On 8 April 2020, the Chamber of Deputies approved a bill on certain measures to mitigate the effects of the COVID-19 pandemic on tenants of commercial premises (the “Bill”). The Bill limits the rights of landlords to terminate leases for non-payment of rent during the period affected by the COVID-19 outbreak, while imposing an obligation on tenants to repay outstanding debts at a future time. The official wording of the Bill is yet to be published and it is subject to approval by the Senate and signature by the President. Please see below the key terms of the Bill as of the date of this update.
Restrictions on Landlords' Right to Terminate the Lease
Under the Bill, landlords may not unilaterally terminate a lease until 31 December 2020 solely on the grounds that a tenant is in default of their rental payments, provided that such non-payment:
i. occurred between 12 March 2020 and 30 June 2020; and
ii. was caused by restrictions resulting from extraordinary measures related to the epidemic situation that prohibited or substantially hindered the tenant’s business.
Those tenants impacted by the COVID-19 outbreak will be required to present the landlord with documents evidencing the cause of the delay within 15 days after the first delay of the tenant’s payment.
Possibilities to Terminate the Lease
If a tenant fails to pay the outstanding rent by 31 December 2020, the landlord will have the right to terminate the lease with a 5-day termination notice. The landlord will also be entitled to terminate the lease with 5 days’ notice if the tenant declares that it will not be able to repay the outstanding debts under the lease until 31 December 2020.
The landlord may also terminate the lease after the prohibition or hindrance of tenant’s business ceases to exist. However, the landlord may only do so after the state of emergency is lifted, if the landlord cannot be fairly required to stay in the lease relationship.
Other contractual and statutory termination rights of the landlord are not affected.
Other Lease Payments
The Bill only refers to payments of rent and does not affect other payments that may become due under the lease agreement, such as service charges, default interest or contractual penalties. According to the current wording of the Bill, obligations relating to such accessory payments will not be affected. The Bill does not affect a landlord’s right to draw down on any deposits or guarantees provided under the lease which serve as security.
Potential issues
The potential deferral of rental payments contemplated by the Bill may cause difficulties to landlords who are required to service regular payments under various financing facilities, or with respect to VAT payments. The Chamber of Deputies approved a separate bill based on which debtors may notify creditors of an intention to defer instalments.
Following Senate approval and signature by the President, the Bill will enter into force on the day of it is officially published.
If you have any further questions, please do not hesitate to get in touch with one of our contacts.
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