30. 3. 2020
30. 3.
2020
Ban on retail and options for lessees
The coronavirus pandemic and the subsequent declaration of a state of emergency have restricted life in the Czech Republic in many ways. Among other things leading to the closure of retail outlets, excepting only essential points-of-sale, such as grocery stores or pharmacies. Such restrictions may have fatal repercussions for the outlets’ operators. We thus expect that lessees will turn to their lessors and ask for a waiver of rent or for a reduction of rental expenses, potentially also for an adjustment to their contractual terms and conditions. Does the Civil Code provide the affected lessees with any rights in relation to their lessors?
The Civil Code gives lessees the right to a reduction of rental expenses, especially where lessors themselves have violated their statutory duties or where restrictions to and the disturbance of the use of a thing were caused by the lessor or are directly attributable to the lessor. Section 2212 (3) of the Civil Code further stipulates that “If the lessee is disturbed in the use of a thing or otherwise affected by the conduct of a third person, they are entitled to a reasonable reduction of the rent, provided that they notified the lessor of such conduct of the third person without delay.“ According to the above provision, a lessee has the right to ask for a discount on rental expenses where the lessee’s right to use a thing has been restricted or rendered impossible as a result of the behaviour of a third person (i.e. for reasons beyond the lessor’s control) and the lessee notifies the lessor of this without delay.
Relevant law interpretations and commentaries stipulate that:
Relevant law interpretations and commentaries stipulate that:
(i) No special form has been prescribed for the above notification: the lessee may do so in writing, orally, by phone, etc. However, we recommend notifying the lessor at least by email to be ready for any potential disputes. Lessees should also be able to support their argument.
(ii) If the lessee does not notify the lessor in time, they lose their right to a reduction of rental expenses for the period before the notification.
While lessors neither caused nor could have affected in any way the governmental decree/the Ministry of Health’s measures prohibiting retail sale, lessees nonetheless and without any doubt were disturbed or restricted in the use of premises. Consequently, the above provision might apply to the current situation. Since the effective date of the Civil Code, no similar general ban on retail sales has ever been imposed and, consequently, there is no relevant case law. Hence, we cannot exclude the risk that the courts may decide on the matter differently.
Lessees may use the following rights embodied in the Civil Code (Sections 1765 and 1766). If circumstances change substantially enough to create a gross disproportion in the rights and duties of the parties by disadvantaging one of them either by disproportionately increasing the cost of performance or disproportionately reducing the value of the subject of performance, the affected party has the right to ask for the renegotiation of the contract with the other party (unless the affected party has assumed a risk of changes of circumstances itself) if it is proven that the affected party could neither have expected nor affected the change, and that the change occurred only after the conclusion of the contract or that the party became aware of the change only after the conclusion of the contract. Asserting this right does not entitle the affected party to suspend the performance (i.e. the affected party must continue to perform under the conditions originally agreed). Upon failure to reach agreement within a reasonable time limit, a court may, on the application of either of them, decide to change the contractual obligation by restoring the balance of rights and duties of the parties or to extinguish it as of the date and under the conditions specified in the decision. A court shall dismiss an application to change an obligation if the affected party fails to assert the right to renew contract negotiations within a reasonable time after it ascertained or could have ascertained the change in circumstances; this time limit is presumed to be two months.
If the lessee displays interest in the renegotiation of the contract, they must assert their right as soon as possible but no later than within two months after the date the relevant government decree was issued.
Please note that contracts for the lease of premises for business purposes usually exclude the application of the above directory (non-mandatory) provision of the Civil Code. It is therefore first necessary to carefully study relevant lease contracts. Where business premises have been fully closed as a result of the governmental decree/the Ministry of Health’s measures, we recommend - regardless of such an analysis - notifying lessors as soon as possible of the fact that the lessee has been disturbed in the use of premises and therefore is asking for a reduction of the rent and/or intends to renegotiate the contract. Speed is of vital importance, as a delay in asserting the right may weaken or even destroy such a right. We also recommend delivering notifications to lessors without delay even if it is later proven that relevant provisions of the Civil Code have been excluded, or delivering them even if you already know that they have been excluded, as despite this, lessors may be cooperative towards their lessees to maintain long-term lease relationships.
While lessors neither caused nor could have affected in any way the governmental decree/the Ministry of Health’s measures prohibiting retail sale, lessees nonetheless and without any doubt were disturbed or restricted in the use of premises. Consequently, the above provision might apply to the current situation. Since the effective date of the Civil Code, no similar general ban on retail sales has ever been imposed and, consequently, there is no relevant case law. Hence, we cannot exclude the risk that the courts may decide on the matter differently.
Lessees may use the following rights embodied in the Civil Code (Sections 1765 and 1766). If circumstances change substantially enough to create a gross disproportion in the rights and duties of the parties by disadvantaging one of them either by disproportionately increasing the cost of performance or disproportionately reducing the value of the subject of performance, the affected party has the right to ask for the renegotiation of the contract with the other party (unless the affected party has assumed a risk of changes of circumstances itself) if it is proven that the affected party could neither have expected nor affected the change, and that the change occurred only after the conclusion of the contract or that the party became aware of the change only after the conclusion of the contract. Asserting this right does not entitle the affected party to suspend the performance (i.e. the affected party must continue to perform under the conditions originally agreed). Upon failure to reach agreement within a reasonable time limit, a court may, on the application of either of them, decide to change the contractual obligation by restoring the balance of rights and duties of the parties or to extinguish it as of the date and under the conditions specified in the decision. A court shall dismiss an application to change an obligation if the affected party fails to assert the right to renew contract negotiations within a reasonable time after it ascertained or could have ascertained the change in circumstances; this time limit is presumed to be two months.
If the lessee displays interest in the renegotiation of the contract, they must assert their right as soon as possible but no later than within two months after the date the relevant government decree was issued.
Please note that contracts for the lease of premises for business purposes usually exclude the application of the above directory (non-mandatory) provision of the Civil Code. It is therefore first necessary to carefully study relevant lease contracts. Where business premises have been fully closed as a result of the governmental decree/the Ministry of Health’s measures, we recommend - regardless of such an analysis - notifying lessors as soon as possible of the fact that the lessee has been disturbed in the use of premises and therefore is asking for a reduction of the rent and/or intends to renegotiate the contract. Speed is of vital importance, as a delay in asserting the right may weaken or even destroy such a right. We also recommend delivering notifications to lessors without delay even if it is later proven that relevant provisions of the Civil Code have been excluded, or delivering them even if you already know that they have been excluded, as despite this, lessors may be cooperative towards their lessees to maintain long-term lease relationships.
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