13 minute read
over to the lawyers
The retail real estate sector restarts and faces the changing world: from post-pandemic to war, from new reforms to environmental sustainability. The legal challenges of 2022.
Lease and Rent: Lessons LeaRned fRom the emeRgency, how to RestRuctuRe economic ReLations and RedistRibute Risks
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by Giulia Comparini, Partner, CoCuzza & assoCiati
The crisis generated by the pandemic showed in all its evidence the inadequacy of the existing leases to regulate emergency situations leading to a strong imbalance in economic relations. With no contractual solutions in place, the parties initially refused to see each other’s points of view. The tenants did so by suspending payment of rent, given the impossibility of using the property for the purpose agreed upon in the lease, the landlords by not deciding to grant discounts and extensions believing that they should not have to bear the consequences of events that were totally unforeseeable and beyond their control. The Supreme Court intervened with a report in July 2020 suggesting that the parties resort to the general principle of good faith in the performance of agreements, understood in an objective, constitutionally oriented sense as a duty of cooperation and solidarity. According to the Court, even in the absence of an express contractual provision, the parties nevertheless have an obligation to renegotiate the content of the contract in order to rebalance their respective positions, and any party’s refusal to renegotiate ‘results in opportunistic behaviour that the law cannot protect and tolerate’. The case law of the past few months has been far from unambiguous, in some cases recognising the tenant’s right to a reduction of the rent for the lockdown period and sometimes also in the contingency phase, in other cases denying this right altogether. The intervention of the legislation on the emergency has proved fragmented and inconsistent and cannot be said to have been a useful reference for the parties. Landlords and tenants have thus found themselves facing the crisis mostly unprepared and without certain references. Those who managed to avoid the courts mostly chose to negotiate short term leases with time-limited rent reductions. But how to behave now that the emergency seems to be over and new agreements are being signed? In practice conflicting interests can still be found, despite the parties’ awareness of the desirability of introducing force majeure clauses into leases. Indeed, the tenants are proposing very detailed force majeure clauses and regulate their effects in a specific manner whether the force majeure event occurs pending the refur-
bishment/outfitting of the shops or during the course of the relationship, establishing pre-determined suspensions and/or reductions in rents. Landlords are tending, on the contrary, to accept only clauses providing for a generic commitment of the parties to re-evaluate the economic terms of the lease in the event of a supervening and unforeseeable event that upsets the balance and makes the performance of one of them excessively onerous. The reality is that it is difficult to agree ex ante on mutually satisfactory solutions.
force majeure and factum PrinciPis: from Pandemic to war
The pandemic, first, and the winds of war, now, made and are continuing to make the concepts of force majeure and factum principis and their impact on the fate of existing leases extremely topical. The subject matter is wide-ranging even if one were only to discuss it in the sphere of real estate. Limiting ourselves to just a few remarks, we must first of all point out that no statutory definition of force majeure and factum principis exists in our legal system and that, therefore, the task of defining the two institutions is a matter for case law. The rulings on force majeure, both of the Supreme Court and the lower courts, are numerous and identify force majeure as an objective, extraordinary and unforeseeable event that makes the performance of the duty impossible and thus affects the contractual balance. A pandemic is an event of force majeure as is a war (albeit in this case with a certain margin of interpretation where its lack of foreseeability can be contested). Factum principis is, in turn, defined by the courts as the legislative or administrative measure of the authority that prevents performance. Thus, the government measure ordering the closure of businesses to counter the spread of a pandemic is an example of factum principis. In practice, then, what happens to leases and business leases if a force majeure or factum principis event affects the use of the premises for the agreed purpose? This question is one that retailers and industry professionals have been asking since the early days of the lockdown in the spring of 2020 and that has been the basis of many lawsuits by retailers against their landlords. Two years later, and at the outcome of much litigation, it can be observed that the lower courts have found factum principis (in this case, the government’s measures to close shops during the lockdown and the ‘red zone’ days) to be an event capable of affecting the balance of retail agreements: if a retailer cannot use the premises for business due to an order issued by the authority, it is entitled to a reduction of the rent that takes into account the imposed lockdown, but also the fact that the retailer continued to hold the premises by occupying them with furnishings and goods. On the other hand, the courts did not consider that the pandemic in itself justified a judicial intervention to change the rent for the days of opening, especially in 2020 despite the low influx of customers caused by the preventive measures. We hope that the Russian-Ukrain-
ian conflict will not degenerate on a larger scale, but since the risk of this exists, it might make sense even now to expressly address the consequences of an undesirable conflict in the leases currently being established. This would ensure greater clarity in the relations between the parties, also in light of the Covid experience.
franchising: the abuse of economic dePendence
The most interesting legal trend in the field of franchising is the abuse of economic dependence. Perhaps also due to the period of crisis coinciding with the Covid pandemic, the courts have found themselves dealing with this issue on several occasions and now it is also the turn of the Italian Competition Authority (‘AGCM’). The abuse of economic dependence is provided for in Law 192/1998, on the subject of subcontracting; the law prohibits “the abuse by one or more companies of the state of economic dependence in which a customer or supplier business finds itself, in its or their regard,” defining economic dependence as “the situation in which a business is able to determine, in its commercial relations with another business, an excessive imbalance of rights and obligations.” Although the law establishes the prohibition of abuse of economic dependence only in relation to subcontracting, the Supreme Court has sometimes applied the prohibition by analogy to other agreements, such as franchising. The pact through which the abuse of economic dependence is realised is null and void. If the conditions are met, the civil judge may order the franchisor to pay damages and the AGCM may issue warnings and sanctions. In November 2020, the AGCM opened an investigation against a major clothing brand. The same fate befell another children’s clothing brand and a well-known fast food chain in 2021. The outcome of these proceedings is expected shortly. It is worth listing some of the covenants and conduct of the franchise agreement that have been held to be abusive: • pricing policies bordering on imposition; • compulsory participation in promotional campaigns; • commitments to invest considerable sums in shop fitting, marketing, entrance fees and royalties; • obligation to use the franchisor’s professionals for the design of the shop; • obligation to deliver a bank guarantee and insurance policy; • modifiable delivery times; • limitations to the right to assert a warranty claim for defects; • prohibition of change of control or change of management; • prohibition of assignment of the agreement; • prohibition of transfer of the point of sale; • exclusion of indemnities and refunds in the event of contractual termination; • prerogatives to the franchisor on unsold goods and furnishings upon termination of the agreement.
Franchising is the agreement whereby the franchisor imposes limits and rules on its franchisee, that in return is allowed to use its name. It is true that the franchisee becomes part of the franchisor’s distribution system, but it is also true that the franchisee benefits from a goodwill and reputation that belong to the franchisor. The ruling reached by a judge or the AGCM in this area must therefore always be carried out with extreme restraint. Of course without prejudice to the strict scrutiny and possible censure of unfair terms, also in relation to the specific context.
the reform of the code of civil Procedure and its imPact in the retail/real estate world
by roberto tirone, Partner, CoCuzza & assoCiati
Law No. 206 of 26 November 2021 will reform the civil process. A new element of the reform relates to the extension of compulsory mediation for disputes concerning franchising and subcontracting agreements. Before commencing a lawsuit relating to franchising or subcontracting relationships, it will therefore be necessary to institute mediation proceedings. If the mediation procedure is not carried out, the lawsuit will be inadmissible. The mediation procedure requires the assistance of lawyers and the participation of a professional mediator. This entails an obvious increase in costs for all parties involved. The mediation procedure also clearly extends the trial time in the event of a failure to settle. However, the mediation procedure can also bring the disputing parties significant advantages: if the mediator is skilled, conciliatory solutions can often be found to the mutual (in)satisfaction of the parties. The costs of mediation, therefore, in the event of a settlement may be well below the costs of litigation. A second new element of the reform is the extension of procedures to business leases of validation, licence due to expiry of the contract and eviction due to arrears. Up to now, it has been considered that the conclusion of a business lease had pros and cons compared to leases : the landlord, for example, could not use the summary eviction procedure, but the ordinary procedure had to be used, with the consequent extension of time and higher costs. Now the landlord may use the summary eviction procedure, thus shortening the time and also being able to obtain the release of the business, despite the tenant’s opposition.
interesting innovations from the consumer code reform
by marta marGioCCo and patrizio Cataldo, senior assoCiate, CoCuzza & assoCiati
The New Deal for Consumers – i.e. the package of European directives enacted in 2019 with the aim of increasing consumer protection and ensuring a fair single market for consumers and businesses – has finally started its implementation in Italy. On 1 January 2022, Legislative Decree 170/2021 and Legislative Decree 173/2021, which transposed EU Directive 2019/770 and EU Directive 2019/771, entered into force. On the other hand, the deadline for the implementation of EU Directive 2019/2161, the so-called omnibus directive, expires on 28 May. This is a major reform of consumer protection rules that the European market, squeezed by outdated regulations, has long felt the need for. It aims to establish common rules on the sale of consumer goods and digital content and services concluded online and offline, capable of facilitating trade in the internal market and increasing the level of consumer protection. The changes introduced to the Consumer Code by Legislative Decree 170/2021 and Legislative Decree 173/2021 are substantial. First of all, the very definition of goods changes, extending to goods with digital content, i.e., those movable goods that incorporate or are interconnected with a digital content or service, such that they cannot perform their functions in the absence of the latter. The new definition of consumer goods is accompanied by new obligations and responsibilities for the seller, including the duty to keep the consumer informed of available updates, including safety updates, necessary to maintain the conformity of the goods, and to provide them to him, within the terms determined by the law. Compared to the previous legislation, the limitation period of twenty-six months from delivery within which the consumer must assert defects has been confirmed, while the consumer’s burden of reporting defects in the goods, under penalty of forfeiture, within 2 months from discovery has been eliminated. In addition, for the benefit of the consumer, the period within which the defect in the goods is presumed to have been present at the time of delivery has been extended from 6 to 12 months, except in cases where this is incompatible with the nature of the goods or the nature of the lack of conformity. With regard to the conventional guarantee, the trader is now obliged, in any event, to represent and deliver the relevant terms and conditions to the consumer in a durable medium and in plain and simple language. One of the most innovative features of the reform concerns the notion of consideration, which now includes (also) the personal data communicated by the consumer. In this way, the legislator has incorporated and regulated (albeit only in relation to certain profiles) a practice that has implemented for years by numerous operators, which increases consumer protection, in addition to the protection already ensured by the privacy law.
by thomas mambrini, Partner, CoCuzza & assoCiati
The entry into force of Constitutional Law No. 1, approved on 8 February, ratifies the protection of the environment, biodiversity and animals as fundamental values of the Constitution. More specifically, renewed Article 9 – Fundamental Principles – states that the Republic protects “.... the environment, biodiversity and ecosystems, also in the interest of future generations. The law of the State regulates the ways and forms of animal protection”. The reform also concerned Article 41 – Economic Relations – of the Constitution, dedicated to the freedom to exercise economic and entrepreneurial activities, establishing that these cannot be carried out in contrast not only with social utility, security, freedom and human dignity, but also in such a way as to damage health and the environment. Moreover, Article 41 now provides that the law must identify the ways in which the economic activity is directed not only for social purposes but also for “...environmental purposes”, thus including the above protection among the purposes pursued by the State and its institutions. The ‘environment’, understood as a common asset and an object worthy of protection, has never been entirely foreign to the Constitution: thanks to the evolutionary interpretation that case law, especially that of the Constitutional Court, has given to the notion of ‘landscape’ provided for by Article 9 of the Constitution, in coordination with Article 32 on the protection of health, the right to a healthy environment in which to live was already the subject of protection in the same way as other assets. With the reform, the environment becomes the subject of protection as a value in itself, regardless of the reflected value it has for life and the anthropological vision that characterised it (thus acknowledging the orientation of the Constitutional Court, e.g. sentence no. 536/2002; no. 126/2016). The reform not only has the merit of giving constitutional status to the protection of biodiversity and ecosystems, but also that of crystallising a social and political framework in which ‘environment’ is not only what the term implies naturalistically, but also all the elements that can affect human life and quality of life, either directly or indirectly. With this in mind, and to protect future generations, the principle of so-called ‘sustainable development’ has also been introduced, which in light of the amendments to Article 41 of the Constitution, from being a distinctive element of certain political movements (and often a mere propaganda argument) now becomes a political guideline for the legislature and for public action, as well as a parameter of legitimacy also of the conduct of private individuals. The importance of the reform is therefore clear. Not least, it brings our Constitutional Charter into line with those of other European countries (e.g. France and Germany) that have long contemplated environmental protection as a fundamental value of civil society.
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