Rental in Polish shopping centres in connection with the Polish legal status resulting from the SARS-CoV-2 virus epidemic

The problem of a failure to pay the rent by companies that are tenants of commercial space

Pursuant to Article 46 of the Act of 5 December 2008 on preventing and combating infections and infectious diseases in humans (consolidated text Journal of Laws of 2019, item 1239, as amended), the Polish Minister of Health announced epidemic status due to SARS-CoV-2 virus infections from March 20, 2020 until further notice throughout the entire area of the Republic of Poland.

The status of the epidemic was announced by the ordinance of the Polish Minister of Health of 20 March 2020 regarding the announcement of the status of the epidemic in the territory of the Republic of Poland (Journal of Laws No. 491, as amended). The statutory “epidemic state” authorized the Polish government to introduce a special legal situation in the Polish business.

One of the anti-epidemic and preventive measures provided for in the said Regulation to minimize the effects of the epidemic is the total ban – starting from March 20, 2020 until further notice – on trading and service activity in commercial facilities with sales area over 2000 m2, in the form of:

1) retail trade undertaken by tenants of commercial space whose predominant activity is to trade with:

  1. textile products,
  2. clothing products,
  3. footwear and leather products,
  4. furniture and lighting equipment,
  5. radio and television equipment or household appliances,
  6. writing and book articles;

2) conducting catering and entertainment activities.

In addition, in the period from March 21, 2020 until further notice, there is introduced a ban on retail trade undertaken by tenants in commercial facilities with a sales area above 2000 m2. As an exception the ban does not relate to the tenants whose main activity is selling, among others, food, cosmetic products, medicinal products, including pharmacies or pharmacy outlets, and newspapers.

The problem of a failure to pay the rent by companies that are tenants of commercial space

On March 26, 2020, the Polish government submitted to the Polish parliament an amendment to the emergency act of March 2, 2020 – being the core legal act in Poland regulating the negative effects of COVID-19 – which contains basic legal regulations of various sectors in Poland (hereinafter: “Amendment to the emergency COVID-19 Act”). One of the new regulations (Article 15ze of the emergency COVID-19 Act) introduces statutory unconditional protection for tenants in such a way that:

  1. In the event that the tenant’s activity in a shopping facility with a sales area above 2000 m2 during the period of the epidemic emergency or epidemic status has been banned or restricted on the basis of legal provisions, and the tenant does not carry out this activity, the amount of rent for that period shall be reduced by 90% in relation to the rent due to the lessor under the contract, unless the contract provides for a more favourable rent reduction for the tenant.
  2. During the period of the epidemic threat or epidemic status, the tenant shall not be liable for non-performance or improper performance of the contract, in particular, he shall not be obliged to repair the damage by paying a contractual penalty or compensation, if the non-performance or improper performance of the contract was the result of a prohibition or restriction of the tenant’s commercial activity in a shopping centre with a sales area of over 2000 m2 issued on the basis of the said Regulation, and the tenant did not conduct this activity during the period covered by the ban or restriction.

From the perspective of the landlord this regulation constitutes an extraordinary act of state intervention in B2B relations. As it seems, the proposal to solve the problem of future payment backlogs related to rents is aimed at burdening the landlords (and not tenants) with the consequences of the crisis in this respect. The Act explicitly prohibits the use of contractual penalties or other contractual clauses in a potential court dispute, which are typically used to protect the interests of the landlord in lease contracts.

The analysed provision provides explicitly that the court will be able to, after consideration of the parties’ interests, in accordance with the principles of social coexistence, differently determine the amount of the rent discount. However, there are requirements of equity, which in the realities of the standard commercial litigation in Poland may prove very difficult to demonstrate.

The reduction of the rent is to ensure a fair distribution of burdens between the parties to the lease agreement arising from the state of epidemic emergency or the state of epidemic.

The said change applies to all those who are banned from conducting activities, including premises or the so-called island displays.

If the introduced rule of reducing the rent by 90% is not adequate for the landlord or for the tenant, the parties will have the right to demand an increase or further reduction of the rent, respectively, taking into account the principles of equity and principles of social coexistence. As in art. 3571 of the Polish Civil Code regulating the basic rebus sic stantibus rule, determination of the final amount of the rent due in individual cases will depend on the court.

However, if the lease agreement provides for more favourable provisions for the tenant, e.g. relieves him completely from the obligation to pay the rent in this period, the tenant has the right to take advantage of these provisions.

The prohibition or limitation of tenants’ activities resulting from legal provisions is independent of the will and due diligence of tenants, therefore it should not lead to the possibility of holding them liable for damages, including, primarily, imposing on them contractual penalties for non-performance or improper performance of related non-monetary obligations of the tenant, including the obligation to pay the rent.

The emergency COVID-19 Act interferes also in the manner of ending the tenancy agreement / rental agreement. Art. 31s of the emergency COVID-19 Act introduces a general principle that the rental / tenancy agreement shall last at least to 30 June 2020 under the previous conditions (including the amount of currently due rent). The principle of the restrictions in terminating rental agreements will not apply in the situations when the tenant before the epidemic status did not perform the contract properly (for example was late in rental payments or used the rented space not in accordance with the rental agreement).