New rules to reduce rents in shopping during the COVID-19 pandemic
On 24 June 2021, an amendment (Journal of Laws of 2021, item 1192) (the Amendment) to the Act on Special Arrangements for Preventing, Countering and Combating COVID-19, Other Communicable Diseases and Emergencies Caused by Them and Certain Other Acts (the COVID-19 Act) was passed. The Amendment, in principle, will come into force on 23 July 2021.
As a result of the Amendment, Article 15ze of the COVID-19 Act, which exempted tenants and lessees of retail space in retail facilities with a sales area of more than 2,000 sq. m. (Shopping Centres) from the obligation to pay rent during the period of the prohibition on conducting business activity in such facilities, in exchange for the submission of a binding offer to extend the term of their lease agreements by the period of the prohibition, plus an additional six months, was repealed.
At the same time, the Amendment introduces Article 15ze1 to the COVID-19 Act. This provision makes a far-reaching intervention in leases and tenancy agreements for premises in Shopping Centres that were entered into before 14 March 2020.
New support rules for tenants and leaseholders
Firstly, in accordance with Article 15ze1 of the COVID-19 Act, rents under a lease, tenancy or other similar agreement in Shopping Centres will be automatically reduced to 20% of the original amount of rent in the event of a prohibition on conducting business activity. Additionally, in the period of three months from the date of lifting the prohibition on conducting business activity in Shopping Centres, these rent will be reduced to 50% of the original amount. It should be reemphasised that this regulation applies to agreements entered into before 14 March 2020.
Secondly, Article 15ze1(2) of the COVID-19 Act entitles both parties to the lease/tenancy agreement to challenge the reduction of the rent if, in the opinion of the party concerned, the statutory reduction of the rent to 20% or 50% does not restore the contractual balance in the light of the so-called rebus sic stantibus clause (Article 3571 of the Civil Code). In such a situation, a party will be able to request a court to determine the amount of rent, the manner of its performance or modify the period in which rent in the reduced amount is due, taking into account the circumstances of a particular case.
Thirdly, the Amendment introduces specific transitional provisions. Pursuant to Article 7 of the Amendment, a lessee/tenant whose offer referred to in the repealed Article 15ze (2) of the COVID-19 Act expired after 31 December 2020 may evade the legal effects of the declaration made with respect to the extension of the term of the lease agreement.
The declaration has effects for the future, i.e. the effects that occurred on the day preceding the declaration by the tenant /lessee, which means that they do not include the expiry of mutual obligations of the parties to the contract and the extension of the duration of the contract until then.
The deadline for tenants/lessees to make such a declaration is 14 days from the Amendment coming into force, which is 6 August 2021. The declaration should be given to the other party in writing. In this context, we note that pursuant to Article 98 of the Act of 16 April 2020 on Special Support Instruments in Connection with the Spread of the SARS-CoV-2 Virus, during the period of an epidemic emergency or state of epidemic, the legislator has excluded the presumption of the delivery of private mail with acknowledgement of receipt.
Protection measures for Shopping Centres
The reduction of payments under Article 15ze1 of the COVID-19 Act will be effected in the event of a further prohibition on conducting business activity, without the need for tenants/lessees to apply for a reduction in their rent. Therefore, in the event of a prohibition on conducting business activity in Shopping Centres, the owners of the Shopping Centres will have the option of bringing legal action under Article 15ze1 (2) of the COVID-19 Act. For example, they may demand an increase in statutory reduced rent, a change in the manner of its performance, or a change in the period in which the reduction would apply.
Before bringing legal action, the owners of Shopping Centres may file a motion to secure their claim. Due to the non-pecuniary nature of such a claim, it will be possible to provide security, for example, by determining the amount of the rent for the duration of the entire court proceedings before bringing a lawsuit. The motion to secure a claim should be examined by the court within one week of its being filed, and the proceedings to issue the security are conducted without the participation of the other party. Moreover, the advantage of such a motion in non-pecuniary matters, submitted before the initiation of proceedings, is that the fee for submitting it is only PLN100.
For these reasons, the owners of Shopping Centres should use the procedural instruments available to them in order to restore the contractual balance in the relationship with tenants /lessees.
As an aside, we would like to point out that the regulation under the Amendment raises doubts as to its compliance with the provisions of EU law on illegal state aid and the international agreements on investment protection (BIT) concluded by Poland, which may consequently constitute the basis for the State Treasury's liability for damages.
The legislator has once again made a far-reaching intervention in the lease and tenancy agreements of premises in Shopping Centres, which are definitely unfavourable for their owners. On the one hand, they may deprive them of the incomes of the annexes extending the lease agreements, which compensated Shopping Centres for the statutory exemption of tenants from paying rent during the previous prohibition on conducting business activity. On the other hand, by introducing an automatic reduction of rent during subsequent lockdowns, they impose the costs entirely to Shopping Centres without offering any compensation this time.
At the same time, the current legal practice will be reversed. Until now, tenants and lessees that were dissatisfied with the amount of rents during the pandemic sought for remedies before courts. After the Amendment, the initiative in this regard will be taken over by the owners of Shopping Centres, who will try to judicially eliminate or reverse the effects of the new regulations.
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Polish version of the article