Exemption of business tenants from rent and other payments during quarantine

On April 13, 2020, the Verkhovna Rada of Ukraine decided to accommodate enterprises and entrepreneurs, who were forced due to quarantine to either suspend their activities or completely close outlets, shops, cafes, and other facilities. They adopted the Bill No. 3279-d on amendments to the State Budget of 2020. 

This is a good opportunity for business tenants to save on rent and other payments. After all, in addition to rent fees, tenants are contractually obliged to pay for utilities, building security, and often maintenance and marketing services.

Today we will analyze all legal developments and talk about how to avoid rent payments without having problems after quarantine.

Read also: What Part Of The Salary Should A Company Pay To Its Employees For Forced Downtime

What can you save on?

In order to understand the possible cost savings - you should carefully read the lease/sublease agreements, as well as the proposed wording of the legal developments.

In order to connect the possible concepts mentioned in the agreement and the law, it should be noted that commercial real estate lease/sublease agreements often provide for the names of the parties to the agreement (identical): the lessee is the tenant and the lessor is the landlord.

The new version of the Bill provides for a reduced fee to be paid for the use of real estate (its part) at the request of the tenant, who rents the premises for its business activity. However, the following conditions must be met:

  • You can demand a reduction in payment only for the period when the property cannot be used to the full extent due to the restrictions/prohibitions against business activity (quarantine);
  • The new amount of the rent fee set by the landlord shall not exceed the total amount of costs that the landlord has incurred or will have to bear during the specified period for the following purposes: payment for land, real estate tax and payment for utility services.

If the thnant is not obliged to pay these costs in full or in part under the agreement - the said costs are charged to the tenant as a fee for the use of the property for the relevant period, in proportion to the area of real estate, which the tenant leases under the agreement.

We would like to draw the attention of the business to the fact that the Bill defines an exclusive list of costs. This means that the security service fee, cleaning service fee and other maintenance costs can be charged to the landlord, unless otherwise specified in the agreement.

How to use these amendments to the law in specific cases for a certain business is a second question. If you want us to assess your situation, please call us. But the first thing to do is to make an action plan under the individual agreement, taking into account all its features, as well as amendments introduced by the landlord from the beginning of quarantine (if any).

Read also: How To Use Force Majeure?

How to properly prepare a request for reduction of rent and other payments?

Although the new Bill provides that these rules shall apply “as soon as quarantine has been introduced”, in practice the documents may not always have a retrospective effect.

For example, even if the landlord voluntarily exempted the tenant from paying rent, having drawn up and signed an additional agreement from the beginning of quarantine, for example, from 17.03.2020, the payment for utility and maintenance services, as well as security and marketing costs for all or part of March will most likely be charged to the tenant, billing the payment in early April. 

In addition, if the landlord registers a tax invoice for March for this amount (if it is a VAT payer) - the tenant will only be able to count on a reduction of expenses for the current period, i.e. from April 13, 2020, and only provided that the tenant timely and competently (in writing) addresses the relevant requirement to the landlord.  

Another possible “maneuver” of the landlord consists of handing over the documents to the tenant for signing, with the wording “rent reduction”, without providing calculations and grounds - just an additional agreement with a new amount of rent.  An inattentive tenant who has previously had to pay the full amount of the rent will not always be scrupulous in comparing the proposed amount to the landlord’s total expenses, although in fact the tenant could get even higher reduction.

In fact, only a professional legal advisor can offer a practical solution to the situation, when considering the terms of the lease/tenancy agreement in detail.

Please note! Since the initiator of changes to the agreement can be both the tenant (lessee) and the landlord (lessor) - do not wait and believe in the integrity of the latter. It is necessary to assess and think over your actions not only for today, but also for the prospect of possible extension of quarantine, in order not to have to pay accumulated sums for additional services to the rented premises after the termination of quarantine. Think in advance to avoid unnecessary expenses.   

If you want to start saving money now and make sure that after quarantine you won’t get any extra bills, don’t hesitate to call us.

Publication date: 24/04/2020

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