This newsletter will provide a brief summary of the measures adopted for rentals for non-housing use by the Royal Decree Law 15/2020, Chapter I, Articles 1 to 5. This Royal Decree comes into force on 23rd April 2020.
1. Requirements for the application of measures of to reduce rental costs for SMEs and self-employed workers.
Two requirements must be met simultaneously for SMEs and the self-employed to benefit from the measures approved in Royal Decree-Law 15/2020: one subjective and one objective.
The objective requirement is that the lease to be affected by the measures in question must be a lease for use other than housing in accordance with Article 3 of the Urban Leases Act, which are mainly leases of warehouses or business premises (concluded in order to carry out an industrial, commercial, craft, professional, recreational, welfare, cultural or educational activity on the property), but also leases of urban property concluded by season, be it summer or any other season.
The measures agreed in the Royal Decree Law 15/2020 can also be applies to industrial rental contracts. Rural leases fall outside of the standard regulations.
The subjective requirement states that the following circumstances must apply to the tenant,
(i) Be self employed, the rented buliding must be affected by the person in question’s activity, in this case they must fulfil all of the following circumstances:
a. Be affiliated on 14 March 2020 to the Special Social Security Scheme for Self-Employed Workers or to the Special Social Security Scheme for Seafarers or, where applicable, to one of the RETA substitute mutual insurance companies.
b. Their activity must have been suspended as a result of the Royal Decree Law 463/2020 of 14th March in which the state of alarm was declared or as a result of by subsequent orders issued by the competent authority and the competent authorities delegated under the aforementioned royal decree; or alternatively, in the event that its activity has not been directly suspended as a result of the entry into force of Royal Decree 463/2020 of 14 March, it must have suffered a reduction in the turnover of the calendar month prior to that to which the deferment is requested of at least 75 per cent, in relation to the average monthly turnover of the quarter to which that month belongs in relation to the previous year.
(ii) Be a small or medium sized business, being that the rented property must be affected by the activity of the self-employed person in question, and in that case, it must also meet all the following requirements:
a. That the limits established in Article 257.1 of Royal Legislative Decree 1/2010 of 2 July (revised text of the Law on Corporations) are not exceeded, which are the following (at least two of the circumstances detailed must have been met during two consecutive financial years, at the closing date of each one of them)
i. That the total of the items of the assets does not exceed four million euros.
ii. That the net amount of its annual turnover does not exceed eight million euros.
iii. That the average number of workers employed during the year does not exceed fifty.
b. That its activity has been suspended as a result of the entry into force of Royal Decree 463/2020 of 14 March, or by orders issued by the competent authority and the competent authorities delegated under that Royal Decree; and alternatively, in the event that its activity is not directly suspended by virtue of the provisions of Royal Decree 463/2020, of 14 March, it must prove that its turnover for the calendar month prior to that to which the postponement is requested has been reduced by at least 75 per cent, in relation to the average monthly turnover for the quarter to which that month belongs in relation to the previous year.
c. With regard to this section, it should be noted that Royal Decree-Law 15/2020 separates the concept of economic vulnerability from that of Covid-19, which was taken as a reference in Royal Decree-Law 11/2020 to assess which economic situations can benefit from the agreed measures.
2. Means of accreditation of requirements for the application of measures for reducing rental costs for SMEs and self employed workers.
Royal Decree-Law 15/2020 only regulates the accreditation of some of the subjective requirements referred to above, we assume that on the understanding that the objective requirement must be of peaceful recognition between the parties.
Specifically, it exclusively regulates the accreditation of the following requirements – leaving unregulated the accreditation, for example, for SMEs the accreditation of exceeding the limits established in article 257.1 of Royal Legislative Decree 1/2010, of 2 July -:
a. The reduction in activity shall be accredited by means of a responsible declaration by the lessee in which, based on accounting and income and expense information, the reduction in monthly invoicing by at least 75 percent is stated, in relation to the average monthly invoicing for the same quarter of the previous year.
It should be noted that Royal Decree-Law 15/2020 does regulate the right of the lessor to request a review of the lessee’s accounting records to verify the veracity of the declaration of the reduction of activity, an issue not regulated in Royal Decree-Law 11/2020 with regard to the declaration of economic vulnerability arising from Covid-19, as referred to in our analysis of Royal Decree-Law 11/2020.
b. The cessation of activity shall be accredited by the lessee by means of the delivery to the lessor of a certificate issued by the State Tax Administration Agency or the competent body of the Autonomous Community, where applicable, on the basis of the declaration of cessation of activity declared by the interested party.
Tenants who have benefited from temporary and extraordinary deferment of payment of rent without meeting the requirements set out in Article 3 of the rule analysed shall be liable for any damages that may have been caused, as well as for all expenses generated by the application of these exceptional measures, without prejudice to any other responsibilities that may arise from their conduct.
3. Measures to reduce the costs of SMEs and the self-employed in terms of rental payments.
Provided that the requirements explained in the previous points of this article have been given and demonstrated, the measure to which tenants may have recourse shall be, alternatively, one of the following:
In the event that the landlord of the affected contract is a public housing company or entity or a large holder (we refer again, with regard to the definition of large holder, to our analysis of Royal Decree-Law 11/2020), the lessee may request from the lessor a moratorium or postponement of the rental payments due for the duration of the state of alarm and its extensions and for the following monthly payments, which may be extended one by one, if that period is insufficient in relation to the impact caused by the COVID-19, but under no circumstances may it exceed four months.
It is not clear, and we should assess whether the moratorium also affects those incomes that have already accrued during the state of alarm – months of March and April -, taking into account that the Explanation of Reasons of the rule mentions that the rule intends to respond to needs arising from the extension of the state of alarm, and not the state of alarm itself and taking into account that the rule regulates that the rent will be deferred from the next monthly rent (Next to what? To the request for a moratorium made by the tenant).
In any case, the rental income will be deferred, without penalty or interest, by means of the division of the quotas within a period of two years, which will be counted from the moment in which the situation mentioned above is overcome, or from the end of the four-month period mentioned above, and always within the term of the rental contract or any of its extensions.
Such postponement shall be binding on the landlord.
As an exception to the application of the measure, it will not be effective if the parties to the contract concerned have already reached an agreement on a moratorium or reduction of the rental income, we understand, due to the economic effects of the covid-19 on the tenants (and landlords) in question.
a. In the event that the lessor of the affected contract is not a public housing company or entity or a large holder, the lessee may request from the lessor a temporary and extraordinary postponement in the payment of the rent, without stipulating either the rents that may be affected or the terms of that postponement. For this reason, it is not understood how this measure will prevail, as the rule says, in any case, the agreements of moratorium or reduction of rent that the parties to the contract may reach.
In any case, a request for any of the above measures must be made no later than 23 May 2020.
On the other hand, the landlord affected by any of the previous measures (this is how we should understand it despite the inclusion of this last measure only in Article 2 of the regulation that regulates only the measure for cases of landlords that are not large holders or public housing companies or entities) may freely take advantage of the deposit provided for in Article 36 of the Urban Rentals Law, in order to apply it to the total or partial payment of some or all of the monthly payments of the rental income, without the nature of the deposit being altered. If the deposit is totally or partially available, the tenant must replace the amount of the deposit within one year of the conclusion of the agreement or within the remaining term of the contract, if this term is less than one year.
To close the analysis made in this article, we must understand that this rule is of mandatory application for landlords and tenants under the conditions explained and for any case in which the requirements explained are met, and therefore it seems unlikely that the parties will be able to seek judicial remedies to alter the measures provided for in the Royal Decree-Law, based on the legal arguments they might consider applicable.
Authors: Angel Lavín, Juan Gonzalo Franch, Paloma Sánchez
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