delicate situations.