Suspension of eviction processes and price freezing for lease agreements

In line with the Public Health Emergency declared by Law No. 27,541 due to Covid-19, the National Executive Power (NEP) issued Decree No. 320/20 (the Decree – published in the Official Gazette on 29 March 020) which regulates the situations related to lease agreements and its general guidelines are:

1.EVICTION

Section 2 of the Decree suspends in the national territory the enforcement of eviction judgements until 30 September 2020 (for those included in agreements to which the Decree applies according to section 9).

It is only applicable for those lawsuits filed due to lack of payment of the lease and those cases in which the tenancy of the property is being held by the lessee, its successors or sub-lessees (according to section 1,190 of the National Civil and Commercial Code – “NCCC”).

The suspension also applies to those evictions already judged, but not enforced before the entry into force of the Decree.

2. LEASE AGREEMENTS

• EXTENSION

Section 3 of the Decree establishes that the term of the lease agreement included in the Decree (Section 9) which expire between 20 March 2020 and before 30 September 2020 is extended until 30 September 2020.

 This extension applies to those agreements due before 20 March 2020 and those in which the lessee is still occupying the property (Section 1,218 NCCC).

The lessee may extend the term of the agreement for a term inferior to the one set by the Decree or keep the term originally agreed. This decision shall be notified to the property owner.

• PRICE

Section of the Decree freezes the price of the lease agreements reached by the regulation until 30 September 2020. While this regulation applies, the price of the lease will be the same as in March 2020. The same rule applies to those cases in which the parties agreed the payment of monthly instalments of a total price of the agreement.

This provision only applies to the price included in the lease agreement (rent), and not to the rest of the payments agreed (for example, payment of utility bills, expenses, etc.).

• EXEMPTION TO PRICE FREEZING

Section 10 of the Decree establishes an exemption criterion to the rule of price freezing (set out in section 4) providing that the lease agreements in which the property owner depends from the rent to cover his/her basic needs or the needs of their families (which must be proved) are exempted from the regulations of the Decree. 

In our opinion, it would be quite difficult in practice to apply this exemption.

• DEBTS DUE TO PRICE DIFFERENCES

Payments performed under section 4 of the Decree will generate certain differences between the amount originally agreed and the amount payed due to price freezing. Section 6 of the Decree establishes that the lessee shall perform those payments in 3 to 6 equal and consecutive monthly instalments, expiring on October 2020 and payable together with the rent shall pay those differences.

This system of instalments for the payment of price differences will be also applicable in those cases in which the term of the agreement has already expired.

The regulation also establishes that these instalments shall not include default, compensatory interests nor any other agreed penalties.

It is highlighted that the parties may agree different means of payment for the price difference, but those cannot become more onerous for the lessee than those provided in the Decree.

• DEFAULT OF PAYMENT

As set out in section 7 of the Decree, debts originated between the entry into force of the Decree (30 March 2020) and 30 September 2020 because of default of payment, late payments and partial payments (different to those established in the Decree) shall be paid by the lessee in 3 to 6 equal and consecutive monthly instalments, expiring on October 2020 and payable together with the rent.

The dispositions of section 1,219 of the NCCC related to the termination of the agreement by the property owner due to default on payments for two consecutive periods will not be enforceable during the term established in the Decree.

It is also important to mention that –even during the term established in the Decree- the property owner may terminate the lease agreement based on the reasons established in sub-clauses a) and b) of section 1,219 of the NCCC, these are: a) change of purpose or irregular use in the terms of section 1,205 and b) non-preservation of the property rented or its abandonment.

• PAYMENTS VIA BANK TRANSFER

Section 8 of the Decree establishes that the property owner, among 20 days from the entry into force of the Decree, shall inform the lessee the corresponding bank details for the lessee to be able to perform the relevant payments via bank transfer or deposit.

The decision to provide for payments via bank transfer was clearly taken in view of the health emergency and the mandatory isolation which provides for severe restrictions of movement and also to obtain cash.

It is a measure that tends to make it easier for the lessee to comply with one of its main obligations, which is to pay the rent for the property, but at the same time origins an obligation for the property owner to facilitate the conditions for the payment to be performed via bank transfer or deposit.  Consequently, in case the property owner does not accept the payment in the way herein described –when requested by the lessee- it could be a case of default of the owner, with the legal consequences that situation could cause.

3. SITUATION OF THE GUARANTORS OF LEASE AGREEMENTS REACHED BY THE DECREE

Section 5 of Decree No. 320/20 sets out that sections 1,225 of the NCCC and the termination causes included in sub-sections b) and d) of section 1,596 of the NCCC shall not be applicable until 30 September or until the optional extension established in section 3, third paragraph of the Decree.

Paragraph 3 of section 1,225 of the NCCC provides that all provisions providing for the anticipated extension of the guarantee, being it simple, joint debtor or main debtor of the original lease agreement.

At the same time, section 1,596 establishes that “the guarantee expires on the following special cases:… b) if the term to comply with the obligation guaranteed expires, without consent of the guarantor;… d) if the creditor does not file any lawsuit against the term of 60 days from being requested by the guarantor or the instance is declared abated…”.

Therefore, guarantors of the lease agreements reached by the regulation under analysis continue attached–within the term set out in the Decree- to the debts and obligations assumed as guarantors, which specifically include those set out in sections 6 and 7 of Decree 320/20 already mentioned above.

This extension of the guarantees is automatic and does not require prior consent from the guarantors.

4.  AGREEMENTS REACHED BY THE PROVISIONS OF DECREE No. 320/20

Section 9 of the Decree includes a list of the lease agreement to which its provisions are applicable, these are:

1. Properties used as only urban or rural residence. 
2. Rooms destined to personal or family residence in hotels or any other similar accommodation.
3. Properties used for cultural or community activities. 
4. Rural properties destined to small familiar productions and small farming productions.
5. Properties rented by people adhered to Monotributo regime (independent workers), destined to carry out their activities, commerce or industry.
6. Properties rented by autonomous professionals to carry out their activities.
7. Properties rented by Small and Mid-sized enterprises (MiPyMES) and destined to carry out activities, commerce or industry.
8. Properties rented by Workers’ Cooperatives or recovered enterprises registered on the National Institute of Asociativism and Social Economy (INAES). 

We understand that as these are emergency measures, the agreements included in the Decree form part of a full and comprehensive list. Therefore, the provisions of the Decree will not be applicable to those agreements not included expressly on the list.

At the same time, the Decree provides for cases expressly exempted from its regulations (section 11) and these are: rural rents or sharecropping contemplated under Law No. 13,246 with the exemptions provided in section 9 sub-section 4 and the temporary lease agreement included in section 1,199 of the NCCC.

5. RESOLUTION OF CONFLICTS DERIVED FROM THE APPLICATION OF DECREE No. 320/20

It is important to highlight that the Decree suspends for the term of 1 year since its entry into force, the enforcement of section 6 of Law No. 26,589 for the execution and eviction processes included in the Decree.

The suspended regulation sets out the possibility to choose whether to attend to a mediation hearing before filing an eviction processes or claims for debts in relation to lease agreements.