What is the rebus sic stantibus rule?

Question

José Manuel Alburquerque · Accepted Answer

It is a rule that is not written into the Spanish Civil Code (“Código civil”) or the “Código Civil de Cataluña”, the Catalan Civil Code. It has been shaped over time by the “Tribunal Supremo”, Spain's Supreme Court. It allows a contract to be adjusted or, as a last resort, terminated when, after it was signed, circumstances change in an extraordinary and unforeseeable way and performing it as agreed becomes disproportionate for one of the parties. Its Latin name roughly means “as long as things stay as they are”. It is applied very rarely, because the general rule is that contracts must be performed. It cannot be used to get out of a bad deal, nor where the contract already allocates that risk. What the Supreme Court requires The courts apply it with great caution and require all of these conditions to be met at the same time: An extraordinary change in the circumstances compared with those that existed when the contract was signed. That the change was unforeseeable. If it could have been foreseen, the parties are taken to have accepted the risk. That it upsets the balance of the contract, so that one party ends up bearing a disproportionate burden, or that it defeats its purpose. That the party affected had not taken on that risk, either expressly or by the nature of the contract. If the contract has a price review or force majeure clause, that clause applies. It fits long-term contracts, such as a lease of commercial premises for many years, better than short contracts or those performed immediately. An economic crisis or the pandemic is not enough on its own. You have to show with figures how the change affected that particular contract. What effects it has The usual outcome is for the judge to adjust the contract to restore its balance, for example with a temporary rent reduction. Only if that is not possible is it terminated. It applies in the same way in Catalonia and in the rest of Spain, except in Navarre, which has it written into its own civil law. In 2020 Catalonia passed its own rules to reduce the rent of commercial premises affected by the pandemic, but the “Tribunal Constitucional”, Spain's Constitutional Court, struck down that reduction in 2022, because the basic rules on contracts are a matter for the State. It should not be confused with force majeure. Force majeure makes performance impossible. The rebus sic stantibus rule concerns a contract that can still be performed, but at a cost that no longer makes sense. How to ask for it Propose to the other party in writing that the contract be renegotiated, with the data showing the change and how it affects you. Do not stop paying or performing on your own initiative by invoking this rule. If the judge does not apply it, you will be the party in breach. Before suing, the law generally requires you to try to reach an agreement, for example through a written proposal or mediation. If there is no agreement, you can ask the judge to adjust the contract. You will have to prove the change, that it could not have been foreseen and how much it harms you.