COVID-19 and Its Effects on Rent Prices for the Hospitality Industry: An Economic Model for the Rebus Sic Stantibus Clause

Abstract

The COVID-19 pandemic made hotels around the world to experience a huge drop in revenues as lockdowns restricted mobility. For many hotel operators, the rent of the building is one of the most important fixed costs. The Rebus Sic Stantibus clause allows judges to rule that changes can be made to the economic conditions of contracts when a supervening event, not foreseen by the parties, causes economic hardship. This paper analyses, considering different market structures and the degree of product differentiation, how the rent for hotel facilities agreed in long-term contracts will change if the clause is applied now, reducing by law current rents. JEL Classifications: K12, K22, D43, L83