The pandemic directly impacts economic activities to varying degrees
The current pandemic scenario triggered by Covid-19 and the state of public calamity that is ravaging the country directly impacts economic activities to varying degrees. The three areas of the federation compete with each other in issuing rules on restricting the movement of people in public spaces and the operation of commercial establishments.
Parks, squares, clubs, shopping centers, gastronomic villages, beauty salons, gyms, bars, nightclubs, street stores, among others, were closed or had significant limitations in operation throughout the national territory. How to survive in the crisis environment is certainly the biggest concern for businesspeople, especially those on a smaller scale. The abrupt drop in revenue requires the merchant to reduce expenses, and among the main ones is the rent of the commercial establishment.
Several traders have already knocked on the door of the Judiciary in search of injunctive measures to suspend payment or reduce the price of rent. As a general rule, legal discussions revolve around already established civil law institutes, but with a delicate characterization of their elements in the specific case: theory of unpredictability, unforeseeable circumstances and force majeure, exception of unfulfilled contract and excessive onerousness. Obviously, the situation is still quite imminent. So far, what we have are preliminary decisions that, by technical definition, should not exhaust the matter, but only assess whether there are apparently good reasons in the claims made by the requesting party and whether there will be harm if there is no immediate judicial intervention. We have seen more social and economic considerations than legal grounds, in the sense of correctly applying the legal and contractual instruments that regulate the prolonged fulfillment of obligations over time.
In cases of rental contracts for commercial space at airports, for example, preliminary decisions have determined the reduction of the rental price as long as policies restricting the movement of people remain in force. According to these decisions, the measure is based in fact on the exceptional nature of the current situation in which we live and, in law, on the theory of unpredictability – which, combined, would make it impossible to pay the rental price in full. Authorizing the full suspension of rent payments would be the same as transferring the entire burden of this delicate moment to the renter, said one of them.
In another case, the suspension of rent collection was complete, based on issues such as social function and maintaining the balance of the contract.
Regarding rentals in shopping centers, which were hit hard by measures to restrict the movement of people, there has also been a reduction in the rental value through the suspension of contractual clauses that impose the payment of a minimum rental price and promotion fund and advertising. Precautionary measures against the debtor's denial have also been applied.
However, condominium fees – which cover expenses incurred in administration and conservation – tend to be maintained.
An important point in the formation of the rental price in these contracts is that shopping centers add immeasurably greater value to the tenant in terms of clientele if high street stores are considered as a parameter. If this factor prevails in setting the price, it is also natural that there will be a significant reduction if the clientele cannot access the commercial establishment.
Although with fewer access restrictions, street rental contracts (gyms, restaurants, stores, etc.) have also been affected by preliminary decisions to reduce rent – in some cases, even suspension of payment. The decisions consider the possibility of intervention by the judiciary in exceptional situations that may make the provision by one of the contracting parties disproportionate or excessively burdensome, using article 317 of the Civil Code as a legal basis.
It is not yet possible to assess the degree of impact of preliminary decisions on rental contracts by type of establishment. Perhaps the procedural instruments of collective decision-making – such as the incident of resolving repetitive disputes, the judgment of unfoundedness first faction and the judgment of special appeals by sampling – are responsible for drawing up guidelines so that there is a minimum of uniformity and legal certainty. For now, casuistry does not seem to allow for a decision criterion that is not based on an immediate sense of justice applied case by case. In the absence of specific legal lease provisions, it is necessary to resort to civil law rules. Given this context, in a country of continental dimensions whose tradition still places little value on precedent, it will not be surprising that judicial decisions move in divergent directions, even if the starting point of the questions that arise is the same.
At the moment, the best path is dialogue and negotiation based on good faith, in order to reconcile conflicting interests. If there is a dispute, the solution depends on a circumstantial analysis of the case, in which factors such as the nature of the contract, the allocation of risks in contractual clauses and the real economic impact of each side are strictly observed. Appreciation for good legal technique cannot yield to the appeal to equity and individual conceptions of what is fair, under penalty of opening space for opportunism. The legal system must be one of the tools to get us out of the crisis and both provide security and correctly apply the institutes when rights are in conflict.
*Maria Clara Louzada, lawyer at Freitas Ferraz Capuruço Braichi Riccio Advogados, collaborated.
