I. The facts

On 13 and 14 January 2021, the Luxembourg Justice of the Peace rendered two judgments (1) which attracted quite a bit of interest among commercial lease lessors and lessees in Luxembourg.

In both cases, the lessees, exercising the commercial activities of café owner and textile seller, were sued for back payment of rent by the lessors, to which they responded by requesting a waiver or alternatively a reduction of the rent.

In support of their request, the lessees asserted that because of the legal and regulatory provisions adopted in the context of the fight against the COVID-19 pandemic, they were deprived of the enjoyment of the leased property and thus were not liable for payment of rent, or alternatively for payment of the entirety of the rent.

The court granted their requests by completely exonerating the textile seller commercial lessee from liability for payment of the rent and by granting a rent reduction 50% to the café owner lessee for the periods of required closure of businesses imposed by the Luxembourg authorities.

II. Reasoning of the court

To accommodate the request of the lessees, the court applied in a particular way a legal concept specific to synallagmatic contracts (that is contracts that provide for reciprocal obligations of the parties, as is the case with a lease agreement): "risk theory ".

In reality, this theory is now new and was notably earmarked by a judgment of the Belgian Court of Cassation of 27 June 1946 (2). It has also already found applicability in Luxembourg jurisprudence (3).

According to risk theory, the extinguishment of obligations pursuant to a case of force majeure of one party results in the extinguishment of the corresponding obligations of the other party and, as applicable, justifies the recission of the contract.

Several articles of the Civil Code apply this principle, including Article 1722 which provides that if, during the lease period, the leased object is completely destroyed pursuant to a case of force majeure, the lease is automatically terminated; and if it is only partially destroyed, the lessee may, according to the circumstances, request either a reduction of the rent or the termination of the lease.

In other words, because the lessor is no longer able to fulfill its main contractual obligation, that of making available to the lessee the peaceful enjoyment of the rented premises because of a case of force majeure leading to their destruction, it may not claim the consideration which is the payment of the rent.

Based on a broad reading of, if not by analogy to, this article the court granted the lessees’ requests by holding that risk theory applied not only to cases of material loss of the leased object, but also in cases of legal loss of the peaceful enjoyment thereof:

"the required closing of the leased premises thus makes it impossible for the lessor to provide the enjoyment of the leased premises, such that the lessee is, by application of Article 1722 of the Civil Code, also from its obligation to pay the rent and the costs associated with the use of the premises". (4)

The court also deemed that the fact that the textile seller lessee had not developed an alternative use by selling its merchandise via the internet had no impact on the resolution of the dispute, because in any case that would not have been able to provide it effective enjoyment of the leased premises.

With respect to the other file, the café owner only requested a 50% reduction of the amount of rent for the lockdown period, so the court was not able to grant it total exoneration.

We also note that while the court held that the impossibility of using the leases premises according to its purpose may exonerate the tenant from its obligation of payment, that is not the case if unexpected events result in the simple decrease in the lessee’s profits, without preventing it from using the leases premises according to their purpose. (5)

These judgments are not final and an appeal is probable in light of the enormous financial implications that a lasting recognition of this jurisprudence could have in Luxembourg.

III. Best practices

While to our knowledge Luxembourg case law has never yet adjudicated on whether Article 1722 of the Civil Code is of public order, the French Court of Cassation explicitly recognized its supplementary nature, thus allowing the parties the option of contractually excluding the application of this disposition. (6)

It does not seem unreasonable to think that, as in many other matters, Luxembourg courts could follow the same approach as the French jurisprudence to recognize the supplementary nature of Article 1722 of the Civil Code.

In light of the above, the lessors would thus be wise in future to insert in their commercial lease agreements a clause putting exclusively at the lessee’s expense risks associated with a new long-term closure of leased establishments, or providing for an allocation of the risks which is clearly defined from the start.

(1) J.P. (Luxembourg), 13 January 2021, n°94/21 ; J.P. (Luxembourg), 14 January 2021, n°124/21.

(2) Cass. (be), 27 juin 1946, Metro Goldwyn decision, Pas., 1946, I, 270.

(3) For example, T.A. (Luxembourg), 11 January 2008, n°109833 ; T.A. (Luxembourg), 16 January 2009, n°116672; J.P. (Esch-sur-Alzette), 30 March 2012, n°1015/12.

(4) J.P. (Luxembourg), 14 January 2021, op. cit., p. 15.

(5) J.P. (Luxembourg), 13 January 2021, op. cit., p.4.

(6) Cass. (fr.), 17 December 2015, n°14-23.385.