Dispute 22. March 2020

Italy: Does the coronavirus spread to contracts? A focus on commercial lease agreements.

22. March 2020
Federica Franchi
act legal Italy

The restrictions on commercial and production activities imposed by the Italian Government and the other measures adopted could have a significant impact on pending contractual relationships.

If the parties predetermined in the contract the effects in case of exceptional, unforeseeable, unavoidable events, and/or they have expressly provided for the specific case of an epidemic, the consequences would be those determined by the parties.

On the contrary, whether the contract – and this is the most frequent case – does not provide anything in this regard, first, it should be determined whether the contract is governed by Italian law and, in such case, the following principles of Italian law apply.

The Italian law allows the parties legitimately not to fulfil and/or partially fulfil to the contractual obligations, or to delay the execution of the obligations, without incurring in negative consequences, if extraordinary circumstances and events occur.

In particular, pursuant to Article 1256 of the Italian Civil Code, the obliged party is not bound to fulfil the obligation when the latter becomes impossible for a cause not attributable to such obliged party.

In this regard, the obligation could be considered impossible in case: a) it is objectively impossible; b) it is permanent impossible, i.e. it does not permit fulfilment in any way; c) the obliged party did not cause the impossibility with its conduct. With respect to the latter requirement, causes not attributable to the obliged party are: i) the so-called factum principis, i.e. a legislative measure, or a measure of public authority, imposed for general interests, which makes impossible the performance, independently from the obliged party behaviour; ii) force majeure: an unforeseeable, unavoidable external event not attributable to the party which consists of a force to which it is not possible to oppose, whose effects cannot be removed and which prevents the technical execution of the performance, including natural events and acts of the Public Administration.  

If the impossibility is only temporary, when there is an objective situation which only temporarily prevents a party from performing, the contract cannot be terminated – except in the case the other party doesn’t have the interest to receive a late performance – and the party temporarily prevented from performing is not liable for the delay.

Likewise, if performance has become only partially impossible, the contract cannot be terminated  – except in the case the other party doesn’t have the interest to receive a partial performance – provided that it can be performed for the remaining part.

Pursuant to Article 1467 of the Italian Civil Code, in contracts with continuous, periodic or deferred performance, in case the obligation of one of the parties becomes excessively burdensome, the obliged party may request the termination of the contract, if such party proves that the excessive burdensomeness of the performance is due to: a) extraordinary and unforeseeable events which do not fall within the scope of the normal contractual risk, such as force majeure or factum principis referred to above; b) an alteration of the former conditions related to the initial relationship, determining inequality not existing at the time of the stipulation of the contract.

The other party may avoid the termination of the contract by offering to modify the terms of the contract in an equitable manner.

Having said the above, it should be noted that the recent Law Decree no. 70 of 17 March 2020 added a new paragraph 6-bis to Article 3 of Law Decree no. 6 of 23 February 2020, stating that: “compliance with the containment measures referred to in this decree is always assessed for the purposes of excluding, pursuant to and for the purposes of Articles 1218 and 1223 of the Italian Civil Code, the debtor’s liability, also with regard to the application of any forfeiture or penalties connected with delayed or omitted performance“.

The provision, therefore, relieves the debtor who has not performed his performance due to these measures from the obligation to compensate damages caused to the creditor, to incur in any forfeiture provided for in the contract and to pay any penalties for delays in the performance.

The same provision, however, does not clarify whether it also determines the impossibility of the performance (pursuant to Article 1256 of the Italian Civil Code) with the relevant consequences mentioned above.

In conclusion, without prejudice to what is explicitly provided for by the Law Decree no. 70 of 17 March 2020, it is not certain whether the Coronavirus outbreak, or the measures implemented by the competent authorities, could be a valid reason for justifying the non-fulfilment of contractual obligations. The contracts entered into by the parties shall have to be assessed on a case-by-case basis, taking into account several factors such as, for example, the applicability of the Italian law to the contract, the delay and/or the non-fulfilment reasons, the specific impact of the same on the performance and the absence of alternative solutions for the fulfilment of the contract.

Focus: commercial lease agreements.

The Prime Minister Decree 11 March 2020 ordered the mandatory closure of a large number of activities open to the public, thus forcing a large number of service and tertiary activities to remain suddenly closed.

As far as commercial leases are concerned, the restrictions on commercial activities imposed by the Italian Government if, on the one hand, they do not make it impossible for the landlord to perform its main obligation (to provide premises suitable for the agreed use), on the other side, they could make it temporarily impossible for the tenant to pursue its commercial activity in the rented premises and, consequently, cause difficulties for the payment of the relevant rent.

Notwithstanding that, in terms of strict causality, the temporary closure of the business does not necessarily make it impossible for the tenant to continue leasing the premises and paying the relevant rent even more in light of the Article 65 of Law Decree no. 17 March 2020 that provides “in order to contain the negative effects deriving from the prevention and containment measures connected with the epidemiological emergency by COVID-19, persons carrying out business activities are granted, for the year 2020, a tax credit in the amount of 60% of the amount of the rent, relating to the month of March 2020, of buildings falling under cadastral category C/1“.

In light of the above, for the time being and unless the situation of impossibility becomes permanent it might be questionable for the tenant to argue that the lease agreement could be terminated or the payment of the rent suspended, for that reasons the tenant may consider to promptly send to the landlord a request for reduction or suspension of the rent, stating the reasons why it is impossible to fulfil its contractual obligations.

Federica Franchi
act legal - Legal Us Avvocati
About the authors

Federica Franchi


Federica's practice focuses mainly on corporate and commercial law; with a recent development of her expertise in new technologies and e-commerce law, she offers a full range of assistance to small and medium-sized enterprises. She has developed a consolidated experience in corporate compliance, drafting and negotiating commercial contracts, inter-company collaboration agreements, acquisitions, mergers and corporate restructuring, with a particular focus on direct sales and franchising networks in the following sectors: automotive, food & beverage, yachting, insurance services, real estate and construction. In this regard, Federica assists the Italian branches of important international groups, to which she provides legal and strategic advice, guaranteeing full support in relation to the multiplicity of profiles linked to company management. Federica also coordinates the litigation department of the Firm, dealing with litigation, including interim measures, arbitration and ADR in civil, commercial, corporate and bankruptcy matters, from the stage of cognition to enforcement.

Luca Vicarioli


Luca specialises in corporate and commercial law and mainly assists Italian corporate clients and foreign investment funds in Italy in relation to Merger & Acquisition, Joint-Venture, and cross-border transactions. He normally assists the client from the outset of a transaction from initial stage negotiations throughout and until closing and post-closing management, covering Anti-Trust, Corporate Governance, Banking, Corporate/Structured Finance and Regulatory Compliance matters. Luca specialises also in restructuring & turn around and bankruptcy procedures, assisting clients in the management and composition of corporate crises and debt restructuring, here including recovery plans and restructuring agreements. Luca gained experience also in assisting national and international professional athletes and sports clubs on a comprehensive range of legal issues and contractual matters. He has experience in negotiating and providing advice on the terms of commercial sports agreements, including sponsorship, participation, staging, promoter and venue agreements.

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