Expiry of mutual obligations of parties to lease agreements in shopping centres | In Principle

Go to content
Subscribe to newsletter
In principle newsletter subscription form

Expiry of mutual obligations of parties to lease agreements in shopping centres

As a result of the parliament’s intervention, mutual obligations of parties to lease agreements in shopping centres are deemed to have “expired.” Does that mean that the lease agreements have expired?

The parliament has introduced into the Polish legal system a special regulation directly intervening in lease relationships in commercial facilities with a sales area of over 2,000 m2. It is included in Art. 15ze introduced to the Anti-Crisis Act (Act on Special Solutions for Preventing, Counteracting and Combating COVID-19, Other Infectious Diseases and Crises Caused by Them of 2 March 2020). Application of the provision has caused much controversy in the media. Voices are even raised that it is unconstitutional or inconsistent with international agreements. The validity of these allegations will depend on the direction the practice under this provision takes.

This regulation provides for the expiry of mutual obligations of the parties to a lease, tenancy or similar agreement during the period of the ban on conducting activity in commercial facilities. The trade ban has existed since 14 March 2020 and has been gradually extended. Currently, the trade ban is controlled by §8(2) of the government regulation of 31 March 2020 establishing certain restrictions in connection with the state of epidemic, and covers in principle all types of retail trade and services in shopping centres. The expiry of mutual obligations of the parties to lease agreements is effective from the date of the ban on conducting a given activity, so it has retroactive effect.

One of the possible ways of interpreting this provision is that the lease agreement expires in its entirety, and after the trade ban is lifted the parties should conclude a new lease agreement, and the mechanism for concluding a new agreement (on the existing terms but for a different period) is indicated in par. 2 of that provision. Others argue that the lease continues in force between the parties, and once the ban is lifted the “mutual obligations of the parties” arising after the date of lifting the ban should be performed under the existing rules, since the “expiry” concerns only obligations that arose during the trade ban period. This view is supported by a functional interpretation of this provision.

The basic mutual consideration of the parties to a lease agreement is defined in Art. 659 of the Civil Code, stating that under a lease agreement the landlord commits to deliver the premises to the tenant for its use and the tenant commits to pay the landlord an agreed rent.

Undoubtedly, the parliament’s aim was to relieve tenants from the obligation to pay rent for the duration of the ban. This is evidenced by the fact that the first version of the bill provided for a 90% rent reduction.

With regard to the expiry of the landlord’s obligation to allow the tenant to use the premises, the question whether the regulation has deprived tenants of the right to use the premises raises a significant controversy. If this were the case, landlords could require tenants to pay a fee (not rent) equal to the value of use of the premises on a non-contractual basis, and that value could be set at an amount equal to the existing rent (unless the lease agreement requires the tenant to pay, for example, a fee equal to double the rent under the lease if it occupies the premises on a non-contractual basis, assuming that this obligation has not expired). The economic effect of such an application of the provision would clearly contradict the rationale behind the law, and perhaps the situation of tenants would be even less favourable than before entry into force of the regulation in question.

In my opinion, one should adopt the functional interpretation of this provision, under which the premises are not occupied by tenants on a non-contractual basis, as the lease agreement still binds the parties. This is also evidenced by the interpretation of this provision as a whole. It follows from par. 2 of the provision that the “expiry” of the tenant’s obligations under the lease agreement is not definitive. If within three months after the trade ban is lifted the tenant does not make an offer to the landlord to extend the agreement, the landlord ceases to be bound by the “expiry” and can require the tenant to perform the obligations as if they had not been extinguished during the trade ban. The tenant’s obligation to pay rent for the trade ban period is then reactivated. Therefore, it would be more appropriate for the drafters of the regulation to use the term “suspension” rather than “expiry” of the obligation to pay rent. Admittedly, civil-law practitioners are surprised by the construction of a retroactive “revival” of obligations that have expired by operation of law, and indeed subject to a condition (that the tenant does not submit an offer). However, since this provision calls for the “revival” of the tenant’s obligation to pay rent for the ban period if the tenant does not make an offer to the landlord within three months of lifting the ban, it can hardly be considered that the lease has expired and the tenant is occupying the premises on a non-contractual basis.

But the question arises to what extent the regulation extinguishes the landlord’s fundamental obligation to deliver the premises to the tenant for its use, as in practice it is reasonable to assume that the tenant is entitled to continue using the premises. Can the tenant use the premises, for example, to pack and ship goods ordered online by customers? A functional interpretation would indicate that the expiry of the landlord’s obligation is limited solely to the obligation to allow the premises to be used for the purpose of carrying out an activity contrary to the trade ban. However, the regulation does not directly address this issue, and it would be helpful for the parliament to clarify this through an amendment. For the time being, it is crucial to prepare appropriate legal arguments for negotiations between tenant and landlord.

Finally, there are a number of other issues the parliament did not resolve in the regulation. Who bears the risk of loss of goods or destruction of the premises during the ban? Is the landlord obliged to deliver utilities to the premises? What is the fate of lease security, such as bank guarantees or deeds submitting to execution? In our daily practice, we respond to such inquiries on an ongoing basis, but this always requires an analysis of the circumstances of the specific case.

Maciej Machlejd, attorney-at-law, Construction practice, Wardyński & Partners