Luxembourg, 2021-03-17

The Justice of Peace Court of Luxembourg handed down interesting rulings in January 2021 on the question of whether commercial tenants are obliged to pay rent arrears during the plant closures which where incurred on the orders of the state to combat the Corona pandemic.

Commercial lessors were claiming payment of rent arrears against café owners and textile retailers who were forced to close their premises to the public during the Corona lockdown.

The defendant commercial tenants sought relief from rent or, in the alternative, a reduction in rent in court on the grounds that they were not allowed to use the rental property as a result of the government-ordered plant closures. They claimed, being obliged to stop their payments, since the claimant could not fulfil their essential contractual obligation - to guarantee the tenant undisturbed use of the rental property.

The Justice of Peace Court granted them full relief from the obligation to pay rent arrears for the period of the government-ordered plant closures based on Article 1722 of the Luxembourg Civil Code (LCC).

This article refers to the legal concept of the "theory of risk", which provides that in synallagmatic contracts (contracts with mutual obligations of the contracting parties), if due to a case of force majeure the contractual obligation of one party ceases to exist, the corresponding obligation of the other party ceases to exist also. These circumstances entitle the renting parties to have their contracts renegotiated.

According to Article 1722 LCC, a lease is terminated by operation of law if the leased property is completely destroyed by force majeure during the term of the lease. If the rented property is only partially destroyed, the tenant may, depending on the circumstances, demand either a reduction in rent or termination of the tenancy agreement. The Justice of Peace Court ruled that Article 1722, which primarily relates to the material loss of the leased property, can also be applied in the case of a “legal loss” of the leased property.

However, the Justice of Peace Court pointed out that a commercial tenants are only released from their obligation to pay rent if the unforeseeable event prevented them from using the rental property for its intended purpose.

The risk theory of Article 1722 LCC therefore does not apply if the unforeseeable event only leads to a reduction of the commercial tenant's sales.

It remains to be seen whether these recent rulings of the Justice of Peace Court will be overturned on appeal proceedings or whether they will obtain permanent recognition in Luxembourg case law.

Author: Anne-Marie Schmit, attorney at law

ETUDE ANNE-MARIE SCHMIT