The COVID-19 pandemic has generated disputes in all areas of the law. The disputes between landlords and tenants are no exception, especially considering the “hard” lockdown periods, where many tenants in the commercial field were forced to close down completely, or partially, their businesses. While the businesses were closed, they were often unable to pay the rent, which generated the numerous disputes.

The Case Law is currently not clearly set. The below analysis is a summary of arguments often used in recent disputes.

Impossibility to use or enjoy the leased premises

The tenant will often request the application of Article 1722 of the Luxembourg Civil Code which provides that: “If during the term of the lease, the leased premises are destroyed in their entirety by a fortuitous event, the lease is terminated by operation of law; if it the leased premises are only partially destroyed, the lessee may, depending on the circumstances, request either a reduction in the price or the termination of the lease itself. In either case, no compensation is payable”.

It is commonly admitted by Case Law that Article 1722 of the Civil Code applies to the case of total or partial loss of the leased premises, but also extends to cases where the lessee is unable to enjoy or use the leased premises or to use them in accordance with their purpose. Article 1722 of the Civil Code shall apply where, without any material deterioration, the lessee is unable to enjoy and use the property in accordance with its intended purpose.

In a recent Court decision (12 July 2021), the Court was facing a case where a tenant operating a fitness center was requesting the release of its obligation to pay the rent based on the fact that the pandemic situation made the operating of a fitness center impossible. The Court held that the lockdown measures in Luxembourg were not in relation to the leased premises themselves, but in relation to the operation of the business of the tenant. The Court further held that the lockdown measures did not forbid all commercial activities and that, for instance, the tenant was allowed to continue to operate its business in a different form (e.g. online fitness classes). The Court held similar decisions for tenants operating a restaurant (by deciding that they were allowed to continue their business in another form, for example by offering take-away or delivery).

Force majeure

The tenant will also often refer to the principle of “force majeure” foreseen by articles 1147 and 1148 of the Civil Code.  Force majeure is commonly defined as “an event occurring after the conclusion of the contract and which has the effect of making it impossible to perform its obligation to give, to do or not to do, irrespective of any fault on the part of the debtor in the genesis, occurrence and consequences of the event. Force majeure has the effect of releasing the debtor from his obligation insofar as it renders its performance definitively impossible.”

 The recent Courts decision will generally reject this argumentation by reminding that the tenant’s obligation is to pay the rent. the tenant faced with an obligation to close his business temporarily cannot invoke force majeure, insofar as the obligation to pay the rent cannot be made impossible by force majeure, especially as the lockdown measures are only temporary (Court of Appeal 12 July 2021, Court of Appeal 8 December 2021).

Obligation of good faith

The tenant will also refer to article 1134 of the Luxembourg Civil Code which provides for the obligation of both parties to execute the agreement in “good faith”. Based on the “good faith” principle, the Courts held that there is a duty of solidarity between the landlord and the tenant, where each party must take into consideration the legitimate interests of the other party. The good faith principle may oblige the landlord to show restraint when demanding the payment of the rent. This is particularly true during the lockdown period, if the landlord did not leave any room for negotiation.

The Courts have therefore taken into consideration the effective behavior of the landlord during the lockdown period and have decided to reduce the rent, in certain cases, up to 50% (Court 12 July 2021). When reducing the amount of the rent, the Court may take into account the possibility for the tenant to operate other parts of the business (e.g. take-away service for restaurants or sale of fine grocery on site) which would allow the tenant to have other sources of income (Court 8 December 2021). The percentage of the reduction will normally depend on the concrete measures taking by the government and their impact on the business of the tenant. For example, if the tenant is operating a restaurant, the Court will take into account the number of clients allowed to sit in the restaurant and/or the mandatory closing time due to the curfew (Court 13 July 2021).

Termination of the lease for failure to pay the rent

It is common that the landlord, in case of a Court dispute, will not only request payment of the lease, but also terminated of the lease. The Case Law generally decided that failure or excessive late payments of the lease were a serious breach of the tenant’s obligations justifying the judicial termination of the lease.

In the recent Case Law, the Courts have decided that if the failure or excessive late payments of the rent have occurred during the lockdown period, the termination of the lease is not automatically justified. In certain cases, the Courts may reserve their decision on the termination of the lease for a certain period of time to see whether the rent arears are paid in the meantime. Depending on the situation, they may then decide to terminate the lease if the rent arrears are too important.