Contracts[1] of various natures have been broken in Brazil due to the covid-19 pandemic. The defaults, when not solvable amicably by mutual concessions, have been submitted to the judiciary (or an arbitral tribunal, where applicable) to be litigated and resolved there.
In early February of 2020, Federal Law No. 13,979/20 established measures to address the public health emergency resulting from the coronavirus outbreak. Similarly, state and municipal governments have issued decrees to reduce the transmission of the new coronavirus, which was approved in a decision by the Supreme Court (STF)[2] where their competence over public health was upheld.
The government of the state of São Paulo, for example, issued Decree No. 64,881/20, which ordered suspension of in-person service to the public in commercial establishments and service providers, especially nightclubs, shopping malls, galleries, and similar establishments, gyms and fitness clubs, in addition to on-site consumption in bars, restaurants, bakeries, and supermarkets (Article 2). The bans followed the same path in the state of Rio de Janeiro. With Decree No. 46,973/20, the state government imposed suspension of various activities, including the operation of shopping malls, shopping centers, and similar establishments (Article 4, XIV).
Other rules were also issued in the states of São Paulo and Rio de Janeiro disciping measures to prevent covid-19 and deferred the deadlines originally set for suspension of non-essential business activities.[3] The enactment of these normative acts, although essential for the preservation of human health, caused, and have been causing, deleterious effects on the economy. Entrepreneurs in activities considered non-essential were prevented from carrying out their activities and earning income. And this issue, as in a cascading effect, led to default on a series of labor, tax, and contractual obligations, among others.
With regard to contractual obligations, in cases where there was the mutual will of the parties and reciprocal desire to preserve the contractual relationship in place (attribute of the social function of the contract),[4] contractual amendments were entered into in order to redo and/or relax specific obligations whose compliance proved unfeasible, at first, in the face of the severe economic crisis caused by the pandemic.
However, there have been situations where renegotiation of obligations was not possible. In these cases, the economic impact often led to the closure of commercial activities. As a consequence, contractual default and related penalties are being brought to court.
There were also situations in which the parties used the judiciary to seek judicial protection that would allow them to reduce or re-negotiate certain obligations, at least while social isolation policies were in force and, above all, the closure of commerce ordered by the Government. This practice took place on a considerable scale in rental relations.
In order to maintain the contractual relationship with significant changes in the obligations established, tenants of business establishments joined the Judiciary seeking suspension and/or renegotiation of rent. Lawsuits with this claim, based on what objective contractual good faith (Civil Code, Article 422) and the social function of the contract provide for, address, in common, that the suspension or, at the limit, the reduction of rent is admissible to realign the economic and financial balance (Civil Code, Articles 478 to 480).
The case law has addressed, on a case-by-case, the state intervention and the gradation in which it should take place, when and if applicable, for the readjustment of the economic and financial balance of lease agreements. According to the case law, it is necessary, among other factors, to analyze whether the financial difficulty of the lessee to bear its obligations has been unequivocally demonstrated, that is, whether covid-19 (and the resulting administrative acts) caused, in fact, significant shocks in the economic situation. That, moreover, is the factor of analysis without which there is no claim to review rents. After all, contractual clauses must be complied with (principle of pacta sunt servanda).
When encountering one of these scenarios, the Court of Appeals of São Paulo ordered temporary reduction of the rental amount, at 50% of the original value, in the period between March and December of 2020.[5] The Court of Appeals of Rio de Janeiro has also already ruled to this same effect, highlighting that the "discount in the value of rental during the stoppage of activities is being given to ensure the viability of the enterprise in this specific interregnum, and not to create a new debt required in the troubled scenario of loosening that begins or in the future post-pandemic period".[6]
The TJSP,[7][8] in specific situations, has found that there may even be the temporary exemption from the payment of rent, as in the cases of rental of commercial establishments located in shopping malls, during the period in which commerce had to remain closed and bearing monthly expenses (promotion and advertising budget, employees, condominium fees, security, franchisors, taxes, suppliers, etc.) by force of determination of the Public Power.
In these cases, however, given the particularity of rent contracts in shopping malls, which hold "an intrinsic and very intense need for intersubjective cooperation",[9] although even temporary suspension of rents has been accepted, the case law of the TJSP has preserved the obligation of the lessee to pay the condominium expenses, since , "in addition to being expenses common to all shopkeepers of the mall, they are intended for the maintenance of the place and the payment of employees".[10]
The advent of the pandemic and the resulting administrative acts – those that ordered closure of of commercial establishments considered "non-essential services" – led to a significant increase in lawsuits in which tenants seek exemption from or renegotiation of rent, even for a temporary period.
The judiciary, in turn, has addressed these cases specifically and and on a case-by-case basis. Thus far, there is no consensus as to the assumptions that the exemption or reduction of the lease should take place and at what percentage. However, the case-by-case analysis is based on consolidation of the understanding that, in certain situations, the pandemic justifies state intervention to ensure financial balance in commercial leases.
[1] In the exact words of Maria Helena Diniz, the "contract constitutes a kind of legal deal, of a bilateral or multilateral nature, depending, for its formation, on the meeting of the will of the parties, because it is a regulating act of particular interests, recognized by the legal system, which gives it creative force" (In fashion Brazilian Civil Law Course, Volume 3: Theory of Contractual and Extracontractual Obligations. 20th ed. São Paulo: Saraiva, 2004, p. 23).
[2] STF, ADI no. 6.341/DF, en banc, opinion drafted by Justice Marco Aurélio.
[3] The decrees, in general, stipulated as essential activities: supermarkets, pharmacies and health services (hospitals, clinics, laboratories, and similar establishments).
[4] In the words of Carlos Roberto Gonçalves, "the attendance to the social function can be focused on two aspects: one individual, relative to contractual parties, who use the contract to satisfy their own interests, and another, public, which is the interest of the collective in the contract. To this extent, the social function of the contract will only be fulfilled when its purpose – distribution of wealth – is achieved fairly, that is, when the contract represents a source of social balance" (In fashion Brazilian Civil Law, Volume 3: Contracts and Unilateral Acts. 9th ed. São Paulo: Saraiva, 2012, p. 26).
[5] TJSP; Internal Civil Injury 2191227-50.2020.8.26.0000; Rel. des. Walter Exner; 36th Chamber of Private Law; DJ: 10/29/2020
[6] TJRJ; Instrument Injury No. 0053875-79.2020.8.19.0000; Rel. des. Nilza Bitar; 24th Civil Chamber; DJ: 16.09.2020
[7] TJSP; AI no. 2118168-29.2020.8.26.0000, 32nd Chamber of Private Law, rel. des. Luis Fernando Nishi, j. 15.07.2020, DJe 15.07.2020.
[8] TJSP; AI no. 2104141-41.2020.8.26.0000, 32nd Chamber of Private Law, rel. des. Kioitsi Chicuta, j. 25.06.2020, DJe 25.06.2020.
[9] MARTINS-COSTA, Judith. "The contractual relationship of shopping center". Lawyer's Magazine, year XXXII, vol. 116, Jul. 2012, p. 110. Available in: https://aplicacao.aasp.org.br/aasp/servicos/revista_advogado/paginaveis/116/2/index.html
[10] TJSP – AI nº 2125636-44.2020.8.26.0000, 33rd Chamber of Private Law, rel. des. Mario A. Silveira, DJ 01.07.2020.
