The Pérez-Llorca/IE Chair analyses the distribution of risks and the modification of contracts in premises leases

The speakers were Encarna Cordero, Professor of Civil Law and Of Counsel at Pérez-Llorca, Jesús Gavilán, President of the 8th Civil Section of the Madrid Provincial Court, and Cristóbal Rodríguez, Lawyer to the Council of State and Associate Professor at IE University.

Guillermina Ester began the session by referring to the interesting debate that has recently arisen around the effects of the COVID-19 health crisis on the leasing of properties for commercial use, leisure and the hotel industry. Within the context of the pandemic, landlords and tenants are asking themselves what the rules are for the distribution of risks in contracts and whether there is a possibility of modifying their terms by resorting to force majeure and rebus sic stantibus.

Professor Encarna Cordero then analysed the extinctive force majeure of obligations and whether the tenant has to pay rent during the State of Alert, discussing the different doctrinal positions on the subject. Cordero also delved into the concept of force majeure from the perspective of the recent Royal Decree-Law 15/2020 of 21 April on urgent complementary measures to support the economy and employment, and whether it allows force majeure to be invoked in leases that are the subject of such regulation and in those that are excluded from its scope. Finally, Cordero gave her opinion on contracts that provide for the payment of a fixed income, a fixed and variable income, or a variable income, and the position of doctrine and case law as to whether this circumstance constitutes an agreement between the parties on the allocation of the risks of the contract.

During his presentation, Judge Jesús Gavilán addressed the evolution of the Supreme Court's case law on rebus sic stantibus. The Magistrate reviewed the various elements analysed jurisprudentially in the application of this doctrine, such as, for example, the economic crisis as an unforeseeable event. In relation to this point, Gavilán differentiated between the cases in which the economic crisis has been admitted as an unforeseeable event that supports the application of the doctrine of rebus, and others in which it has been considered that the assumption of risks, such as an economic crisis, is inherent to any commercial contract. Finally, the judge emphasised that the application of the rebus sic stantibus doctrine must have the effect of modifying the contract, limiting the possibility of terminating the contract to very exceptional cases.

Finally, Counsel to the Council of State Cristóbal Rodríguez closed the session by stating that it would be useful to codify the figure of rebus sic stantibus and, were this to be done, on what terms it could be regulated. After explaining the regulation of this figure in comparative law, Rodríguez defended the advantages that the codification of the rebus sic stantibus doctrine would have for positive law because it would provide legal security, reduce problems with the practical application of the doctrine and avoid the temptation to invoke legal concepts of comparative law, different from rebus sic stantibus, but which have been cited to justify its application.

Following the speakers' contributions, an informative discussion led by Guillermina Ester took place in which the speakers responded to various questions posed by the audience.

About the Chair

The Pérez-Llorca/IE Chair on Commercial Law focuses on international legal practice. Its main objective is to produce top-tier applied research in the area of Commercial Law, as well as to share this research with law firms, businesses and law schools, through the work and joint activities carried out by IE Law School and Pérez-Llorca.