Romania: New regulations on deferral of rental payments during the state of emergency
In the context of the state of emergency brought on by the Covid-19 pandemic, declared on Romanian territory since 16 March 2020, the Romanian authorities have tried to come to the aid of economic operators and certain categories of professionals. They have ordered a series of measures meant to balance the distribution of risks in their activities, so as to diminish the impact suffered.
These measures also include ones relating to rent payment facilities provided to tenants that are unable to use and exploit their rented premises due to recently adopted legislation. Thus, for a category of economic operators consisting of small and medium enterprises (“SMEs”), Government Emergency Ordinance no. 29/2020 on some economic and tax/budgetary measures (“GEO 29/2020”) provided that during the state of emergency companies which have suspended their activities totally or partially based on the decisions issued by the competent public authorities and which hold the “blue emergency certificate” benefit from the deferral of rental payments for the building serving as their registered office and secondary offices, as well as for utility payments. The opportunity to defer rental payments was also offered to some liberal professionals indicated in the regulatory act whose professional activity has suffered sharp declines.
On 29 April 2020, the Romanian parliament adopted a new legislative bill (the “Bill”) with a series of amendments on the situation of economic operators and liberal professionals (both affected by the restrictive measures ordered), whose provisions partly overlap with and are inconsistent with previous provisions.
According to the Bill, tenants who are economic operators, liberal professionals or legal entities under private law and whose activities haves been interrupted or whose income or revenues have decreased by at least 15% in March 2020 compared to the average for the last calendar year, together with the individuals affected (directly or indirectly) from an economic point of view, will be able to defer rental payments for buildings registered as offices, places of business or residences on request without any interest or penalties.
Thus, under the Bill this measure also targets affected individuals and economic operators whose incomes have been reduced without them interrupting their activities and not just limited to SMEs. From this perspective, the Bill significantly extends the group benefiting from the facilities, which is a major advantage.
An essential difference that this Bill offers compared to GEO 29/2020 is regarding the conditions under which the benefit is granted to tenants. According to the new legislative Bill, the benefit does not operate by operation of law, as it is conditional on the conclusion of an agreement between the tenant and the landlord in the form of an addendum to the lease agreement.
From another point of view, the same Bill also confers an advantage meant to encourage cooperation by the landlord through the opportunity to be paid without the delay the initial procedure involved, as it no longer depends on the acquisition of liquidity by the debtor in financial difficulty, and instead will be paid directly within a reasonable time by the competent regional tax body. This tax authority will then become the tenant’s creditor for the amount paid.
The advantages for tenants that meet the requirements of both regulations do not change to a significant extent, as they will benefit from a deferral and not from an exemption from paying rent. A possible advantage could be, however, the rescheduling ordered by the new regulatory act at the end of the payment deferral term.
Another potential advantage in the sense of a slight procedural simplification is the lack of the condition for the tenant to obtain the “emergency certificate” which is required to prove its condition, meaning that it is able to use this document or other evidence as substantiation.
The Bill seems to distribute the contractual risks in a more balanced way in the wake of the Covid-19 phenomenon that is impacting both contractual partners, as it satisfies both the landlords’ need for liquidity by providing rent payments within a reasonable time from the competent tax bodies and tenants’ need for support during their financial difficulties. However, it does come with certain additional procedures for tenants, and from this point of view is to their disadvantage compared to the old regulation (GEO 29/2020).
Thus, the Bill provides for the following documentation to be prepared by the applicant tenant, namely: (a) the request for deferral; (b) the lease under which the rent is requested; (c) an addendum to the lease, including the personal data of the parties, their agreement on the deferral, its duration and the amount involved, the bank account the tax body is to make the payment into, the date and the signatures of both parties; (d) a deed from the lessee of any kind proving their inability to pay the rent within the period specified in the addendum.
The application and documentation can also be submitted by e-mail to an e-mail address that will be displayed on the website of each regional tax authority.
Tenants wishing to benefit from this deferral must cumulatively meet the following conditions:
- The monthly rent indicated in the addendum must be at most equal to that for February 2020;
- The value of the monthly rent in the addendum must be, for each location, a maximum of RON 10,000 for economic operators and a maximum of RON 2,000 for natural persons.
The second condition seems to disregard the essential correlation between the size and purpose of the rented space and the price, practically limiting the applicability of these benefits by ignoring the aspects that justify the price. On the other hand, the text of the Bill does not indicate how contractual partners who have agreed consideration in kind, and not a sum of money, will evaluate their compliance with this condition, although this category of contracts is referred to in the second part of the Bill.
Tenants that benefit from the deferral of rent during the emergency according to the Bill are obliged to gradually return the value of rent paid by the competent regional tax body in equal instalments after the period for which the deferral was established, but no later than 31 December 2020. In the event of failure to meet this obligation within the indicated term, the tax body that paid the rent will take action against the debtors with a request for enforcement.
It should be noted that the benefits established remain available to those who meet the conditions for the entire period of the state of emergency and for another month after it ends.
In conclusion, we look forward to the enactment of the regulatory act and for the guidelines on the procedures for implementing the new provisions, in the hope that they will have a clarifying effect and will remedy the shortcomings presented by the Bill in the form adopted by the decision-making chamber. Given the fact that there would be duplicate regulations on the same legal issue, different both in terms of procedural conditions and the effects generated, our opinion is that it is necessary to correlate the facilities provided to SMEs and liberal professions by the Bill with those established under GEO 29/2020, in which context it is very likely that the President of Romania will refer the Bill back to the first chamber, thus requesting its re-examination.
Any questions? Please contact: Cristina Stamboli
, Miruna Coderie
, Denisa Moldovan
Practice group: Real Estate Investment Group