20.03.2020 Business law

Legal situation of shopping centres’ tenants

Due to the current economic situation caused by the SARS CoV-2 pandemic, commonly referred to as the coronavirus, many entrepreneurs have found themselves in financial difficulties.  This include in particular the situation of shops and restaurants in shopping centres. This is because they were temporarily closed by order of the Minister of Health. 

Nowadays, it is highly important for tenants to find solutions that will allow them to reduce their rents, at least partially, for a period of time when they cannot generate income due to the statutory closure of their premises.

This article will outline some of the solutions that tenants should find interesting.

Extraordinary change of circumstances

Each agreement is concluded in a specific socio-economic situation. Its modification may affect the ability to fulfil the obligation. If it is a significant change causing considerable damage to one of the parties, the legal system allows the injured party to bring an action before the court for the revision of the agreement terms in order to adapt it to the new economic conditions.

Both the epidemic and the change in the legal status resulting from the current epidemic make it possible for the injured party to take the action before the court.

An act amending the functioning of certain economic sectors may, in particular, constitute an extraordinary change of circumstances. The Regulation of the Minister of Health on declaring a state of an emergency epidemic prohibits tenants of commercial space in large area shops from conducting business activity. Nevertheless, they are still obliged to pay rent under the relevant lease agreements. Such situation puts tenants in an extremely unfavourable situation. They do not generate any income and still have to bear the costs of lease of the area they cannot use.

The above-mentioned causes that for the duration of the prohibition period, the implementation of the lease agreements in accordance with their contents will usually cause a considerable loss to tenants.

Unfortunately, in order to benefit from the legal protection, it is necessary to take an action before a court. This means that this mechanism will not provide a remedy for current problems of tenants in the short term. A solution may be to lodge an application to ensure the precautionary measures, e.g. by lowering the rent.

Force majeure

Force majeure is an unexpected event which is independent of the debtor’s will and which cannot be prevented. Force majeure makes the fulfilment of an obligation completely impossible and the debtor bears no responsibility for it.

In one view, closing tenants’ shops in shopping centres should not be considered as force majeure affecting the obligation to pay rent. Even if these tenants do not receive income, it does not make payment impossible. Therefore, it is objectively possible to fulfil this obligation.

However, it is possible to take a different view. It assumes that the concept of the so-called economic inability is connected with force majeure. It is a situation in which the obligation is physically possible, but not economically viable. Such a situation seems to occur in the case of closing tenants’ shops in shopping centres. The amount of rents is usually related to the turnover generated by a given shop. This may justify the refusal of tenants to pay their rents. However, it should be noted that the concept of economic inability to pay rent is controversial and the courts cannot be expected to accept it uncritically.

Learn more: Coronavirus: Business Support Package 

Contractual Provisions

The abovementioned possibilities of evading or changing the original contractual relationship are only a general rule. In each case, however, the contractual provisions contained in commercial lease agreements shall prevail. It should be pointed out that professional commercial area lease agreements usually contain appropriate adaptation clauses indicating a catalogue of events constituting force majeure or indicating such a circle of events which would justify non-fulfilment of an obligation due to its economic inexpediency. Therefore, resolving the problem of the possibility of withholding payment of rent for the duration of shopping centres’ closure will require each time an analysis of respective lease agreements.

TGC’s law firm, thanks to the rapid implementation of procedures enabling the continuation of its operations, maintains full operational capability and supports clients who are in a difficult situation due to the coronavirus epidemic.

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