Now is the time to Analyze your Leases Agreements and Approach Your Landlords
For many years, the Russian real estate market had been rather landlord friendly. The lack of economic growth has already changed this slightly over the last years. Now, however, (a) the COVID-19 crisis, (b) relevant executive orders instructing the de facto temporary shutdown of the vast majority of businesses and industries as well as (c) laws adopted for the protection of tenants are shifting the balance of interest even more to the tenants' favour.
Commercial tenants now have good chances to benefit from:
► Reduction of Rent,
► Deferral of Rent Payment,
and in some cases
► A Right to Terminate unfavorable long-term leases.
These options for tenants have their roots mainly in the following legal acts/provisions:
- Executive orders of state authorities which make the use of commercial premises (in particular, but not only retail premises) for certain periods of time de facto and legally impossible, e.g. Orders of the President No. 206 dated 25 March 2020 and No. 239 dated 2 April 2020, imposing a non-working period in Russia from 30 March until 30 April and Order of the Mayor of Moscow No. 12-UM dated 5 March 2020 (as amended) declaring a high alert situation in the city of Moscow ("Executive Orders").
- The Federal Law No. 98-FZ dated 1 April 2020 specifically providing for the rights of tenants of affected industries to request deferred payment of rent and/or rent reduction. The calculation of the amounts to be deferred is regulated in the Governmental order No. 439 dated 3 April 2020. In simplified terms, under these regulations: (a) 100% of the rent accruing during effectiveness of the Executive Orders and (b) 50% of the rent accruing from the moment of cancelation of the Executive Orders until 1 October 2020, is deferred and must be paid in equal installments during the years 2021-2023.
- Article 451 of the Civil Code providing for the right to request termination of agreements or their modification based on significant change of circumstances. A change in circumstances is considered significant when the circumstances have changed so much that if the parties could reasonably foresee it, the contract would not have been concluded at all or would have been concluded on significantly different terms.
- Article 405(2) of the Civil Code providing for a right of a party to an agreement to terminate the agreement in case it loses its interest in the agreement due to the other party's delay in performance in breach of the other party's obligations. In a lease situation, this can transform to a right of the tenant to terminate the lease due to the landlord's breach of its obligation to procure a free use of the leased premises by the tenant.
- Article 614(4) of the Civil Code gives the tenant a right to claim reduction of the rent in case of a significant deterioration of the premises or worsening of the terms of their use due to the circumstances that the tenant is not responsible for.
➜ Analyze your Lease Agreements and Approach Your Landlords
The specific rights available to a relevant tenant certainly depend on the tenant's industry/area of business, the location of the relevant premises and the terms and conditions of the executed lease agreement. Tenants should, however, analyze their leases (almost all lease agreements have specific provisions that may override or modify general statutory provisions, such as notification terms in case of failure of performance or specific procedures to be observed for requesting amendments to the lease) and approach their landlords in order to renegotiate the lease terms. As per our experience so far, many landlords approached with reasonable requests were eager to find a quick amicable solution with the tenants and comforted the tenants' requests (at least to a certain extent).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.