October 12, 2020

The State of Nuevo León, Mexico Enacts Important Reform for Commercial Leases Following Declaration of Health and Sanitary Emergency

By Jorge Ojeda

On October 2, 2020, Decree 358 was published in the Official Journal of the State of Nuevo León, adding a second paragraph to article 2326 of the Civil Code for the State of Nuevo León (“CCNL”), which reads as follows:

“Art. 2326.- If the use of the property is impeded only in part, the tenant may request a partial reduction in rent, based on the opinion of experts, unless the parties elect to terminate the contract, if the impediment lasts as long as the time set forth in the prior article.

Tenants of real property conducting commercial activities whose use and enjoyment of such real property was disturbed as a result of the declaration of a civil protection or sanitary emergency by authorities which ordered the cessation of its commercial activities may be entitled to a reduction in rent for the duration of the emergency declaration and prohibition against opening their business, for the territorial district in which the property is located, according to the terms of the agreement between the lessor and the tenant, or in the absence of an agreement, however the competent authority defines.”

Article 2325 sets forth that “If due to acts of God or events of force majeure, the tenant is completely prevented from using the property rented, no rent will be incurred for the duration of the impediment, and if it lasts for more than two months, termination of the contract may be requested.” Additionally, article 2327 establishes that “The provisions of the two prior articles may not be waived.”

Article 2292 of the CCNL distinguishes among three types of leases: residential, commercial and industrial. Considering such, it is clear that the legislation meant only to include commercial leases in the reform, and it is also noteworthy that legislators did not include a specific definition of the scope of the commercial activities that fall under this reform, instead referring to those parties that receive an order to cease their activities.

The reform implies that due to the declaration of emergency by the civil protection or sanitary authorities, a commercial tenant who is prevented from operating has the right to request a reduction in rent for the time that it is prevented from opening its establishment, with such reduction to be as agreed between landlord and tenant, or in the absence of an agreement, as defined by the competent authority. Based on such reform, it can be understood that with respect to the determination of the percentage of rent reduction, the agreement between landlord and tenant prevails over the determination of the authority and in that sense, it is not an inalienable right for purposes of article 2327.

The amended article does not provide for a time frame during which the landlord and the tenant must agree on the reduction, nor rules to determine its percentage. For this reason, the agreement between landlord and tenant entered into prior to the emergency may be considered valid, as it would be when entering into the lease agreement or an amendment thereto. In the absence of an agreement, the competent authority may determine the amount of the applicable rent reduction during the emergency.