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Covid-19 and real estate: a legal assessment

Written by LPA-CGR avocats Real Estate department

Real estate investment

The real estate investment sector has not per se been subjected to any special measures. If questions arose regarding the automatic extension of sale & purchase or call option agreements or the application of the concept of force majeure to legitimise the failure to complete such agreements, sellers and purchasers have essentially managed to reach the necessary agreements to see their transactions through to a successful end, if we are to set aside certain agreements that had to transferred to third parties due to the initial beneficiary’s default.

Use of office space and teleworking

There is huge debate among operators regarding the future use of office space and the adaptation thereof to new remote working methods.

In the context of corporate life, the year 2020 was marked by the national employee health and safety protocol which led to major adaptations of working conditions throughout all companies. Teleworking has become a way of life, as has respect for barrier gestures and social distancing.

Even before the second lockdown, the French Minister of Labour had called on companies to resort to teleworking on a full time basis, for all tasks feasible remotely. This technique to shield against the risk of infection led, however, to other adverse effects on employees teleworking on a full time basis, namely psychosocial risks (isolation, stress, over-solicitation, hyper-connectivity…). Taking this into account, the latest national health protocol of 6 January 2021 opened up the possibility for employees teleworking on a full time basis to return to the office one day a week when they express the need.

This return to the workplace had been anticipated by many companies faced with a significant increase in psychosocial risks and signs of malaise among some of their employees. In this context, the question of the compulsory nature of teleworking was raised. According to the Conseil d’État, in a ruling rendered on 19 October 2020, the national health protocol has no normative or binding value, and is merely a set of recommendations for the material implementation of the employer’s safety requirement within the framework of the Covid-19 pandemic.

However, the significance of this health protocol should not be underestimated. In the event of litigation, the courts will undoubtedly take the government’s recommendations into account in assessing employers’ compliance with their safety requirements.

Is this telework revolution set to continue? In any case, on 26 November 2020, the French social partners entered into a new national interprofessional agreement on teleworking which completes and clarifies the applicable rules, both for regular teleworking and for exceptional teleworking in times of crisis.

As regards financing

While none of the ordinances specifically concerned real estate financing, the ordinances enacted in other areas, as well as the impact of the health crisis on the real estate market, may have had, and continue to have, consequences on the representations and commitments of borrowers (including meeting certain financial ratios) in loan agreements.

As the general measures relating to expired deadlines and contractual clauses sanctioning failures to comply with obligations (penalty payments, forfeiture, etc.) during the legally protected period were not continued, the contractual provisions sanctioning breaches of representations and commitments now apply.

However, lenders and borrowers have most often agreed to contractual arrangements, on a temporary basis if necessary, allowing them to continue their contractual relationship. The principles of economic balance and good faith must once again prevail, to ensure the sustainability of these contractual relationships.

Building sites and construction works

Covid-19 was not successful in bringing the building industry to a halt.

Building sites have indeed continued, thanks to a now well-integrated and efficient framework.

Although the OPPBTP guide has no regulatory value and is therefore not binding, it has become an essential benchmark. An eighth update since 2 April 2020 was enacted on 15 December last, the purpose of which was to adjust the guide to regulatory changes (in particular, curfews, certificates that workers must hold, identification of people at higher risk).

Initial feedback shows that the organisational constraints imposed (avoidance of co-activity, logistics, etc.) had but a marginal impact on the profitability of building sites, which were continued at a pace that is not significantly different compared to that experienced in “former building sites”.

It remains that the financial burden of additional costs incurred will have to be anticipated in all new work contracts.

Commercial leases

The various administrative policing measures (lockdown, curfew, closure of certain establishments) were combined with accompanying measures for companies, in all sectors, bearing the brunt of the crisis.

In addition to the creation of a solidarity fund whose eligibility criteria were considerably expanded over time, the Government introduced a neutralisation of financial penalties for certain companies. More specifically, since 17 October 2020, companies with a salaried workforce of less than 250, a turnover of less than €50 million and with a loss of turnover of at least 50% during the period between 1st  November and 30 November 2020 will not be liable to financial penalties until the expiry of a period of two months from the date on which the activity ceases to be impacted by a policing measure. The Government went even further than for the first lockdown by suspending interlocutory measures and any enforcement proceedings that may have been initiated by landlords against tenants for failure to pay rent or service charges due.

However, the different laws and ordinances referred to above only have the effect of neutralising the sanctions that may be applied, and there is no legal requirement for landlords to forgive or suspend rents and service charges during the state of health emergency.

Tenants subsequently sought to apply for the cancellation of rent payments by invoking various mechanisms under standard rule of law and more particularly force majeure, hardship or non-performance exceptions. While we noted a minor trend in case law dismissing the applicability of these mechanisms, it would be premature to dismiss them at this time. While we wait for a clear position from the courts, landlords and tenants are required to use common sense and to find common ground in good faith.

Tax incentives for forgiveness of rent

To help companies cope with their financial difficulties and reduce the risk of unpaid rent, the legislator has provided two mechanisms to encourage landlords to cancel/forgive rent due on business premises.

The first mechanism introduced by the second amended finance bill for 2020 of 25 April 2020 was intended to guarantee the tax deductibility of forgiveness of rent (understood as excluding tax and including ancillary rental costs) granted to companies (other than related companies) without the landlord having to justify a commercial interest in doing so. The scope of the scheme is extremely broad: all landlords are covered, both those subject to property income and those subject to industrial and commercial profits. It should be noted that this scheme was extended until 30 June 2021 by the Finance bill for 2021 of 29 December 2020.

The same Finance bill created a temporary tax credit for forgiveness of rent granted in respect of rents (excluding VAT – excluding ancillary rental costs) in November 2020. Here again, all landlords can benefit from this tax credit, individuals, entities subject to corporate income tax, SCIs, SNCs, SPPICAVs, SIICs, etc. However, the measure does not concern all tenants. Only tenants leasing premises that have been   banned from receiving  the public in respect of the month of November or tenants whose main activity is mentioned in appendix 1 to order 2020-371 of 30 March 2020 (in particular, the hotel industry, the restaurant, cafés, bar, events or cultural sectors). Furthermore, tenant companies (or the groups to which they belong) must not have a workforce of more than 5,000. The tax credit is equal to 50% of the November 2020 rent forgiven. It should be noted that for forgiveness of rent granted to companies with a workforce of between 250 and 4,999 employees, the lessor only benefits from the tax credit up to a limit of 2/3rds of the November rent forgiven. Forgiveness of rent for November 2020 may be granted until 31 December 2021. If the forgiveness was granted in 2020, it will be deductible from the tax due by the landlord in respect of 2020, and the unused surplus will be refunded by the State in 2021. On the other hand, if forgiveness of rent is granted in 2021, it will only be deductible from the tax due in respect of 2021 and the unused surplus will be refunded by the State in 2022. It should be noted that in practice, for vehicles exempt from corporate income tax (SPPICAVs, SIICs and their subsidiaries), the tax credit should result in a refund by the State.

As regards digital/electronic signature

The year 2020 has seen the acceleration of digitalisation in all sectors of activity and, of course, in the real estate sector. Lockdowns have obviously raised the issue of remote signatures with greater acuity and urgency. And if there is still some resistance, most of us have now switched to electronic signatures, which is a technique that was overlooked until now, but which has long since benefitted from a strong legal basis.

Other strong changes of habits have also been permeating the construction and management sector for a long time: buildings are increasingly connected, becoming an important source of dematerialised data that operators have now realised have value.


The law, the tax system and operators have adapted swiftly to the crisis and new ways of operating have been swiftly identified. Some of these will most certainly

prevail going forward. It is our duty to now carefully monitor case law and to look out for any new measures that will be adopted…