Can the tenant interrupt the payment of its rent because the Federal Government obliged him to close down? Is it possible to continue your real estate investment negotiations? Do I have to pay property tax? These and many other questions are answered in the below Q&A.
1. What is the current situation ?
The decision taken by the Minister of the Interior on 23 March 2020, published by means of an order on emergency measures to limit the spread of the coronavirus (COVID-19) (the Order), introduces a partial lock-down in Belgium until 5 April 2020.
Generally speaking, the Order provides for everyone, individuals and companies, to respect social distancing measures, in particular a distance of 1.5 meter between people - to be qualified when it concerns members of the same family living under the same roof or essential companies.
As far as enterprises are concerned, in the broadest sense, they have been classified as ‘essential enterprises’ and ‘non-essential enterprises’. For non-essential enterprises, telework is made compulsory, except for functions with which it is incompatible; for these functions only, the work can still be carried out in the enterprise with scrupulous respect for the measures of social distancing, otherwise the enterprise must close. Telework, as far as possible, should also be introduced in essential enterprises.
In terms of closures and prohibitions, the Order provides for :
- the closure of all shops and stores, with the exception of grocery stores, pharmacies, bookstores and service stations, it being understood that the opening hours and frequentation of supermarkets and grocery stores are regulated ;
- the prohibition of (i) gatherings, (ii) activities of a private or public nature, of a cultural, social, festive, folkloric, sporting or recreational nature (with the exception of (a) activities in an intimate or family circle and (b) a walk or the exercise of physical activity outdoors alone with family members (persons living in the same household) or with another person), (iii) school excursions and youth activities, and (iv) religious ceremonies (excluding funeral ceremonies);
- the closure of establishments in the cultural, festive, recreational, sporting and catering sectors, it being understood that hotels may remain open to the exclusion of their restaurants, if any;
- the suspension of lessons and activities in nursery, primary and secondary education, and the use of distance learning in colleges and universities;
- the prohibition of travel, except to shops whose opening is authorized, medical travel and authorized activities;
- a ban on non-essential travel from Belgium.
The Federal Government should also be vested with special powers as of Thursday 26 March 2020 allowing it, in the framework of the fight against the coronavrius, to legislate by means of decrees, without following the classical parliamentary process. Such special powers have already been granted to the Walloon Government and to the French Community; the Brussels and Flemish Governments could follow.
At each level of power, measures have been taken and will continue to be taken in socio-economic matters.
2. Real Estate Investments
Could the current situation have an impact on current transactions and their negotiations?
As regards negotiations, Belgian law requires good faith. Ending negotiations, or insisting on their continuation, will have to be analysed on a case-by-case basis, with this principle of good faith in mind.
All contracts are ready but we are unable to organise a physical signing session.
A distinction must be made between two hypotheses: do you have to sign a notarial deed or a private agreement?
As far as private agreements are concerned, Belgian law recognises the validity of an electronic signature and ‘electronic contracts’ (i.e. contracts entered into by means of an electronic signature and afterwards stored electronically). More information on the different types of electronic signatures will soon be published on our website or you can contact your trusted Loyens & Loeff adviser.
With regard to notarial deeds, it is not yet possible to use the electronic signature. This requires the installment of a Notarial Deed Database (NABAN), which has not yet been put into practice. Consequently, for the signature of notarial deeds, you are still required to go to the civil notary for the execution thereof.
The private deeds have been signed, and the deadline for executing the notarial deed is approaching.
The Federation of Notaries has given instructions to postpone the execution of deeds, except for ‘acts of extreme urgency’ and acts which the client indicates must be executed because otherwise ‘the financial consequences would be too great’. In view of the risk of a fine for failure to comply with the deadlines, it should always be possible to carry out these acts, subject to respecting social distancing measures.
It should also be possible to execute deeds relating to incorporations, mortgages, etc. in the context of acquisitions, always subject to compliance with social distancing measures.
3. Real Estate Management and Leases
Does the current situation allow for a suspension of payments?
No regulatory provision has been made in this regard at this time.
In this respect, it should be stressed that the question is not a one-sided one: it concerns both payments from the landlord to his service providers and payments from the tenant to the landlord. Nor is there 'one' right answer.
- Hardship (imprévision / imprevisie) may be defined as a new situation, totally unforeseeable by the parties to a contract, which arises during the performance of the contract and upsets its economy, thus causing an imbalance between the parties' reciprocal performances, making the performance of the contract by one of the parties not impossible, but exceptionally burdensome, beyond all the contingencies which the contracting parties had normally envisaged, and this without any fault on the part of the parties or of one of them. The theory of unforeseeability has until now been rejected by the Court of Cassation, although accepted sometimes by lower courts. A proposal to introduce the notion in Belgian law has yet not been voted and it is therefore uncertain whether the notion would be introduced in future.
- In contrast to unforeseeability, force majeure will result in the impossibility of performing an obligation. Force majeure is defined as an insurmountable event, independent of any fault of the debtor, which prevents the latter from performing its obligations, while remaining within the limits of the diligence that can be expected of it. A circumstance making performance of the obligation merely more onerous does not constitute an event of force majeure.
- A foreign cause is also recognised as an exonerating cause for the debtor. In the present case, one thinks of the act of the prince (fait du prince), which is understood to mean any impediment resulting from an order or prohibition emanating from a public authority and which constitutes a foreign cause justifying the non-performance of the obligations as provided for in the contract. Such an order must however (i) have been unforeseeable at the time of conclusion of the contract, (ii) be unavoidable from the debtor's point of view and (iii) not be attributable to the debtor or to a person for whom he is responsible.
With these principles in mind, it will first be necessary to (i) determine the extent to which the Order applies to the debtor and (ii) review the terms of the lease. Indeed, the parties could have already provided for ‘exceptional circumstances’, for example by including in their lease a contractual definition of force majeure extended to hardship, by providing for variable rent mechanisms (where appropriate with a minimum guarantee) or by specifying that the rent, or part thereof, will be due in all circumstances, even in the event of non-use following an unforeseen event.
The insurance provisions of the lease should also be reviewed - the lessee may have an obligation to insure its business interruption in order to protect the lessor - and the specific clauses of the insurance policies, which may exclude certain risks.
The same reasoning applies to real estate financing.
4. Real Estate Development
What could be the impact, in terms of time frame, on my project?
In the Walloon Region, as per a decree of 18 March 2020, all compulsory time periods (délais de rigueur) as well as appeal time periods (délais de recours) are suspended for 30 days. This is also the case for the public enquiries. It concerns notably the applications for building permits, environmental permits or single permits. This suspension might delay real estate developments.
No such measure has been enacted (yet) in Brussels and in Flanders.
Should the current construction sites be closed?
The construction enterprises as a general rule qualify as non-essential enterprises. Since telework is not possible, the construction works can still be carried out provided the measures of social distancing are complied with. If such compliance is not possible, the construction sites have to be closed.
In any case, the safety and health of workers must be ensured by their employer.
5. Real Estate Taxation
What about property tax and other regional and local taxes?
These measures should be highlighted at this stage:
- A suspension of the payment of regional taxes in Wallonia. The Walloon Government has decided to suspend the payment of these taxes during the crisis period, which will extend the 2-month payment term, but without impact on the amount due. However, this measure is still unclear when it comes to the property tax: it is a regional tax but is collected by the federal tax administration.
- A suspension of the payment of regional taxes in the Flanders Region. The assessment notices with respect to property tax which are usually issued in May will be sent out as from September 2020 for legal entities. This means de facto that the payment of immovable property tax is deferred for companies active in the Flemish Region. Other businesses can flexibly request a repayment plan and, if necessary, a waiver of interest on late payments.
- A suspension of the payment of property taxes in the Brussels Region: The Brussels Government has announced that it will extend the 2-month payment term for property tax with an additional 2 months.
- A possible extension of the exemptions from property tax due to unproductivity. This measure is requested by the sector and is under discussion at the level of regional governments.
What about federal taxes, corporation tax and VAT?
Measures to extend the time limit for declarations and payments and to remit interest for late payment have already been taken. We refer to the following article for details of these measures.
