Lease during the pandemic – special new legal solutions

Shopping malls and the entire retail sector are suffering huge losses due to COVID-19 pandemic. Since mid-March 2020, only some shops may operate in facilities above 2,000 square meters, including e.g. food, home-improvement and construction stores, and pharmacies. Catering and entertainment facilities have been closed also outside shopping malls.

The above are only a few extraordinary changes introduced in the laws regulating the rental market. The government’s bill of 25 March 2020 amending the Act on Extraordinary Measures for Preventing, Counteracting and Combating COVID-19, Other Infectious Diseases and Emergencies Caused by Them, and Certain Other Acts (the so-called ‘Shield’) provides for special regulations concerning:

  • lease in shopping centers;
  • lease of premises;
  • lease of property from public resources.

Commercial lease in shopping malls

In accordance with the bill, in the period of the ban on operating in commercial facilities with a sales area of more than 2,000 square meters, mutual obligations of the parties under lease contracts concerning these facilities are ‘extinguished’.

This means that for the entire period of the operation ban (from 14 March 2020), tenants affected by this ban are not required to pay any rent or maintenance fees, and landlords are not required to make premises available to tenants. The exemption of tenants from the obligation to pay rent and service charges is non-refundable and applies to the entire amount of rent and service charges (100%), for the entire period of the ban on business operations.

Under the new regulations, irrelevant are the area of the leased premises, the amount of rent, the lifetime of the lease agreement or the status of the tenant.

As transpires from the bill (albeit not explicitly), the exempted from payment of rent are only those tenants, to whom the ban on activity applies (and not all tenants).

In order to take advantage of the exemption, the tenant should, within three months from the date of lifting the ban on business operations, submit to the landlord an offer to extend the lifetime of the agreement, on hitherto binding terms, for the duration of the ban, extended by six months. It seems that the legislator’s intention was to give tenants the opportunity to decide whether they choose to “terminate” their leases, but with an extension of 6 months (under the current rules), or whether they prefer to continue paying rent, but then without an obligation to extend the contract.

The exemption from rent does not apply to tenants operating in a) commercial premises with a sales area of less than 2,000 square meters, and b) other than commercial premises (e.g. office buildings). It seems that limiting the exemption only to tenants from the largest shopping malls may in practice mean that large chain tenants will become its biggest beneficiary.

The ‘Shield’ permits the parties to the lease agreement to apply provisions of the Polish Civil Code – this means the possibility of taking advantage of the provisions on force majeure or fundamental change of circumstances (the possibility of avoiding liquidated damages / indemnity, the possibility of demanding a change of contract conditions, the possibility of refraining from paying the rent).

The new regulations do not provide for any form of compensation or financial support dedicated to shopping malls deprived of rent, including in particular repayment holidays (most of the malls have been built thanks to a bank loans, which the malls have to repay regularly).

Regulations concerning all lease agreements – effective until 30 June 2020

  • extension of lease agreements concluded for a fixed period, which would expire after the Shield enters into force,
  • prohibition to terminate tenant’s lease agreements or to increase the rent.

Leasing of property from public resources

Proposals concerning the lease of premises owned by the State Treasury or local government units include, among others:

  • a simplified procedure for cancelling or deferring rents, or enabling their payment in instalments,
  • a simplified procedure for individual withdrawal of rent claims,
  • the possibility for local government bodies (e.g. municipal councils) to adopt resolutions on the general grant of allowances, debt cancellation and waiver of debt recovery.

How can we be of help?

Our Law Firm provides comprehensive consulting services for shopping malls and tenants, including commercialization/leasing agreements, support in negotiating and drafting contracts, annexes and agreements, legal analyses of agreements in terms of claims and court disputes. We also offer services of monitoring and interpretation of the latest regulations.

We have had many years of experience in representing shopping malls and tenants in disputes: (a) we act as a mediator and an arbitrator, (b) we assist in preparing litigation strategy and arguments for the needs of a dispute, (c) we prepare pre-trial letters, (d) we assist in concluding agreements and settlements, (e) we represent parties in arbitration and litigation before courts of all instances.

If you are interested in our support in this area or have any questions about the legal status / procedural position in the context of the spread of coronavirus, please contact us.