Government of the Republic of Serbia introduced measures that put restrictions on the performance of business activities, due to COVID-19 pandemic. Therefore, legal entities are facing numerous difficulties in performance of their business activities on a daily bases, especially with amount of work reduced and income decreased.
Some of the consequences related to commercial contracts were discussed in the text COVID-19: Commercial contracts from the perspective of pandemic.
In this text, we will try to answer these questions: What is the status of lease agreements for business premises during the state of emergency? Is the lessee obliged to pay the rent even though it
does not use business premises? Is the lessee entitled to terminate the agreement due to the fact that it is not using the business premises?
First of all, content of the lease agreement may govern the possibility to reduce the rent or to terminate the agreement in the event of force majeure or due to the change of certain circumstances. If the lease agreement does contain such provisions, it is necessary to determine the applicable law and apply its provisions.
Despite the content of the lease agreement, contracting parties are entitled to mutually change the agreement and, for instance, reduce the rent or terminate the agreement. It is recommended that
contracting parties, before initiating any court proceeding, try to find best solution in the mutual interest, since neither party is responsible for the pandemic and Government measures introduced
during the state of emergency.
In case the lease agreement does not contain the provisions applicable in this particular situation nor the contracting parties find the solution in mutual interest, it is necessary to refer to the applicable law.
Law on Contracts and Torts is the main act applicable to the agreements governed by the law of the Republic of Serbia, which contains the following provisions that may be applied:
1. the provisions which, inter alia, refer to the tenant’s right to demand a reduction of the rent or termination of the contract in the event that the leased premises loses its feature, which it
is supposed to have due to the agreement or the practice;
2. provisions governing the force majeure (for example, impossibility to perform contractual obligations due to an event that no party is liable for, debtor’s release from the liability for damages, termination of obligation due to impossibility to perform obligation…)
3. Termination or amendments to the contract due to changed circumstances.
In our opinion, application of the aforesaid legal solutions depends mostly on the following:
- Lessee is completely prevented from using leased premises based on the measures introduced by the competent authorities of the Republic of Serbia.
For example, lessees of the market stalls, premises at the shopping mall, cafes, bars, restaurants – completely prevented from using the leased premises based on the decision of the competent authorities, except the cafes and restaurants serving guests at the counter or by the delivery of drinks and food.
- Lessee just modified its way of performance of business activities in accordance with the applicable regulations.
For example, work at the business premises is being replaced with work from home or organized in shifts or the number of employees who work at the business premise is reduced – the lessee is not completely prevented from using the business premises due to the fact introduced measures do not prevent the access to the business premises.
- Lessee has only reduced amount of work due to the state of emergency measures.
For example, boutique owners income decreased because there are less people in the streets due to measures restricting citizens freedom of movement, but lessee is not prevented from using leased premises and perform business activities.
INSTEAD OF CONCLUSION…
In order to find the most appropriate solution, the contracting parties, first and foremost, must begin with the provisions of the particular lease agreement. Only if there are no provisions governing this situation, the provisions of the applicable law should be consulted.
However, given that no contracting parties is liable for the numerous negative effects of the COVID- 19 pandemic, we believe that the contracting parties should try to resolve any misunderstandings in amicable way, by defining its obligations in the annex to the lease agreement.
In any event, before making any moves, whether it is to amend or terminate the agreement or start the litigation, we strongly advise you to consult the expert in order to avoid negative consequences and possible liability for damages.
*The content of this blog is for informative purposes only and does not constitute legal advice.