Building law and regulation in Chile during Covid-19

Chilean legislation does not regulate or systematize construction contracts. Therefore, there is no new regulation in this regard.

The Government of Chile presented the Emergency Economic Plan to confront COVID-19, which contains various economic and tax measures that seek to provide greater liquidity to companies, PYMES (SMEs) and workers.

Among the most important measures adopted we can point out:

1. Postponement of the payment of the Sales and Service Tax (VAT) corresponding to the months of April, May and June 2020, allowing its payment in 6 or 12 monthly instalments with 0% interest rate. This measure applies to companies whose sales are less than 350,000 UF (approx. USD 12 million).
2. Anticipation of the income tax refund requested by companies classified as SMEs (with sales of less than UF 75,000; approx. USD 2,5 million). The return is anticipated for the month of April.
3. Postponement until July 2020 of the payment of income tax for SMEs according to what they declare in the income operation of next April. This will mean releasing cash resources for USD 600 million to 140,000 SMEs.
4. Transitory reduction of stamp and seal tax to 0% for all credit operations during the next 6 months. This will reduce the cost of financing for families and businesses.
5. Relief measures for the treatment of tax debts with the General Treasury of the Republic focused on SMEs and people with lower incomes: flexibility to enter into tax debt payment agreements with the General Treasury of the Republic, without interest or fines.
6. All the expenses of the companies associated with facing the health contingency will be accepted as a tax expense.
7. Acceleration of payments to State providers: at the beginning of April, all invoices issued to the State and pending payment will be paid in cash, generating immediate liquidity for approximately USD 1 billion. In turn, any invoice that is issued from now on to the State will be paid within 30 days (USD 500 million per month). This is the first stage of the centralized payment agenda.
8. New capitalization of the Banco Estado for USD million: These resources will be used mainly to provide financing to individuals and SMEs. This measure will increase Banco Estado's credit capacity by approx. US $ 4.4 billion
9. Draft Law on Protection of Labour Income. When the workers in the framework of this emergency and by order of the health authority must remain at home without the possibility of performing their tasks remotely, the temporary suspension of their duties in the company, as well as the payment of wages from the employer. In these cases, the contractual link and all the corresponding labour rights will be maintained, but the worker will receive income from the unemployment insurance according to its rules under more flexible eligibility criteria. For its part, as long as this exceptional situation is maintained, the employer will maintain the obligation to pay the worker's health and social security contributions. To guarantee the sustainability of the solidarity severance fund, the Treasury will pay, as required, up to USD 2 billion.

As a general rule, in civil matters, in order to determine the existence of the fortuitous event or force majeure as grounds for exoneration of liability in contractual matters, a rather subjective analysis of the behaviour of the debtor is carried out, especially in light of the due diligence with which it should have complied with its contractual obligations, thus focusing the analysis on the agent's imputability. 

In other words, an event constituting a fortuitous event or force majeure must be one that, in itself, due to its special characteristics, results in an impossibility of complying with the obligation on the part of the debtor, being a sine qua non requirement not to configure the impossibility that no one subject to the same circumstances of time and space can face the obligation whose fulfilment is required.

In the construction industry, it is quite common for a project to be faced with events that can be classified as a fortuitous event or force majeure, precisely because these are long-term contracts in time, in which events often unforeseen occur and irresistible, both for the owner of the work and for the builder. 

If the representation that both parties have made of reality is substantially different from that found on the ground, without a doubt we could find ourselves facing a case of force majeure. The same may happen with the facts that come from an unexpected act or omission no longer emanating from nature, but from the authority, in which case the force majeure takes the name of fortuitous event. 

In general terms, unless the contract has agreed otherwise, the contractor will not respond for the delay caused by a fortuitous event or force majeure, that is, it will not respond for the delay caused by an earthquake, act of authority, a tsunami , an extraordinary torrential rain and any event or phenomenon of nature that can be considered as an unforeseen event impossible to resist or foresee.

An event of force majeure may suspend construction activities and if said activities are on the critical path of the project - or become so in time - then the cessation of activities will have effects that may go far beyond the specific activity. suspended, affecting the total term of the contract, generating indirect cost overruns and general expenses for a longer stay on site.

Firstly, if the parties have said nothing in the contract regarding force majeure, then the general rules of our law in this matter will apply, which can basically be summarized in the legal aphorism that “things perish for their owner".

In other words, the risk of force majeure must be fully assumed by the principal or owner of the work, object of the construction contract.

This makes sense if you think that you are in the presence of an event that constitutes an unforeseen event that has not been possible for the contractor to resist and, therefore, constitutes a disclaimer, from those contained in our civil legislation. A conclusion to the contrary would cause a significant injury to the contractor's assets.
However, it is usual in the case of construction contracts that the parties expressly regulate force majeure in their clauses and stipulations.

Yes, it has involved modification in various regulatory bodies, such as taxes, labour law, environmental law, among others.

Stand by Cost (who bears the direct costs of the work stoppage): Unless the client orders you to suspend it, either by force majeure as such or for security reasons, contracts as a general rule do not regulate the costs of halting works.