The recent cold drop storm that devastated the Community of Valencia (known locally as the ‘DANA’) left a complex scenario in its wake, not only in terms of the damage caused to both people and property but also in respect of the legal issues that need to be resolved.
Particularly important among the many challenges is the storm’s impact on lease agreements, particularly for those buildings that have been left either partially or completely uninhabitable.
Against this background, the rebus sic stantibus principle takes on great importance. This principle, which is applicable only in exceptional circumstances, allows for the modification or termination of agreements when extraordinary or unforeseeable events seriously alter the conditions in which the parties originally assumed their obligations, thus resulting in an imbalance between the contracting parties.
Application of the principle in cases of force majeure
The DANA can be classified as an event of force majeure, since it combined the two elements of being both unforeseeable and unavoidable. As a consequence, if a property has suffered damage that prevents its normal use (for example, if it is flooded or partially destroyed), the tenant may invoke the rebus sic stantibus clause in order to renegotiate the terms of the agreement or even request its termination, depending on the circumstances and the effects on the property or business premises.
Requirements for the application of rebus sic stantibus
For this principle to become applicable, Spanish case law has established that certain requirements must be met:
- Extraordinary alteration of normal circumstances: The DANA can be classified an event that was clearly unforeseeable.
- Inequality of benefits: If the tenant is unable to make use of the property or must incur unforeseeable costs (e.g. temporary repairs or removal costs), a significant financial imbalance is caused.
- Absence of culpability for the parties and lack of any other means of rebalancing their relationship: The situation must not have been provoked by either of the parties, and there must be no express clause between the parties under which the agreement might be rebalanced, since if there were, the terms agreed by the parties would have to be respected.
Practical consequences
In the case of properties that are unusable due to flooding, the tenant may:
- Request a rent reduction: Based on the degree to which the property has become unusable.
- Temporarily suspend the rental agreement: Until the property is repaired.
- Terminate the rental agreement: If the damage cannot be repaired or the contractual conditions have become delegitimised.
For its part, the landlord should consider the possibility of triggering the relevant insurance policies in order to cover the damage caused and manage the situation.
Diagnosis of the legal situation and terms of insurance
It is vital to analyse each individual case and check whether the rental agreement includes clauses that provide for events of force majeure. In addition, the cover offered to both tenant and landlord by any insurance policies that may have been taken out will play an important or even decisive role in the resolution of any dispute, depending on the case.
The rebus sic stantibus acts as a tool to balance the contractual burden and seek fair solutions in an extraordinary situation. The circumstances must be analysed on a case by case basis in order to decide on the option that is most appropriate.
