Impact of the coronavirus on Real Estate
Can the tenant interrupt the payment of its rent because the Federal Government obliged him to
close down? Is it possible to continue your real estate investment negotiations? Do I have to pay property tax? These and many other questions are answered in the below Q&A.
Updated on 12 May 2020
1. What is the current situation?
On 18 March the Belgian government decided to counter the spread of the coronavirus by means of a lockdown. In essence, the measures came down to the following principles:
- Prohibition of all gathering of persons and non-essential travel
- Closure of shops
- Closure of restaurants, cafes, cafeterias, ...
- A distinction between essential and non-essential businesses
- A ban on non-essential travel to and from Belgium
- The ban on gathering of persons means that each person must keep at least 1.5m distance (social distancing) from another person (except if that person lives under the same roof). It was also made illegal to enter public places in the company of more than one other person (again except for family members or those living under the same roof) and still respecting the social distancing rules. The ban also meant that cultural activities, all kinds of festivities, sports events, ... were no longer allowed to take place.
Recently these rules were relaxed step by step. As of 11 May Belgian residents can be in the company of a maximum of 4 other persons (without taking into account those living under the same roof) on the understanding that this group of 5 persons may only have contact with each other (they form as it were a single bubble). However, the rules on social distancing continue to apply.
- On 18 March 2020, all shops were required to close their doors. Exceptions were foreseen for pharmacies, food stores and newsagents. Gradually the list of exceptions was expanded and on May 11th all shops were allowed to reopen. However, shop keepers had to, and still have to, take all necessary safety measures to protect customers and staff. This means, among other things, that only one customer per 10 sqm is allowed in a store and that the customer is allowed only 30 minutes to shop. In principle, only one customer is allowed in at a time (i.e. not accompanied by others with the exception of children).
- Restaurants and pubs were required to close and remain closed until at least 8 June. Hotels were allowed to stay open but their restaurant, bar or recreational facilities had to close.
- With the lockdown a distinction was introduced between essential and non-essential undertakings. Regardless of the type of undertaking, employees should continue to work via teleworking wherever possible. If this is not possible, employees may be employed at the company’s premises, but only if the social distancing rules (1.5m distance from each other) can be respected. Non-essential companies where teleworking and social distancing are not possible were required to close. In contrast, essential companies (such as banks, insurance companies, pharmaceutical businesses and law firms) where teleworking and social distancing are not possible were allowed to continue working.
On 4 May, the rules for non-essential companies were relaxed. As before, teleworking remains recommended. If it is not possible, staff members are allowed to go to the company’s premises. A new requirement is that the company must, in consultation with the staff (or their representatives), take all necessary measures to allow the staff to work in a safe environment (with social distancing as preferred action point).The government has distributed guidelines on this. Companies that violate these rules can incur severe sanctions.
Parliament granted special powers to the Federal Government allowing it to legislate by decree in the framework of the fight against COVID-19, without following the parliamentary process. The regional parliaments also granted the regional governments such special powers (in specific areas).
2. Real Estate Investments
Could the current situation have an impact on current transactions and their negotiations?
As regards negotiations, Belgian law requires good faith. Breaking off negotiations, or insisting on their continuation, will have to be analysed on a case-by-case basis, with the principle of good faith in mind.
All contracts are ready but we are unable to organise a physical signing session.
A distinction must be made between agreements under private seal and notarial deeds.
As far as private agreements are concerned, Belgian law recognises the validity of an electronic signature and ‘electronic contracts’ (i.e. contracts entered into by means of an electronic signature and afterwards stored electronically).
As far as notarial deeds are concerned, it is not yet possible to use an electronic signature to sign the deed remotely. For this a digital notarial deed database (also known as the NABAN) needs setting up. On 24 March 2020, the Royal Decree of 18 March 2020 introducing the Notarial Deed Database (NABAN) was published. We expect it to become operational shortly.
The private deeds have been signed, and the deadline for executing the notarial deed is approaching.
The Federation of Notaries announced that, from 20 April 2020, civil notaries can, in principle, execute all deeds on condition that physical contact is avoided as much as possible and provided the social distancing measures are respected (before that date, service was limited to deeds that were extremely urgent).
In order to optimize the service, it will be possible from the beginning of May 2020 to sign a notarial deed without the signing parties having to meet physically. This will be realised via a digital power of attorney: an authentic (notarial) power of attorney can be given by videoconference to a trusted person or a notary’s employee so that these can sign the deed in your place.
3. Real Estate Management and Leases
Does the current situation allow for a suspension of payments?
No regulatory provision has so far been made in this regard.
In this respect, it should be stressed that the question is relevant both for payments by the landlord to his service providers and for payments by the tenant to the landlord. There is no "one" right answer.
- Hardship (imprévision / imprevisie) may be defined as a new situation, totally unforeseeable by the parties to a contract, which arises during the performance of the contract and upsets its economy, thus causing an imbalance between the parties' reciprocal performances, making the performance of the contract by one of the parties not impossible, but exceptionally burdensome, beyond all the contingencies which the contracting parties had envisaged in the normal course of events, and without fault on the part of any of the parties. The theory of hardship has so far been rejected by the Supreme Court, although sometimes accepted by lower courts. A proposal to introduce the notion in Belgian law has yet not been voted by Parliament and it is therefore uncertain whether the notion will be introduced in future.
- Unlike hardship, force majeure makes it impossible to perform an obligation. Force majeure is defined as an insurmountable event, independent of any fault of the debtor, which prevents the latter from performing its obligations, even though the latter acts with the diligence that can be expected. Something which merely makes performance of the obligation more onerous does not constitute an event of force majeure.
- An external cause is also recognised as an exonerating cause for the debtor. This may include government action (fait du prince), which is understood to mean any impediment resulting from an order or prohibition emanating from a public authority and which constitutes an external cause excusing performance of the obligations as provided for in the contract. Such an order must however (i) have been unforeseeable at the time the contract was concluded, (ii) be unavoidable from the debtor's point of view and (iii) not be attributable to the debtor or to a person for whom he is responsible.
Whether the current crisis is a basis to suspend payments must be assessed with those principles in mind. It will first be necessary to (i) determine the extent to which the Order applies to the debtor and (ii) review the terms of the lease. Indeed, the parties could have provided for "exceptional circumstances", for example by including in their lease a contractual definition of force majeure extended to hardship, or a distinct “hardship clause”, or by providing for variable rent mechanisms (where appropriate with a minimum guarantee) or by specifying that the rent, or part thereof, will be due in all circumstances, even in the event of non-use following an unforeseen event.
The insurance provisions of the lease should also be reviewed - the lessee may have an obligation to insure against business interruption in order to protect the lessor – as should the specific clauses of the insurance policies, which may exclude certain risks.
The same reasoning applies to real estate financing.
How to organise the general meeting of co-owners?
At least once a year the co-owners of an apartment block are invited to a general meeting by the 'syndic'. Since these meetings are not possible during the lockdown (except where they are conducted entirely in writing), the government has decided, on the initiative of the Justice Minister, to postpone them.
According to Royal Decree no. 4 of 9 April 2020, the general meeting must take place within five months of the end of the crisis period. The crisis period runs from 10 March to 3 May, but general meetings that have been lawfully organised since 10 March remain valid. The mandates of the 'syndic' and of the members of the board of co-owners are automatically renewed until the first general meeting.
4. Real Estate Development
What could be the impact, in terms of time frame, on my project?
In all three regions, all compulsory time periods in the context of building permits, environmental permits, as well as appeal periods are suspended. This suspension may delay real estate developments.
The suspension period is different in each region and sometimes also depends on the nature of the permit or the investigations.
Should the current construction sites be closed?
Construction businesses as a general rule qualify as non-essential. Since telework is not possible, construction work can still be carried out provided the social distancing measures are complied with. If such compliance is not possible, the construction sites have to be closed.
In any case, the health and safety of workers must be ensured by their employer.
5. Real Estate Taxation
What about registration duties?
Deeds that must be registered according to the rules of the Flemish Region (e.g. the sale of immovable property) are granted a extension of two months after the end of the lock-down (i.e. provisionally until 3 July).
Deeds that must be registered according to the rules of the Brussels Capital Region, the Walloon Region or according to the federal rules (e.g. lease contracts) are granted a four month extension if the deadline for registration is between 16 March and 30 June 2020. For the same taxes, there is also a four-month deferral if the original payment deadline is between 16 March and 30 June 2020.
What about property tax and other regional and local taxes?
The following measures should be highlighted at this stage:
- A suspension of the payment of property tax and other regional taxes in Wallonia. The Walloon Government has decided to suspend the payment of these taxes during the crisis period, which will extend the 2-month payment term, but without changing the amount due. However, it is still unclear whether this applies to property tax: this is a regional tax but is collected by the federal tax administration.
- A suspension of the payment of property tax and other regional taxes in the Flemish Region. The assessment notices with respect to property tax which are usually issued in May will be sent out as from September 2020 for legal entities. This means de facto that the payment of immovable property tax is deferred for approximately four months for companies active in the Flemish Region. Self-employed persons can request a repayment plan and, if necessary, a waiver of interest on late payments. In the meantime, the Flemish Government has also exceptionally given the municipalities the opportunity to adjust the surcharges for the immovable property tax. As a result, the assessment notices for immovable property tax can be sent out at the end of June at the earliest, where they are generally issued at the end of April/beginning of May. This means that the immovable property tax is also deferred for for approximately two months.
- A suspension of the payment of property tax and other regional taxes in the Brussels Region: The Brussels Government has announced that it will extend the 2-month payment term for property tax by two months. A similar extension was announced for the road tax and the tax on the first use of a car. A possible extension of the exemptions from property tax due to unproductivity. This measure has been requested by the sector and is under discussion at the level of regional governments.
What about federal taxes, corporation tax and VAT?
Measures to extend the time limit for declarations and payments and to remit interest for late payment have already been taken. We refer to the following article for details of these measures.
Ariane BrohezPartner Attorney at Law
Ariane is a member of the Loyens & Loeff Real Estate Practice Group in Belgium and of the Investment Management/Funds Team. She is a partner in our Brussels office with a broad practice of counselling in real estate transactions and taxation.T: +32 2 743 43 21 M: +32 495 21 26 59 E: email@example.com