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CORONA PANDEMIC: FORCE MAJEURE IN THE LEASE AGREEMENT
I. BACKGROUND
The World Health Organization (WHO) declared COVID-19 a pandemic.1 WHO has included COVID-19 as a Public Health Emergency Concern (“PHEIC”), which means that the event has met the following criteria: (i) extraordinary, (ii) can cause health risks to other countries through the spread of international diseases, and (iii) has the potential to require a coordinated response internationally.2 Indonesia is currently one of the countries affected by the Corona Pandemic with a mortality rate of 8% dated 3/19/2020. The death rate is higher than the worldwide average of 3.4% and 1.4% in Wuhan, China where the infection was first discovered.3 We witness together that the Pandemic COVID-19 has had a significant impact on the sustainability of various business sectors including the entertainment and recreation sectors such as shopping centers (malls). Based on the statement of the Chairperson of the Indonesian Shopping Center Tenant Association (Hippindo), Budihardjo Iduansjah, the decline in mall visits throughout Jakarta has reached 50% from normal as of 14/3/2020.4 The decline could result in losses for lessee because these entrepreneurs still have the obligation to pay rent to the shopping center management even though their sales have fallen dramatically due to the pandemic. In this Legal Headlines, we discuss in general the impact of the Corona Pandemic associated with force majeure and its legal effect on the lease agreement.
II. LEASE AGREEMENT AND LOSS
The agreement between the entrepreneurs (lessee) and the shopping centre management (lessor) is categorized as a lease agreement. The terms of a lease agreement will depend on the agreement of both parties. However, in general, there are clauses regulating the obligations of the shopping center management (lessor) to maintain the number of visitors or increase the number of visitors. Thus, if the number of visitors decreases, then the shopping center management (lessor) can be considered as not carrying out his obligations. Breach of obligations by the management (lessor) is broadly grouped into two, namely first, because of intentional or negligence of the debtor (in this case lessor). Second, because the debtor faces a force majeure.5
III. REASONS AND RELIEVED OF LOSS
Force majeure or Overmacht, is referred to as a situation which becomes the reason to be relieved from the obligation to pay compensation.6 It is regulated in articles 1244-1245 Civil Code. There are three things that must be fulfilled to be categorized as a force majeure, namely:7
1. There are events that obstruct the debtor’s obligations, which can be accepted to justify the debtor not performing his obligations as they should.8
2. The event arises not because of a debtor’s fault.9
3. The causative factor was not previously thought.
The event in question must describe the level of incompetence (impossibility) and error (Fault).10 Impossibility, meaning that the situation makes it impossible to carry out an agreement by anyone in the position of the debtor, the standard for this is a person in general.11 Fault, relating to the actions of the debtor who has made all efforts according to the community concerned should be done in accordance with the agreement.12 Regarding the standard of unpredictable, what is used is the standard of debtor in general, that is whether they can guess or can expect the emergence of obstacles / events and losses.
The consequences of having a force majeure on the agreement are:13
1. Debtor exempted to pay compensation. Creditors cannot claim compensation.
2. Freeing the debtor from carrying out his contract, it can be temporarily or as long as force majeure still hinders or terminates the agreement which results as if the agreement never happened.
In the event of a force majeure, the lease agreement can be nullified or the rental price can be reduced. The nullification of the agreement in theory can result in the return of rental fees to the lessee, but only limited to the value of the rental period that has not been enjoyed by the lessee, and the lessee cannot claim compensation of loss against the shopping center management.14
IV. APPLYING FORCE MAJEURE
T o apply force majeure in an agreement, of course it needs a thorough analysis on a case by case basis. The parties need to re-analyze the agreement that binds them and all the situations and conditions that occur. In general, there are four possibilities that can occur, namely:15
1. The contract does not accept force majeure as immunity from claim for compensation.
2. The contract governs force majeure events.
3. The contract only regulates the scope of force majeure.
4. The contract does not regulate, so it refers to legislation.
If you are interested in discussing or knowing more about this topic, please contact the writers.
1 Word Health Organization, WHO Director- General’s Opening remarks at media briefing on COVID-19, 11 March 2020.
2 World Health Organization, Statement on the second meeting of the International Health Regulations (2005) Emergency Committee regarding the outbreak of novel coronavirus (2019-nCoV) (Jan. 30, 2020), available at https://www.who.int/news-room/detail/30-01-2020-statement-on-the-second-meeting-of-the-international-health-regulations-(2005)- emergency-committee-regarding-the-outbreak- of-novel-coronavirus-(2019-ncov)., accessed on 14/3/2020.
3 https://www.kompas.com/sains/read/2020/03 /20/180300823/tak-disangka-tingkat-kematian-akibat-corona-di-wuhan-cuma-1-4-persen?page=all#page3, accessed on 16/3/2020.
4 https://finance.detik.com/properti/d-4939324/pengunjung-mal-turun-50-gegara-corona-pelapak-tutup-toko, accessed on 16/3/2020.
5J. Satrio, Hukum Perikatan, Perikatan pada umumnya, pg. 100
6 Rahmat S.S. Soemadipradja, Penjelasan Hukum Tentang Keadaan Memaksa (Syarat- syarat pembatalan perjanjian yang disebabkan keadaan memaksa), hal 95. and Subekti, Hukum Perjanjian, pg. 55
7 Mariam Darus Badrulzaman, Buku 3 Hukum Perikatan dan penjelasannya, pg. 35
8 J. Satrio, Hukum Perikatan, Periaktan Pada Umumnya, pg. 253
9 Ibid. pg. 253
10 J. Satrio, Hukum Perikatan, pg. 252
11 J. Satrio, Hukum Perikatan, pg. 256
12 Ibid. pg. 263
13 Rahmat S.S. Soemadipradja, Penjelasan Hukum Tentang Keadaan Memaksa, pg. 50, as quoted from Yahya Harahap, 1986, Segi-Segi Hukum Perjanjian, pg. 95
14 Subekti, Hukum Perjanjian, pg. 77
15 Rahmat S.S. Soemadipradja, Penjelasan Hukum Tentang Keadaan Memaksa, pg. 71-99.
