Due to the Covid-19 pandemic, the French Government has adopted Order No. 2020-306 of 25 March 2020 as amended and completed by Order No. 2020-427 of 15 April 2020, which aims, amongst other things, to suspend certain penalty mechanisms for breach of contract and to extend the time limits relating to contract termination and renewal.
Article 4 of the Order provides that in the event of a breach of contract occurring between 12 March 2020 and the date falling one month after the end of the state of Health Emergency (the « Protected Period« ), the affected party will not be able to claim penalty payments or to benefit from penalty clauses, resolution clauses and acceleration clauses intended to sanction such a breach. As of today, this end date has been set at 24 May 2020, but this may be reduced or extended.
The affected party will recover its right to apply these penalty mechanisms after the expiry of a period starting on the first day after the Protected Period and corresponding to the number of days elapsed between 12 March 2020 (or the date on which the obligation arose if such date is later) and the date on which the obligation should have been performed, unless the defaulting party has remedied the breach in the meantime. By way of example, in the event of a breach occurring on 26 March, the acceleration clause intended to sanction the breach will take effect 14 days after the end of the Protected Period. In the case of a contract entered into on 5 April 2020 and a breach occurring on 30 April, the penalty clause will take effect at the earliest on 19 July (i.e. 25 days after the end of the Protected Period) provided that the Protected Period has ended on 24 June 2020 (as is currently envisaged).
Furthermore, Article 4 provides that in the event of non-performance of an obligation other than a payment obligation, which would be due and payable after the end of the Protected Period, the affected party will only recover its right to payment after the expiry of a period corresponding to the number of days elapsed between 12 March 2020 (or the date on which the obligation arose if such date is later) and the end of the Protected Period. For instance, in the event of a breach occurring on 1 July 2020, the penalty clause intended to sanction such breach will take effect no earlier than 13 October 2020, provided that the Protected Period has lasted 3 months and 12 days (as is currently envisaged).
Article 4 is not a provision of public order. Therefore, the parties may decide by mutual agreement that this article does not apply.
With respect to contracts that (i) may only be terminated within a specific period the last day of which falls during the Protected Period or that (ii) are tacitly renewed, if not terminated before a specific date falling during the Protected Period, Article 5 of the Order provides that the parties will not be able to terminate or renew such contracts before the expiry of a period of 2 months after the last day of the Protected Period (i.e. three months after the end date of the state of Health Emergency).
