Anti-crisis shield – support for tenants in shopping centres

by Martyna Gajda

24 March 2020

Due to the restrictions on the operation of commercial facilities introduced on 14 March 2020 in connection with the state of epidemic emergency und later the state of emergency, enterprises in some industries are facing a serious threat of having to shut down their business.What then with the obligation to pay the rent for commercial space in the now closed shopping centres, which is usually a substantial monthly expense?

With the business activity restrictions, many enterprises will not be able to pay it. The anti-crisis shield bill that the Polish government submitted for public consultation on 21 March may deliver a response to the current problems of some enterprises. The postulated changes may significantly help tenants fulfil their obligations and gives enterprises extensive rights to reduce rent.

Postulated changes

The bill proposes to add a new article saying that if a tenant renting space in a commercial facility with an area of over 2000 m2 is not allowed by law to conduct business in whole or in part during the state of epidemic emergency or the state of emergency and the tenant does not conduct business, the contractual rent payable for that period is reduced by 90% unless the contract provides for a rent reduction more favourable to the tenant (Article 1(1) of the bill). In addition, during the state of epidemic emergency or the state of epidemic the tenant is not liable for non-performance or improper performance of the contract, in particular, the tenant is not obliged to remedy the damage by paying a contractual penalty or compensation if the non-performance or improper performance of the contract results from a legal ban or restriction on the activity conducted by the tenant in a commercial facility with an area of over 2000 m2 and the tenant does not conduct business in the period covered by the ban or restriction (Article 15ze(2)). The bill also introduces a provision saying that if the principle of equity so requires, the court may consider the interests of the parties according to the principles of social interaction and, based on that, may assess a different amount of the payment referred to in paragraph 1 or 2 (Article 15ze(2)).

The tenant's right envisaged in the bill enables the reduction in the contractual rent by 90%. Moreover, if the tenant fails to perform his obligation properly or at all, i.e. does not pay the rent in whole or in part, he will not have to remedy the damage by paying a contractual penalty or compensation.  The proposed changes also allow determining the due rent in court should the parties apply a wrong rent reduction method. This gives the landlord the right to modify the amount of rent.

The entitlement introduced by the bill will be available only to enterprises which lease commercial space in shopping centres with an area of over 2000 m2.  The above provisions will apply mainly in shopping centres regardless of the size of the leased unit.

Why is it necessary?

In the explanatory memorandum to the bill we read that the substantial reduction in rent is justified by a sudden change in circumstances which is beyond the parties’ control and which results from the ban on trade in large commercial facilities imposed as part of epidemic emergency measures.   The legislator says that the rent reduction is reasonable because the landlord cannot use the space to carry out certain activities, but he can e.g. store and protect the tenant’s assets. On the other hand, the tenant does not conduct business and, therefore, does not earn revenues, which may negatively affect his liquidity or even make him insolvent, if the ban lasts longer. The legislator explains that the purpose of the rent reduction is to ensure a just distribution of burden between the parties to the lease as a result of introducing the state of epidemic emergency or the state of epidemic.

But the parties should ea

ch time consider in the first place the terms and conditions of the lease, as they may be more favourable for them than the rent reduction entitlement proposed in the bill. This is because the parties may have agreed in the lease that the tenant will have to pay no rent in extraordinary situations.

The changes put forward by the government are a substantial response to the problems currently faced by tenants. We are not sure whether the legislator will pass the bill and what provisions the bill will eventually contain. Nevertheless, you should keep them in mind if you prepare for negotiations with the landlord.

According to the information from the government, the changes are scheduled to enter into force as soon as next week. We will keep you updated on the progress of legislative work. If you are planning to start negotiations with your landlord do not hesitate to contact our experts for help.