Although some agreements may provide for clauses that describe in detail how to handle situations like this, in many occasions the pandemic and its effects have not been foreseen and it may then be required to apply the general concepts of civil law. In this respect, three legal issues should be considered: Force Majeure (overmacht, article 6:75 Civil Code), unforeseen circumstances (onvoorziene omstandigheden, article 6:258 Civil Code) and the duty to minimize damages (schadebeperkingsplicht, article 6:101 Civil Code). Together these issues form the COVID-19 Legal Triangle.
Force Majeure is typically used to describe the occurrence of an event beyond the control of parties to an agreement. The legal concept includes that a party will not be liable for its failure to perform its obligations. Please note that a party should be unable to perform its obligations (rather than that it is more difficult or more expensive to do so).
Examples of Force Majeure in relation to the pandemic are the inability to execute building activities or provide services during a situation of a complete lock down, or the timely delivery of goods when borders are closed.In the event of Force Majeure the creditor cannot demand execution of the agreement and cannot claim damages. It is however possible for the creditor to suspend its (payment) obligations and to terminate (dissolve) the agreement.
As a result, the execution of an agreement during an Event of Force Majeure can come to a standstill and this could be inconvenient for both parties. The debtor cannot comply with its obligations (and will therefore probably not receive payments) and the creditor will not benefit from the execution of the agreement and either has to accept delays or can choose to terminate the agreement. Apart from the concept of Force Majeure, our laws include the concept of unforeseen circumstances.
If the execution of an agreement is still possible, but is more difficult or expensive, Force Majeure cannot be invoked. However, the application of the general principles of reasonableness and fairness can, in the event of unforeseen circumstances oblige parties to an agreement to discuss, negotiate and implement changes to an existing agreement in order to mitigate or compensate the effects of these unforeseen circumstances.
First, it must be clear that the circumstances are indeed unforeseen. If the agreement includes or implies that certain circumstances are included and are for the account of a specific party, such contractual arrangements prevail.
This is for example the case in (dated) general lease conditions according to which a pandemic result in full remittance of the rent. A review of the stipulations in the agreement is therefore required.
Second, the unforeseen circumstances should be of such a nature that continuing the (unchanged) execution of the agreement would be contrary to the principles of reasonableness and fairness. Although in general an economic crisis is not considered as such (this is an entrepreneurial risk), the COVID-19 pandemic cannot be considered an normal entrepreneurial risk because the impact and consequences are of an exceptional nature.
It is therefore assumed that parties have a duty to negotiate the termination, suspension or change of the contract in order to mitigate the consequences of the pandemic. Parties should try to find a revised balance that is in line with the expectations and the allocation of risks that parties intended to achieve when the agreement was entered into. Legal literature shows that a 50-50 allocation of the consequences of the pandemic may be considered a balanced allocation of the consequences.
This however assumes that each party to an agreement takes care to mitigate and minimize the consequences of the pandemic as much as possible. A party may therefore not sit back, relax and await the (partial) compensation of the consequences. The law includes an obligation to mitigate and minimize damages and in this respect it may be expected that a party reduces its costs as much as possible and also sets off saved costs and received (governmental) contributions or compensations against the damages incurred. If a party would be insured for the consequences of the pandemic (for example by means of a business interruption insurance), there would be of course no or a reduction of damages.
Consequences for entrepreneurs
If your are forced to close your company in leased premises due to government measures (lock down), the COVID-19 pandemic may qualify either as a deficiency in the lease or as unforeseen circumstances which could result in a reduction of the rent.
This could also apply if you decide to close your doors because of lack of clientele due to the COVID-19 pandemic.
Please note in this respect that some courts (in The Netherlands, but this may also affect the Dutch Caribbean) have decided not to allow evictions during the COVID-19 pandemic if the rent is not paid in time.
The possibilities to unilaterally change the labour agreements with your employees may be limited due to the applicable legal framework that provides much protection for your employees. There are however possibilities to agree on solutions which may benefit the employer as well as the employee.
When assessing the legal consequences of the COVID-19 pandemic, entrepreneurs may use the COVID-19 Legal Triangle and assess whether this is an event of Force Majeure or if the pandemic qualifies as unforeseen circumstances. Generally, based on unforeseen circumstances, the consequences should be divided 50-50 between the two parties that entered into an agreement and parties should enter into negotiations to mitigate the consequences of the pandemic. In any event a party should try to mitigate and minimize damages. The pandemic therefore usually provides an opportunity (and sometimes even a necessity) to review existing agreements and to try to cooperate to mitigate the consequences of the pandemic that should not be for the account of one party only. This could for example result in (temporarily) revising the rent in lease agreements.