Legal tips for tenants: how to solve the issue of rent payment during quarantine and not to lose retail space

Legal tips for tenants: how to solve the issue of rent payment during quarantine and not to lose retail space

Legal tips for tenants: how to solve the issue of rent payment during quarantine and not to lose retail space

The Ukrainian Government issued the decree №215 of 16.03.2020 to ban the work of catering establishments (restaurants, cafes, etc.), shopping and entertainment centers, other entertainment establishments, fitness centers, and cultural establishments, retail and consumer services until 24.04.2020 due to quarantine.

On March 30, 2020, the Verkhovna Rada of Ukraine adopted the Law No. 540-IX, which provides for the tenant the exemption from payment for the rented premises according to p. 6 of Art. 762 of the Civil Code of Ukraine for the period of quarantine. This article provides that a tenant may be exempted from payment for the period during which he is unable to use the rented premises due to circumstances beyond his control.

These legal acts provide the legal ground for tenants to associate the impossibility of using rented premises with quarantine. However, these legal acts do not lead to an "immediate" exemption from payment of rent. It is necessary to prove the factual circumstances leading to inability to use the leased premises, according to p. 6 of Art. 762 of the Civil Code of Ukraine. Our legal advice may be useful for you to do so.

We consider that the tenant should justify the exemption from rent payments under p. 6 of Art. 762 of the Civil Code of Ukraine since the inability to use the rented premises. The ground for exemption from the obligation to pay is the objective direct impossibility to use the rented premises for appropriate trading activities due to circumstances beyond tenant`s control. Such circumstances include the denial of access for customers and the tenant to the retail space by the administration of shopping centers due to the quarantine in Ukraine.

As of today, there is no case law of rent disputes due to quarantine. However, our recommendations are based on judicial practice of application the p. 6 of Art. 762 of the Civil Code of Ukraine as the ground for exemption from responsibility of the tenant for non-payment of rent (listed at the end of this paper).  

We recommend legally correct reference to quarantine as a force majeure. Circumstances beyond tenant`s control within the meaning of p. 6 of Art. 762 of the Civil Code of Ukraine are broader than the concept of force majeure (Resolution of the Supreme Court № 910/7495/16 dated 08.05.2018). The absence of the necessary funds of the debtor cannot be considered as force majeure circumstances (p. 2 Art. 218 of the Civil Code of Ukraine). Given that the tenant's obligation to pay rent is not impeded by the quarantine, since the banking system is operating and the tenant is not prevented from making appropriate payments, the reference to force majeure in this context is unreasonable.

However, the certificate of force majeure issued by the Chamber of Commerce and Industry can be used to confirm the circumstances of the inability to use the rented premises for its intended purpose on the basis of p. 6 of Art. 762 of the Civil Code of Ukraine due to quarantine.

We recommend the following steps to solve the issue of rent payment during quarantine in the legally correct manner:

  1. You should write a letter to the landlord, in which to:
  • to specify the lease agreement and the purpose of the lease;
  • to indicate the inability to use the rent premises in connection with the restriction of the access to the retail space and correspondingly restriction of the trading activity due to quarantine in Ukraine;
  • to justify the exemption from rent payment under p. 6 Art. 762 of the Civil Code of Ukraine because of the inability to use the rent premises due to circumstances beyond the tenant's control;
  • to specify the period during which the tenant wishes to be released from the rent payment;
  • to confirm the willingness to pay utility bills and other operating costs;
  • to offer the landlord to conclude an amendment agreement on the exemption from rent payments for a period of inability to use the rented premises during quarantine; in this regard to attach the draft amendment agreement to this letter.
  1. If the Landlord refuses to accept the Tenant's proposal for exemption from the rent payment, you should take actions to minimize the risks of recovery of the rent payment through legal proceedings and/or early termination of the agreement at the initiative of the landlord, namely:
  • to fix the denial of access for customers and tenants to the retail space by the administration of shopping centers due to the quarantine in Ukraine (entry groups, information plates, and messages);
  • to draw up an act limiting the access for customers and/or tenants to the rented premises;
  • to issue an order of the company to suspend the activity of the respective trade object due to the abovementioned restrictions;
  • to apply to the Chamber of Commerce and Industry for a certificate of force majeure.

Proper legal drawing up of these documents will make it highly possible to avoid the recovery of the rent payment through legal proceedings.

Should you need legal advice, please free to contact us via office@gentls.com, we would be happy to assist.

Judici used for the preparation of this article: Resolution of the Commercial cassation court (hereinafter - CCC) within the Supreme Court dated 08.08.2019 in case No. 910/14596/18; Resolution of the CCC within the Supreme Court dated 18.12.2018 in the case №910/7495/16; Resolution the CCC within the Supreme Court 03.04.2019 in the case 905/1472/17; Resolution of the SACC dated 20.02.2020 in the case 905/569/19; the decision of the Commercial court of Kyiv City dated 11.12.2019 in the case 910/12171/19.