On January 30 of this year, the World Health Organization (the “WHO”) declared a “Public Health Emergency of International Importance” due to the SARS-COV2 coronavirus outbreak (whose disease is known as COVID-19), which until then had claimed the lives of 170 people in China and had resulted in the infection of more than 9700 people in that country and 106 people in other countries. Weeks later, on March 11, 2020, the organization in question issued a declaration of a pandemic caused by the virus. Unlike an outbreak or an epidemic, pandemics are outbreaks that affect more than one continent and cases from each nation are no longer imported, but are caused by community transmission. Finally, the WHO report issued at 14:38 GMT-6 on March 21, 2020 states that at that time there were 267,013 confirmed cases of coronavirus, 11,201 deaths and 185 countries with ratified cases.

In Mexico, on February 28, 2020, authorities confirmed the first case of coronavirus. Days later, on March 17, 2020, the Ministry of Health issued a notice determining that, in the short term, the epidemiological surveillance model will only be sentinel. This type of model does not fail to observe imported cases and identifies secondary transmission in the community itself. Unfortunately, on the afternoon of Saturday, March 21, 2020, this governing body reported that there are 251 confirmed cases of the virus in the country (with 48 new registered cases compared to the previous day), 697 cases reported as suspicious and 2 confirmed deaths.

Due to the COVID-19 pandemic, the question arises whether such an event can be invoked as a fortuitous event (“CF”) due to a possible breach of obligations in commercial or industrial leases.

The Fortuitous Case and the Force Majeure in Mexico.

The CF is an unforeseeable or inevitable event that does not allow an obligor or debtor to fulfill their obligation. This fact makes it impossible to comply with agreements agreed in any contract. It is an event that happens without the fault of the obligor himself, surpasses him, overcomes him, is beyond him and makes it impossible for him to use elements from the outside world that he can use to fulfill his obligation. In the case of leasing, article 2431 of the Federal Civil Code (and the corresponding laws of the states) determines that if there is a CF, the tenant is not obliged to pay the rent.

Recommendations.

In considering the above, we consider it important that our clients and friends take into account certain recommendations:

• These reflections apply fundamentally to CF in commercial or industrial leases, since if home-room confinement is determined, the use of this space will continue to occur despite the pandemic. It should also be clarified that the rights of the parties may vary depending on the federal law or the law of each of the states of the republic.

• Although it is questionable whether the coronavirus currently complies with the CF assumption in Mexico (possibly already in some municipalities), projections indicate that it will most likely be so in the coming weeks. Undoubtedly, a pandemic of this nature is unpredictable for landlords and tenants, with the exception of those who have recently signed, and will make a breach of obligations inevitable in the event that the Ministry of Health declares a “Public Health Emergency”.

• We recommend closely following the determinations of the authorities in this regard, whether local or federal, to monitor whether their decrees make it inevitable to default on the tenant's debts. There is the possibility that municipal declarations will also give cause to the Federal Government in some cases in the town itself, when they order, as in the case of the Municipality of San Pedro Garza García, NL, the closure of bars, entertainment centers, nightclubs, and other public places.

• Regardless of what the administrative authorities decree, in the case of the Federal Judiciary, it is a well-known fact that it has already decreed the work stoppage; we will have to see how it impacts the issue in question when they themselves judge the existence or not of the Federal Constitution in the matters they discuss. It would be contradictory if they did not accept the Federal Constitution when they themselves have decreed the suspension of work for themselves. We will also have to see if the isolation policies implemented by some state judiciaries regulate any criteria in the court when resolving matters before their jurisdiction.

• We suggest reviewing the CF clause of your lease agreements to determine if the tenant gave up the CF and if the parties have defined or regulated the classes of events that can be considered as CF.

• We consider that the prudent thing to do is to review, on a case-by-case basis, the particularities of each lease agreement, such as terms, guarantees, rents, applicable law, insurance policies to cover the collection of rents in these eventualities, location of the leased property and the determinations of the local and federal authorities that may create the CF.

• In the case of landlords, it is important to assess the relationship with the corresponding tenant and the level of need that said tenant has for the real estate. It is advisable to keep in mind that if the CF lasts longer than two months, the tenant has the right to terminate the contract without legal consequences for the parties. In the case of tenants, we suggest evaluating the way in which events unfold, determining how relevant it is to continue using the facilities, the relationship with the respective landlord and the possibility of implementing palliative measures.

• It is also worth checking if the leased areas, in the event of the CF, can continue to be partially used, because in this case the rent would only be reduced proportionately.

• It should be said that conventional penalties, common in lease agreements for non-payment, would not be chargeable if the CF were given, in accordance with the provisions of article 1847 of the Federal Civil Code (and its state correlates).

To conclude, every landlord or tenant must take into account the above and make their own and unique forecasts for their own businesses. Without a doubt, each case will be different and it is important to analyze it in the general context of the situation and with the particularities of the lease itself and its signatory parties.

At RRQB Legal Solutions we are working from home, but we will stay close to you to accompany you in any need that may arise from this ill-fated pandemic.

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