Law and regulation of rental agreements in Italy during Covid-19

Updated on 23.03.2020

No, in principle not, unless explicitly agreed otherwise in the lease agreement.

The lessee may close the premises in compliance with applicable law, unless a duty to operate is agreed in the lease. However, the lessee is not entitled to reduce the rent if he decides to close.

Under the Italian Tenancy Law (Legislative Decree no. 392/1978) the lessee would not be entitled to claim a rent reduction. Any circumstance regarding the temporary impossibility of use of the premises due to force majeure or factum principis is, absent any specific case law, and unless provided differently in the lease agreement, probably understood to fall within the lessee’s entrepreneurial risk.

The most common form of security in commercial leases is the bank guarantee at first request. Few lessors accept insurance guarantees or a parent company guarantee if the lessee is part of an international group. Cash deposits are also a form of security used in the market.

Termination of the lease agreement invoking financial hardship or frustration of contract based on a temporary situation appears difficult. According to the Tenancy Law the lessee is provided with a statutory withdrawal right for serious reasons.

If such right has not been legitimately contracted out, the lessee has the right to withdraw from the lease agreement by giving 6 months’ notice to the lessor via registered mail indicating the serious reasons. According to case law, serious reasons are "events that have occurred subsequently to the execution of the lease agreement, which were extraneous to the will of the lessee and unpredictable, such as to make its continuation extremely burdensome for the latter. The gravity of the continuation, which must have an objective connotation, cannot be resolved in the unilateral assessment made by the lessee as to whether or not it is convenient to continue the lease agreement, and must not only be such as to exceed the limits of the normal risks entailed in a contractual relationship, but must also consist of an imbalance between the original services, such as to significantly affect the performance of the company considered as a whole".

A legitimate withdrawal for serious reasons based on a temporary situation therefore appears difficult. Depending on the duration of the current situation and the lasting economic impact on the lessee, this might become a valid basis for the latter to terminate the lease agreement in the future.