In order to prevent the spread of the coronavirus pandemic (COVID 19), a number of restrictive measures have been imposed, which also have a significant impact on tenancies. As a result of the restrictions, the home office has become commonplace, office buildings have become depopulated, a significant number of stores have been open for a limited time, their turnover has decreased significantly, however, leases still exist. The question rightly arises as to what rights and obligations the landlord and the tenant have in the current situation, whether the rent can be reduced and what rules apply to the termination of the tenancy.
Until 30 June 2020, a prohibition on termination will apply to some lease agreements
According to the newly released government decree, from the declaration of a state of emergency there is a prohibition on termination of the lease agreements until 30 June 2020, for the most endangered sectors, such as tourism, catering, entertainment, gambling, film, performing arts, event management and sports services. The prohibition on termination may be extended by the government until the end of the state of emergency.
Does this mean that non of the tenancy can be terminated at all?
No. This means that the leases of business premises belonging to the indicated sectors cannot be terminated by unilateral termination during the prohibited period, which in our opinion applies to all types of termination, thus both the so-called ‘ordinary’ and ‘extraordinary’ (immediate) termination. Of course, it is still possible for the parties to terminate the contract by mutual consent.
What about the lease agreements on office spaces? Does the prohibition on termination apply?
If the office spaces in question do not belong to any of the economic sectors listed in the government decree, so it is typically not a commercial business, the prohibition on termination does not apply to these leases. However, termination of these leases may not be the most economically viable option in the long run, so a temporary amendment to the lease should be considered, in which favourable conditions can be laid down for both landlords and tenants.
Can the tenant demand a reduction or waiver of the rent?
The Civil Code stipulates that no rent is payable for the period during which the tenant may not use the thing for reasons beyond his or her own interest. In view of the restrictive measures introduced due to the coronavirus pandemic, the remission of rent can only occur in a very narrow scope. It can only take place if the restriction imposed directly affects the operation of the rental property and makes it impossible to use it. If the restrictions only indirectly affect the use of the rental property, but do not make it impossible, the tenants are not released from their obligation to pay the rent.
Furthermore, the parties may deviate from the cited provision in the lease agreements with the same will, so it is worth examining the concluded agreements, because if the lease agreement excludes the applicability of this provision, the tenant cannot rely on the cited provision and refuse to pay the rent.
However, a reduction in the rent requires an amendment of the contract based on the mutual agreement of the parties. Under the contract amendment, the parties can agree on a number of provisions that will alleviate their situation (e.g. rent reduction, subsequent rent settlement, extension of the lease term, etc.). Mutually agreed amendments to the contract are in the interests of both the tenant and the landlord. Although it currently appears that a contract amendment will bring more favourable changes to the legal relationship for tenants, a contract amendment by mutual agreement may also be more economical for landlords. If the obligations of the tenant are left unchanged, there is a high risk that the tenants will become economically paralysed and will be liquidated. In such case, the landlord’s claims against the tenant might be enforced up to the amount of the contractual guarantees only.