Poland: The COVID-19 pandemic and lease agreements
In connection with the COVID-19 epidemic, the Minister of Health has issued a regulation declaring a state of epidemic in Poland and introduced – until further notice – many business restrictions. The restrictions primarily affect retail shops and services in large commercial facilities, as well as gastronomy. However, not only the sectors directly covered by the regulation are experiencing a significant decrease in sales due to the pandemic and the resulting problems with meeting their obligations, including payment of rent and service charges.
Thus, the question arises as to whether and to what extent tenants may demand rent reductions from their landlords.
SPECIFIC PROVISIONS OF LEASES
First of all, the answer to the above requires an analysis of the leases into which the parties have entered, as some commercial leases provide for the option of reducing the rent in the event of specific circumstances.
Some leases (most often those of tenants in shopping centers with an area of over 2,000 m²) provide that the tenant is entitled to pay lower or no rent if its business activity in the premises is hampered or rendered impossible. Depending on the manner in which such a provision is worded, the tenant may be entitled to a reduction of rent if it must close down its business because its type of business is temporarily prohibited.
Polish law does not provide for a definition of force majeure as such. However, the literature and jurisprudence define force majeure as an event or occurrence: (a) which is external to the party(ies); (b) which is impossible (or nearly impossible) to foresee; (c) and the consequences of which cannot be prevented. Examples of force majeure include events related to effects of natural elements (such as floods, fires, earthquakes or epidemics), unusual behaviours of communities (for example riots, strikes, wars) or governmental actions (including but not limited to importation or exportation embargos or border closings).
Parties to leases may define force majeure differently and/or stipulate how it affects obligations between them, e.g. as constituting grounds for partial or total exemption from rent and service charges. However, such solutions are not common practice, and general rules apply in their absence.
It should be emphasized that, unless otherwise stated in the lease, an event of force majeure does not end the tenant's obligation to pay rent to the landlord.
Pursuant to the Polish Civil Code, if an event of force majeure (epidemic / trade restriction / decrease in sales) prevents a tenant from fulfilling an obligation, the tenant is not obliged to remedy the incidental damage (e.g. default interest) resulting from non-fulfilment or improper fulfilment of obligations (payment of rent). The above does not cause any waiver or postponement of the tenant’s obligation to pay the rent itself, but only limits the tenant's liability in the event of incidental damage, e.g. interest.
EXTRAORDINARY CHANGE IN CIRCUMSTANCES
The Polish Civil Code (section 3571) provides for the option of requesting a court to change the manner in which a contractual obligation must be performed, determine the amount of a monetary obligation or even terminate an agreement.
If, due to an extraordinary change in circumstances (epidemic / restrictions on business operations / decrease in sales), paying rent would involve excessive difficulties or would threaten one of the parties with a substantial loss which the parties did not anticipate when concluding the contract, a court may (i) designate the method of fulfilling an obligation, (ii) designate the amount of consideration, or even (iii) order the dissolution of the contract. It should be remembered that the court resolves each case after considering the interests of the parties and in accordance with the principles of social coexistence. This means that, even if two parties have the same legal situation, the court decision may be different for each due to the circumstances mentioned above (e.g. different amount of rent to be paid by different parties although the contractual rent was the same).
To apply a rebus sic standibus clause (i) there must be an extraordinary change in circumstances; (ii) the change must involve excessive difficulty in performance (payment of rent), or threaten one of the parties with a substantial loss which the parties did not anticipate when concluding the contract; (iii) the excessive difficulty or substantial loss must be caused by an extraordinary change in circumstances.
It should be emphasized that a tenant that wishes to request a reduction in rent by applying this provision must bring an action in court. The rebus sic standibus clause does not constitute a tenant's right to demand a rent reduction directly from the landlord or the basis for unilateral rent reduction by the tenant due to external circumstances. An extraordinary change in circumstances does not reduce the rent by law, but in practice it may be grounds for renegotiating or suspending payment of rent.