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06 April 2020

Poland: COVID-19 vs. lease agreements

In response to the coronavirus pandemic, the Polish authorities have implemented several restrictions aimed at limiting the spread of the disease, including the suspension of certain retail activities and services. This has had a direct impact on lease agreements in these sectors.

The Polish Parliament has therefore adopted the so-called "Anti-crisis Shield" comprising regulations in various fields of law (tax, labour, etc.) with the aim of supporting Polish businesses and individuals affected by COVID-19.

For the parties to lease agreements, the current legal situation is partially regulated by an amendment to the Act on Specific Solutions Regarding the Preservation, Counteraction and Fight Against COVID-19, Other Contagious Diseases and the Critical Consequences Caused by Them, and Amending Other Acts, dated 31 March 2020 (the "Act") which is the legal basis of the Anti-crisis Shield.

As activity in shopping centres is generally restricted based on the Resolution of the Minister of Health (with minor exceptions for grocery, cosmetics and drug stores or restaurants with certain limitations), most tenants of retail premises are prohibited from conducting their businesses in these premises.

Below we present the most significant solutions proposed by the government in the Act, which are aimed at mitigating the negative consequences of the above restrictions with respect to lease agreements and business in the retail sector.

Suspension of lease agreements for retail premises

Under the Act:

  1. the mutual obligations of parties to lease agreements in commercial facilities with retail area exceeding 2,000 sqm expire temporarily during the period of the restrictions in respect of commercial activity, i.e. from the date the state suspends the activity of such facilities;
  2. the temporary expiry of the mutual obligations, as mentioned in point a) above, means that none of the parties to the lease agreement is obliged to meet its contractual obligations during this period. Therefore, tenants are not obliged to settle rents (flat or turnover rate), service charges or any other charges due under lease agreements and landlords are not obliged to make the premises available or to store the merchandise placed in these premises;
  3. the tenant should (but is not obliged to) submit to the landlord its unconditional and binding offer regarding prolongation of the lease on the current terms, for a period not shorter than the period of suspension of the activity in the premises (commercial facility) increased by an additional six months;
  4. the offer indicated in point c) above should be submitted to the landlord no later than three months from the date of termination of the above suspension;
  5. if the tenant does not submit its respective offer to the landlord, the expiration indicated in point a) above will not be binding on the parties to the lease agreement, meaning that the landlord will be entitled to seek all the payments due from the tenant for the period of the temporary expiry of the mutual obligations (i.e. from the date the state suspends the activity of such facilities);
  6. the landlord is not obliged to accept the tenant's offer; hence, if the offer is rejected, the lease agreement will be continued on the same terms as before the temporary expiration of the mutual obligations.

The Anti-crisis Shield provisions of the Act should apply in the reasonable view, only to those tenants who use their premises in commercial facilities for retail purposes (and, for example, for services).

Termination of the lease agreements

  1. the tenant is entitled to prolong the lease term until 30 June 2020; for lease agreements that will expire (as a result of the expiry of the lease term or lapse of the termination period) before 30 June 2020, based on the tenant's statement, which should be delivered to the landlord no later than on the date of expiry or termination of the lease agreement;
  2. the landlord is not entitled to terminate the lease agreements or increase the rent until 30 June 2020 (unless the tenant does not duly perform its obligations under the lease agreement).

The above provisions are subject to certain exceptions indicated in the Act.

Leases of premises in state facilities

  1. rent and other charges due under lease agreements for the period of the state of epidemic threat or state of epidemic may be waived in whole or in part, deferred or spread into instalments by a county governor or president of the city with county rights, without the need to obtain the consent of the voivode;
  2. the county governor or president of the city with county rights may waive rent and other charges due under lease agreements for the period of the state of epidemic threat or state of epidemic at the request of the party whose financial liquidity has worsened due to the negative economic consequences of the COVID-19 pandemic.

However, the above depends on provisions implemented by the local government authorities, i.e. it is a discretional decision by the local government authority to perform these provisions.

Perpetual usufruct fees and property tax

The deadline for payment of the annual perpetual usufruct fee is extended from 31 March to 30 June 2020 and city councils are entitled to adopt a resolution on waiving payment of the real property tax due for a part of 2020 from businesses affected by the pandemic and to postpone the payment of the real property tax due in April-June 2020 until not later than 30 September 2020. It may have an impact on the composition of the service charges due from tenants.

The Act in comparison to general provisions of the Polish Civil Code

Notwithstanding the above solutions, the Act does not exclude the application of the general rules set out in the Polish Civil Code with respect to leases, including the general principle of social coexistence.

This provision gives tenants and landlords the wide opportunity to pursue claims against each other to perform their obligations, including financial obligations, regardless of the consequences arising from the period of suspension of activity.

Please be advised that the Act does not include any provisions on goods stored in retail premises and the tenant's right to enter these premises during the period of temporary expiration of mutual obligations. Hence, based on the general rules of the Polish Civil Code, the landlord may decide to offer the tenant paid storage services in the premises if during this period the tenant does not remove its merchandise from the premises. In such a case, however, the remuneration for such services should be offered on the market terms and not based on the rent rates.

authors: Marta Bijak-Haiduk and Patrycja Czarnecka