As a measure to prevent spread of acute respiratory disease COVID-19 caused by the coronavirus SARS-CoV-2 the Cabinet of Ministers of Ukraine introduced a ban on the work of business entities that engage in reception of visitors, including catering establishments, restaurants, cafes, shopping and entertainment centers, fitness centers, cultural establishments, retail and consumer services (Regulation No 211 as of 11 March 2020).
Can tenants of these businesses not pay the rent?
The Civil Code of Ukraine (Art. 762) stipulate that a tenant may require a rent reduction if, due to circumstances for which he or she is not responsible, the possibility to use the property has substantially decreased, or the tenant is exempted from rent for all the time during which the property could not be used by him or her because of circumstances for which he or she is not responsible. The possibility of exemption of the tenant from payment of the rent was further confirmed by the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine aimed at providing additional social and economic guarantees in connection with the spread of coronavirus disease (COVID-19)” No. 540-IX as of 30 March 2020. Government restrictions imposed by Regulation No 211 will be qualified as those restricting the use of leased premises by certain entities. Therefore, the key issue is which entities will be able to apply for these rules and to what extent.
A careful reading of Regulation no 211 results in determination that the restriction applies only to premises where visitors are allowed. If the premises are not used for customer service, the right to use the rented premises is not violated. Thus, leased premises at office buildings that are not restricted for access by landlords are not covered by the restriction. Accordingly, tenants of such premises are not entitled to exemption from rent payment.
The same assumption relates to retailers of food, fuel, hygiene products, medicines, technical and other means of rehabilitation, veterinary preparations, feeds, pesticides and agrochemicals, poultry, seeds, means of communications and telecommunications.
Although catering establishments (restaurants, cafes, etc.) are prohibited from attending, they may offer food delivery services and, therefore, the landlord may refer to this circumstance as not allowing the tenant to invoke the utter inability to use the premises and his right to be exempted from rent payment.
Landlords may also point out that the premises are not fully used for trading only, but for storage of goods and staff offices. The demarcation of any premises into a visitation area and a storage area or to carry out certain work (clothing repairs, repair shops, etc.) will make it impossible for the tenant to be fully exempted from paying the rent. In this case disputes between the landlord and the tenant may arise only in terms of determining the square of each appropriate area. If rented premises are located in office buildings, disputes may also arise as to full or partial payment for services regarding common areas as the prohibition of use of certain premises does not exclude the need for the landlord to protect these premises, to heat and illuminate that common areas.
Can tenants claim a rent reduction, if their staff works remotely?
The tenant’s decision to allow his employees to work remotely does not affect his or her ability to use the leased premises. In such cases the rent must be paid in full.
Can a tenant terminate a lease due to lockdown?
The Civil Code allows the tenant to terminate the lease only if the premises do not comply with the terms of the contract and if the landlord fails to complete his repair obligations. With the consent of the parties, the contract may be terminated in the event of a material change in the circumstances that the parties were guided by when concluding the contract and that changed so much that, if the parties could have foreseen it, they would not have concluded the contract or concluded it on other terms. In my opinion, the introduction of 5-week lockdown cannot be interpreted as such circumstance by the parties, as the lockdown is short enough in comparison to the general terms of lease contracts. Of course, if the lockdown is extended for a longer period, this assumption may be revised.
At the same time those tenants who have entered into lease agreements just before lockdown can apply for a rent review, as many experts point out, that rent may fall due to the general crisis of the Ukrainian economy caused by the coronavirus.
Tips for tenants
- If you are entitled to a rent reduction, notify your landlord in writing;
- If the circumstances are force majeure for you, get timely information about that from the relevant Chamber of Commerce and Industry;
- When negotiating with the landlord, remember that he or she, like you, is in difficult circumstances as well, so the decision must be a compromise for both parties, not just for the tenant.
Tips for landlords
Tenants should be granted unrestricted access to the rental property; limited access to the premises may result in the tenant’s right to claim a reduction in rent payment.
When submitting bills for use of the premises, evaluate carefully the columns relating to services that were not actually received by the tenant due to the prohibition of use the leased premises.
Keep in touch with tenants and let them know your decisions concerning access to the premises. You may not terminate the lease with the tenant earlier than three months of complete failure to pay the rent from his or her side.