Leases and containment measures for the Covid-19 emergency: a ruling that will cause a debate.
A recent order by the Court of Rome called to rule on the request for a reduction in the payment of commercial leases, stated that the DPCM issued by the Government limiting individual freedom during the health emergency due to Sars-COV 2 had to be challenged. Following the analysis of the extensive motivations of the measure, the reasons for the refusal to reduce the rent (and the order for immediate release of the property) seem however broader and reside elsewhere.
Unfortunately, 2020 ended with a flare-up of the health emergency and – as far as we are concerned – with the news of an order issued by the Court of Rome – that ruled on the release of a commercial property and the opposite request for a reduction of rent – which has aroused many perplexities.
By order of 16 December 2020, the Civil Court of Rome (VI Division) has in fact ordered the release of a commercial property due to the “clear arrears” accrued by the lessee in relation to the rent due from March 2020 and considered that there were no impediments to the full payment of the rent for the entire period in question.
While dwelling on the deemed illegitimacy of the Prime Minister’s Decree issued by the Government (and the tenant’s related burden of appeal ), the Court of Rome has confined what appear to be the real reasons for the decision of the last pages of the provision, excluding the applicability of articles 1463, 1464, 1258, 1256 and 1467 of the civil code (which regulate the various hypotheses of the total, partial, definitive and temporary impossibility of the performance, as well as the hypothesis of excessive onerousness of the performance).
In the first motivational part of the provision, the judge dwelt at length on the complaints of illegitimacy of the Prime Minister’s Decrees.
Nonetheless, it is only because of the second motivational part of the provision that the Court of Rome deemed the lessee’s default and ordered the release of the property, having ruled out that in this case, the various legal instruments abstractly envisaged for the correction, were available for any alterations in the balance of the contractual performances. And so:
– not art. 1463 of the Italian Civil Code (which governs the supervening impossibility of the performance), given that the property was also occupied during the emergency and the corresponding performance (i.e., the payment of the rent) cannot cease, except with the hypothesis of a withdrawal of the means of payment;
– not art. 1464 of the Italian Civil Code (which governs the partial impossibility of the performance), given that the impossibility would not be definitive and the lessor’s obligation to make the property available cannot be considered as being in breach (this being the consequence of a provisional activity resulting from the health emergency);
– not art. 1258 of the Italian Civil Code (which governs the definitive and temporary impossibility of the performance) as the impossibility would not be definitive and given that, during the emergency, the property was still occupied in its entirety by the lessee;
– not art. 1256 of the Italian Civil Code (which governs the temporary impossibility of fulfilling one’s performance) as the prohibition to carry out the activity temporarily would not make it impossible for the lessee to use the property and the lack of income as a result to forced closure of the commercial activity would not make it impossible to fulfil the obligation to pay the rent, given that the considered period is not such to go beyond the so-called business risk;
– not art. 1467 of the Italian Civil Code (which governs the supervening excessive onerousness of the performance) as the property would have retained its rental value throughout the period and the onerousness must in any case concern objective aspects and not subjective conditions (such as, for example, the loss of income) of the lessee.
As for art. 91, paragraph 6-bis, of the D.L. n. 18/20 (on the basis of which “compliance with the containment measures referred to in this decree is always assessed for the purpose of excluding, pursuant to and for the purposes of articles 1218 and 1223 of the Italian Civil Code, the liability of the debtor, even to the application of any forfeiture or penalties related to delayed or omitted obligations “), the Court then considered it to be applicable only within the limited limits of a delay in payments, without excluding that the payment of the rent was certainly due.
In confirmation of the above, the Court finally found that where the legislator wanted in some way to preserve the balance of the performances, it has expressly done so (“ubi voluit, dixit”), providing for specific benefits (such as the tax credit on rent actually paid or the suspension of rent for properties granted under concession by the State and local authorities in favour of sports federations, clubs and associations), but – on the contrary – “did not want to envisage a form of regulatory intervention capable of affecting – in a generalized way- the leasing relationships of a private nature”, enabling the parties to choose whether or not to amend the contracts (although the lessor offered this option to the lessee before the start of the dispute, it seems that the latter rejected this offer ).
While we await other rulings to intervene in this regard, the indication of the negotiation path remains firm as a valid remedy for situations of contractual imbalance resulting from the pandemic and the government’s provisional activity, which so far had never been experienced by our legal system and dealt with in court.
Provisional rules on losses in light of the 2021 Budget Law.
Article 1, paragraph 266 of Law No. 178 of 30 December 2020 (Budget Law 2021) replaced Article 6 of Decree-Law No. 23 of 8 April 2020 (Liquidity Decree), providing for the extension until the fifth financial year following the one closed on 31 December 2020 of the suspension of the measures regarding the coverage of losses arising until that date.
Compared to the previous regulation, the current version of the rule is more detailed, indicating the following points:
1. For losses arising in the financial year ending on 31 December 2020, the rules on coverage for losses exceeding one third of the corporate capital and for losses that have reduced the corporate capital below the legal minimum do not apply;
2. The aforesaid suspension may operate until the fifth financial year after 2020 (i.e. until the shareholders’ meeting that approves the financial statements for the year 2025);
3. In the event of losses that have reduced the share capital below the legal minimum, the directors must in any case promptly convene the shareholders’ meeting, which may decide either to immediately reduce the corporate capital and simultaneously increase it, or to suspend such measures until the fifth financial year after 2020 (i.e. until the shareholders’ meeting that approves the financial statements for the financial year 2025); until such time, the company will not be dissolved due to the reduction of the corporate capital below the legal minimum;
5. Losses sterilised in this way must be disclosed separately in the integrative note to the financial statements, with details of their origin and movements during the year.
In the event of recourse to the provisional rules, the directors and statutory auditors of the companies will in any event be required to constantly monitor the company’s ability to continue its activity, from the point of view of the company’s capacity to meet its obligations; the suspension of recapitalisation obligations, in fact, cannot be detrimental to creditors. In this context, it can be considered that even greater diligence and rigour is required of directors and statutory auditors (including through more frequent discussions – where possible – with shareholders), in order to avoid personal liability in the event of the company’s insolvency.
The Court of Cassation decides on the jurisdiction of derivative contracts governed by ISDA Master Agreement.
The Supreme Court has returned on the issue of jurisdiction in derivative contracts governed by the ISDA Master Agreement (i.e., the framework agreement, published by the International Swaps and Derivatives Association, commonly used in OTC derivative transactions, as amended and customised to the needs of the parties through other contractual forms, including the so-called “Schedule”) stating the jurisdiction of the Italian judge when the claimant’s request is based on a pre-contractual title, even in the presence of an exclusive jurisdiction clause pursuant to art. 13 of the ISDA Master Agreement.
The recent decision (Court of Cassation, Joint Divisions no. 29107, published on December 18, 2020) analyses a case in which a company entered into an Interest Rate Swap with an Italian credit institution in May 2007. In March 2013, the company asked the Court of Milan to ascertain, as main request, the bank’s pre-contractual liability due to the breach of disclosure and transparency duties pursuant to articles 21 and 23 of Consolidated Law on Finance and related to the transaction’s future performance. The company has therefore requested compensation for damages and/or for the negative differentials that were paid to the bank.
The bank argued, among other things, that there was a lack of jurisdiction based on the contractual provisions contained in the ISDA Master Agreement and the Schedule which indicated the application of English law and assigned disputes “relating to this Agreement” to the jurisdiction of the English court (Article 13 of the ISDA Master Agreement).
According to the Supreme Court, the Italian court has jurisdiction in the case in question for several reasons:
– by virtue of the previous and consolidated approach of the Supreme Court (see Joint Divisions no. 2926/2012; no. 19675/2014 and no. 1311/2017) which requires a restrictive interpretation of the phrase “relating to this Agreement” referred to in art. 13 of the ISDA Master Agreement and does not want this phrase to extend its effectiveness to disputes of a non-contractual nature, therefore even for disputes regarding pre-contractual liability (which represent a large part of the litigation concerning derivative contracts, where breach of information duties complained by investors refers to the phase prior to or relating to the stipulation of the contract);
– for the purposes of jurisdiction, the claimant’s requests are not without relevance. Both the Supreme Court and the territorial court focused on the company’s requests whose main object was the determination of non-contractual and pre-contractual liability with consequent subordination of the other additional requests, thereby deeming that the disputes mentioned in the jurisdiction clause contained in the ISDA Master Agreement were extraneous and different from those contained in the claimant’s requests;
– according to the well-known principle of locus commissi delicti (set out in the previous art. 5. no. 3 EC Regulation no. 44/2001 and now fully transposed in art. 7 no. 2 EU Regulation no. 1215/2012) which establishes jurisdiction in the place where the damage occurred (or will occur). This principle, which has already been applied by the Court itself in the field of pre-contractual liability (Joint Divisions no. 2926/2012), strengthens the jurisdiction of the Italian court in the case in question, since the damage in the pre-contractual phase occurred in Italy between parties operating on Italian territory.
In essence, the Joint Divisions of the Supreme Court deemed that the request based on a pre-contractual (and therefore non-contractual) title belongs to the jurisdiction of the Italian judge, thus excluding the applicability of the ISDA Master Agreement’s jurisdiction clause.
Two recent rulings by the Court of Auditors rekindle the discussion on public control of sports federations.
With two recent rulings, the United Sections in plenary meetings nos. 9 and 10 of 30 April 2020 of the Court of Auditors filed on 30 April 2020, return to the issue of public control over Italian sports Federations and their inclusion in the ISTAT list, clarifying that the same must be ascertained based on their degree of decision-making autonomy, also in view of the possible constraints deriving from the allocation of public contributions. These rulings do not seem to consider what has already been decided by the Court of Justice of the European Union in its judgment of 11 September 2019 (EU-C-2019-705).
This is a very important problem within the sports Federations which, following the inclusion or non-inclusion of an institution in the aggregate general government (given the interest in not forming part of it), may be subject to particular financial and accounting obligations relating to the principle of budgetary equilibrium, with consequent restrictions on the autonomy of expenditure and constraints, financial and accounting controls.
By ruling of 11 September 2019, the Court of Justice considered firstly to evaluate some issues relating to the special ties between the Federations and the central government, in particular regarding CONI, which according to the ESA 2010, forms part of the central government and, however, despite some clear indications, does not seem to have intended to definitively resolve the national litigation. In fact, in several instances, the ruling stated that only the national court may interpret the rule applicable to the specific case and, emphasizing this aspect, it only focused on the scope of the Community legislation without applying it to the specific case.
In this perspective the Court of Justice has ruled that in order to assess whether a Federation falls within the aggregate of general government, it is necessary to first examine:
(a) the notion of : “public intervention in the form of general regulations applicable to all entities carrying out the same activity, referred to in Annex A, point 20.15, of EU Regulation no. 549/2013”: according to the Court, this notion must be interpreted in a very broad sense, thus assessing any regulation or intervention on the types of activity under examination, without such regulation being able, by its nature or by its particular “excessive” character, pursuant to Annex A, point 20.309 letter h), of EU Regulation No. 549/2013, to dictate, in fact, the general policy or program of the entity within the field of activity concerned;
(b) the notion of “public control”: in this sense, the EU Judge, after having ascertained that according to our legal system, the Federations have the “technical, organizational and management autonomy under the supervision of CONI“, invites the national court to verify whether CONI’s powers – regarding the Federations themselves – can affect “the ability to determine the general policy or program” of such Federations;
(c) the nature of the “membership fees paid by the members“: on this point the Court clarifies that if the national court were to come to the conclusion that the fees in question are to be considered as public contributions, it would still have to verify whether, despite almost complete funding of the national sports federations by the public sector, the controls on these cash flows are sufficiently restrictive to influence in a real and substantial manner the general policy or program of the aforementioned federations, or whether they remain in a position to determine said policy or program. In this sense, the Court of Justice shows that it adopts a clear and decisive position on the public nature of the membership fees, which had also been opposed by the previous jurisprudence of the United Sections.
If we look at this last question, namely the public nature of the membership fees, as anticipated, the United Sections, through the recent rulings nos. 9 and 10 of 2020, would seem to disregard the conclusions decided by the EU Judge.
Firstly, the decisions express a general principle (valid for every Federation) “according to which the existence of public “control” shall be assessed with reference to the level of the institution’s self-determination, having regard to the Federations’ overall ability to identify the objectives of their activities, both at the level of overall strategy (“the federations’ general policy and program”) and at the level of operational strategy (the definition of “activities and their operational aspects”)“. Furthermore, based on this premise, the final conclusion that the national court should reach is positive (in the sense of the existence of public control): “where public intervention as a whole is such as to have a real and substantial influence on the definition and achievement of the objectives of the institution; while rather it will be negative (in the sense of the non-existence of “control”) in the opposite case, “where the national court ascertains that the Federation’s decision-making autonomy is such as to allow it the power to define and implement the objectives, its activities and operational aspects, as well as the strategic directions and guidelines it intends to pursue“.
On the basis of this assumption, the Court of Auditors therefore establishes that: “CONI’s power to establish the “fundamental principles” to which the Federations must conform their statutes in order to obtain recognition for sports purposes [… ] does not constitute an indication of a situation of “control” as it does interfere with the Federations’ decisional autonomy and their ability to “dictate the policy or the program“. With the consequence that: “in order to verify the Federations’ degree of decision-making autonomy, it will therefore be necessary to ascertain at which decision-making level and within which limits, the public intervention, implemented with the allocation of public contributions, conditions the program and the activity of the federations themselves“.
As a result of these decisions, therefore, in future, to avoid being attracted to the ISTAT list, with all the consequences deriving from the obligations mentioned, the Federations will have to verify, according to the words used by the Court of Auditors: ” degree of decision-making autonomy ” and “ at which decision-making level and within which limits, the public intervention, implemented with the allocation of public contributions, conditions the program and the activity of the federations themselves“.
It is clear that the greater the availability of resources that do not derive from public contributions, the more autonomous a Federation will be. Lastly, in the light of the two rulings under consideration, it will be important to assess the constraints that are placed on the use of public contributions in relation to strategic objectives, without them causing a strong limitation of the Federations’ decision-making ability.
Extension of the term for the revaluation of lands and unlisted shares and quotas.
Law no. 178 of 30 December 2020 (hereinafter “2021 Budget Law”) extends the possibility for the taxpayers to opt for the revaluation of the purchase price of lands and unlisted shares by paying an 11% substitute tax.
In particular, as provided for by Art. 1, paragraphs 1122 and 1123 of the 2021 Budget Law – in continuity with the precedent regulations set forth by Art. 1, paragraphs 693 and 694 of the 2020 Budget Law for the assets held as of 1 January 2020, and, subsequently, by Art. 137 of Law Decree no. 34 of 19 May 2020 (so-called “Decreto Rilancio”) for both agricultural and building lands, as well as for unlisted shares and quotas held as of 1 July 2020 – individuals, partnerships, non-commercial entities and foreign taxpayers without a permanent establishment in Italy can opt for the revaluation of the cost or the purchase price of unlisted shares and quotas and lands held (not in the course and for the purposes of a business activity) as of 1 January 2021. The revaluated amount shall be recognized for the computation of the capital gain’s taxable basis pursuant to Art. 67, paragraph 1, lett. a) – c-bis) of the Income Tax Code, provided that the lands and unlisted shares and quotas shall be sold by taxpayers for consideration.
In order to opt for the above-mentioned regime, taxpayers are required within 30 June 202:
1. to obtain an appraisal of the revaluated amount of the participation or of the land prepared and sworn by a qualified licensed professional (e.g. chartered accountant, surveyor, engineer, etc.);
2. to pay the 11% substitute tax in its full amount or in three equal installments.
In case of payment in installments, a 3% interest on annual basis shall apply on each installment.
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