Recent Spanish High Supreme Court law may help renegotiating terms of commercial leases entered before the financial crisis of 2008

Centro Comercial

 

The Spanish Supreme Court has admitted in various rulings in 2014 the possibility for a Spanish court to amend the terms of a contract in the event that the circumstances surrounding such contract (as of the date it was entered by the parties) changed dramatically during the course of the “life” of such agreement.

This is a radical change of criteria of our Supreme Court in this issue, since it has been until very recently very restrictive in applying this possibility.

The key factor for such change of criteria has been the very hard financial and real estate crisis affecting Spain and starting in 2008.

This change of criteria by applying such principle, has represented for example (at the end of 2014) in a benefit for the French Hotel chain “Accor” who finally won a litigation against its landlord by (inter alia) declaring our Spanish Supreme Court for the landlord to return to Accor a 29% of the lease rent (already paid by Accor to the landlord) starting as of the date when the initial claim was filed at the court of instance by Accor, meaning this in practical terms, a retroactive application of such ruling.

Our Supreme Court has established the basic conditions to be met in a relevant case in order for Spanish Courts to apply this principle (it applies to all contracts but I will concentrate here in commercial leases):

1.- The circumstances that surrounded the lease agreement as of the day it was entered by the parties have changed dramatically since then and were not reasonable to be foreseen in any event by the parties when they executed the relevant lease agreement. In Spain, this would represent any lease signed before 15 September 2008 which was the date when Lehman Brothers went into bankruptcy and the financial crisis started promptly and unexpectedly in Europe with the fall of several European banks.

2.- As a consequence of such dramatic change of the circumstances surrounding the lease, the tenant has had not only a reduction in profit and/or turnover but constant losses in the relevant business associated to such lease. Our Supreme Court considers that reduction in profit and/or of the turnover (even in the case with big figures) of the tenant it is an implied risk of any entrepreneur doing business that he has to assume. This is why the tenant has to have constant and repeated losses for this principle to be applied. These losses have to be of course evidenced by the tenant before the court.

3.- The tenant has to present evidence to the court of what would have been the “real” market rent to be applied to the relevant lease by presenting to the same a report from a reputed real estate agent.

As a summary, any tenants with commercial leases entered in Spain for Spanish commercial properties before 15 September 2008 applying the above mentioned conditions and currently (and in the past) with rents that are over market standards, may have a chance by using this change of criteria of our Supreme Court to renegotiate rents with landlords and in the event this would not be possible in claiming before Spanish courts for return of overpaid rents over the market level at any given time.

The above might be particularly interesting for international multinational companies with commercial leases in Spain.

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