Mickaël Haik is a lawyer at the Paris and Quebec Bar. Mickaël is a specialist of real estate law and describes here his overview of the impact of the covid on the French real estate in particular for flexible workspaces. He then described potential legal mitigation measures for operators and landlords.
The video interview is available here: https://coworkintel.com/coronavirus-impact-on-flex-industry/force-majeure-clause.html
Ben: Hello, I'm Benjamin one of the founders of coworkintel, the authoritative source on premium operational performance data for flexible workspaces. Today, we have Mickaël Haik, a lawyer at the Paris and Quebec bars Hello Mickaël!
Mickaël: Hello.
Ben Mickaël, you are a specialized lawyer in real estate law. First of all, what is your impression on the impact of the virus on real estate, both traditional - long leases - and flexible leases, commercial real estate.
Mickaël: Well, it's always a little bit difficult to say because we're in the middle of it. The experts themselves are divided on the issue. Some believe that the impact will be very important and others much less. So on commercial premises, because this is the question you are asking me, confinement will cause difficulties.
Why? Because confinement leads to a drop in economic activity. We also note that the shops and restaurants are closed. So, many companies will experience economic difficulties. They will no longer be able to pay their commercial rent, which will put the owners in difficulty, who in turn will no longer be able to repay their credit, which will make them sell, we will have an increase in supply with a declining demand because there will be far fewer people who will want to buy commercial premises and they have much less ease credit. Besides, we will see how the banks react but you can see now that they have stopped the loans and interest rates have already started to rise. We think they will stay low but we will see.
On short leases - coworkings - it's even more problematic because the main tenants who rent commercial premises and then sublet them, must face their tenants who do not pay their rents but they will see a number much more important because it's short leases with termination periods in general of one month and therefore the sub-tenants who will see the covid-19 and the difficulties they will face one of the first things they will do is to terminate their short lease so coworking managers will be even more impacted In any case, the consequences of the covid on real estate will depend greatly on the duration of the confinement
Ben: Thank you, that is very clear, times are tough for coworks. Can we maybe take a little perspective because it sometimes helps to put things into perspective, Do you know eras or crises, we can call precedents, of this period which they would look like?
Mickaël: So health crisis, I don't see too many examples. Because we have the Spanish flu in 1919 in the head but it is not at all the same thing. Perhaps SARS in 2002-2003 but France, we were not too impacted especially in Paris, it continued to increase, I think that if we have to think of real estate crises, it is that from 90-97, where there was a 50 percent drop in prices in the capital which is important. In 2008, however, notably in Paris, we were not too impacted because there is such a housing crisis that there hadn't been too much impact. I do not think so finally that the covid-19 will have a huge impact in the long term in any case on real estate or in the medium term
I am quite confident about the future. Well, now we will see it is always very difficult to compare this situation with a previous one because it's fairly new.
Ben: Okay, in this interim period before that before the market eventually recovers, what do you think are legal mitigation measures that can help operators and donors to overcome this crisis?
Mickaël: So, we already have measures - orders that have been taken. There is one in particular from March 25, which came to suspend for some companies - usually small - the consequences of not paying rent it means that if the tenant does not pay the commercial rent between March 12 and 2 months after the cessation of the state of health emergency and well they will have no financial penalty there is no interest on delay, damage, and interest, on-call, and we cannot use the resolutory clause against them the famous clause which allows to end the commercial lease due to absence of payment. You should know that even if this order is ultimately to allow a deferral of rent without penalty the rent will still be due anyway.
So this measure helps tenants. We also have a measure to help homeowners, another order dated March 25 which provided that the resolutory clauses, these famous clauses which allow the banks to terminate the loan contract and therefore to demand the whole of the loan amount, well this order suspended this type of clause, that is to say, that if you are the owner you can no longer meet your loan, we will not be able to oppose a termination clause, so suddenly you will not be forced to sell right away.
So, finally, these two measures greatly limit the impact of covid-19 on real estate. After that several other measures: aid to businesses, subsidies, loans at very low rates. Several steps are being taken in the right direction to support the real estate market
Ben: Indeed can we speak of a particular clause for to finish is the force majeure clause. What is this clause and do you think it applies?
Mickaël: The force majeure clause is a clause allowing the contractor not to respect his obligations in a very particular event: an event that is completely unpredictable, irresistible and external to the person concerned. So it can apply in our case. We can say: here, I cannot benefit from such a right and I cannot respect such an obligation because of the situation. So force majeure can apply in some situations not in others therefore it will have to be applied on a case by case basis.
Ben Thank you very much, it's good to hear. With that, I wish you confinement as short as possible. It was a pleasure, see you soon!