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The pandemic caused by COVID-19 has had a huge impact on all areas of our lives, both through the direct effect on our health, freedom and economy, and through the regulations issued by the authorities to mitigate or try to control the impact.
This is where the ‘Covid clause‘ comes in, let’s see what it is and how to apply it in leases.
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The real estate sector was also affected by the pandemic crisis in terms of the fulfilment of obligations and the execution of many of the contracts signed before the pandemic began, influenced by its direct effects and, in addition, by the numerous DPCMs.
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All that is happening in relation to COVID-19 is leading landlords and tenants to try to protect themselves by considering the inclusion in contracts of a safeguard clause called the ‘COVID clause‘ or ‘coronavirus clause‘.
The covid clause is based on “principle of force majeure” i.e. a supervening, extraordinary event, which the parties could not reasonably foresee at the time of the conclusion of the contract; in this sense the Supreme Court states that the aggrieved party must be able to renegotiate the content of the performance, thus establishing the existence of a duty to renegotiate on the part of the advantaged party.
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In short, should the health emergency continue or in the event of a new state of health emergency and consequent Prime Ministerial Decree, which would make the delay or failure to perform obligations justifiable and excusable, e.g. due to the interruption of work, the parties may decide to renegotiate, suspend or reduce the rent.
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It is possible to apply it to both residential and commercial leases because in accordance with the ‘principle of autonomy of the will of the parties’ there is no legal impediment to the landlord and tenant reaching a valid agreement and then declaring this in the contract.
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What are the effects of the Covid Clause on the parties?
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The ‘new normal’ is uncertainty and in this situation, it is crucial to give more flexibility to the contractual relationship between landlord and tenant.
the covid clause should reduce uncertainty, discussions and possible friction.
The choice to enter into a covid clause can be an advantage for the tenant since if he suffers the consequences of the restraint measures and, for example, is forced to close his business, he can demand a renegotiation of his contract, a suspension or a reduction of the rent.
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The landlord will be able to count on a clearer framework of rules, which will make it easier for him to protect himself against the consequences of such events and which will significantly reduce the grounds for friction with the tenant.
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The clause must be inserted before the contract is concluded. For contracts already in progress, on the other hand, there is no real and proper protection, and the possibility of reaching an agreement is left to the will of each party.
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Ultimately, it is a question of introducing possible ways of solving the problems of the health crisis into the lease. Each coronavirus clause will be a case in itself and it will be crucial to understand whether the will of the parties is to safeguard the contract or to terminate it as soon as possible.
There are many cases, but prevention is better than cure.
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Do you need to renegotiate the fee or
register the termination of the contract?
At AVatar we offer you comprehensive advice on drafting the contract and inserting the COVID clause.
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