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

Updated on 07.05.2020.

At first, compliance with rent payment should not be directly affected by COVID-19.

It is necessary to take into account the provisions of the Peruvian Civil Code, which apply to any type of contract. These provisions include, among others, the dispositions regarding force majeure. Force majeure, which is regulated in article 1315 of the Civil Code, is defined as a non-attributable cause, consisting of an extraordinary, irresistible, and unforeseeable event, that prevents performance of an obligation or determines its partial late or defective performance.

To date, due to the COVID-19 pandemic, the Government has issued Supreme Decree No. 044-2020-PCM, through which it established a state of national emergency, the closure of borders, restrictions on internal transit, among other measures, for a period of fifteen (15) days, which has been extended until May 24, 2020.

In this particular case, we consider that force majeure would not refer to the COVID-19 pandemic, but rather to the acts carried out by the authority or the Government due to the COVID-19 pandemic.

Despite the decision made by the Government, we consider that such decision would not affect the fulfillment of the rent, since the lack of cash or the difficulty to obtain it, due to a certain commercial or economic situation, cannot be considered as force majeure.

On the other hand, regarding the reduction of income, article 1440 of the Civil Code establishes that in the event of an extraordinary and unforeseeable situation that turns some contractual provisions excessively expensive, the injured party may request to reduce the obligation or to increase compensation before the court. The judge may rule on the cease/reduce of the excessive expensive provision, and if it is not possible due to the nature of the provision, the circumstances, or if the injured party requests it, the judge may rule on the termination of the contract.

The application of this regulation must be reviewed on a case-by-case basis and will depend on: (i) the context; (ii) the terms and conditions of the lease; and, (iii) if the tenant has the ability or possibility to pay the rent.

The lessee cannot close the leased space on its own initiative. Regarding the reduction of rent, please see answer 1 above.

This will depend on the context in each case and on the contractual provisions established for that purpose in the specific contract, but in general, the lessee cannot reduce the rent in case the leased space is closed from a government order as a consequence of COVID-19.

In Peru, the type of guarantee that the lessee usually delivers is a liquid guarantee, mainly by transfer or deposit of one or two monthly rents to the lessor's bank account. However, Peruvian law allows other types of liquid guarantees, such as letters of guarantee or security policies, or other type of guarantees.

In principle, no, as we mentioned in numeral 1 above, a case-by-case analysis should be carried out, since the final decision will depend on: (i) the context; (ii) the terms and conditions of the lease; and, (iii) if the tenant has the ability or possibility to pay the rent.

Likewise, it is necessary to point out that the Civil Code establishes that, among other causes, it is possible to terminate a contract: (i) if any of the parties is unable to comply with the provisions due to causes not attributable to them; and, (ii) as we mentioned in number 1 above, in cases of excessively expensive provisions.

On the other hand, depending on the contractual agreement, the suspension of contractual obligations could be evaluated if the impossibility of using the property qualifies as a breach of the lessor's obligation.

As we mentioned in the first question, force majeure would not refer to the pandemic or the outbreak of COVID-19, but to the acts carried out by the authority or the Government due to the pandemic. The declaration of emergency issued by the Government should not should affect the payment of the rent, since the lack of cash or the difficulty in obtaining it due to a certain commercial or economic situation, cannot be considered as force majeure.