The difficulties of the current economic context will have escaped no one, and certainly not real estate professionals. The prices of materials are increasing considerably, their delivery times are getting longer, shortages, both real and artificial, are legion… and with that, the conditions for the performance of contracts are becoming more complicated.

Numerous are the companies have just discovered that no matter how difficult the performance of a contract may be in private markets, [1]  the law does not, in principle, allow them to impose a renegotiation on their co-contractors, regardless of the extent of the economic disruption encountered. Similarly, such an upheaval does not in principle authorize the termination of the contract.

Pacta sunt servanda, or to use the formulation under Article 1134, first paragraph of the Civil Code: “Legally formed agreements take the place of law for those who have made them.”

It is also erroneous to think that a judge would be able to intervene in the event of such difficulties in the performance of an agreement to adapt the terms and ensure the economic balance of the contract. Such interference would undermine the principle of contractual freedom and is therefore not currently possible under Luxembourg law and the case law derived from it.

However, it is important to remember that the parties are free to include in their contract an option to renegotiate or even revise the conditions set out therein. Such clauses would then also have the force of law between the parties.

While the value of these clauses organizing cases of “unforeseeability” seems quite obvious, they remain rare in practice, or sometimes poorly drafted. Their exact scope is not always well understood either.

Indeed, it should be borne in mind that clauses providing only for a “general” obligation to renegotiate do not guarantee that such renegotiations will be successful.

In principle, if the co-contractor is obliged to come to the negotiating table, there is nothing to compel him to necessarily accept the conditions that would suit the party that feels aggrieved by the economic disruption.

The pure renegotiation clause is therefore not a miracle solution.

It can therefore be advantageous to couple this with an automatic price revision clause in case of a change in circumstances, such as the application of an index.

However, it is advisable to ensure that the clause is sufficiently clear and not open to interpretation or controversy.

It should be remembered that legal proceedings generally take years to be finally adjudicated, so it is crucial to take care in drafting the “law of the parties” beforehand.

[1] This article does not deal with procurement contracts.


By Vanessa LOMORO.