The Somewhat Surprising Side Effects of the Coronavirus Pandemic in Bulgaria

A year ago, Bulgaria took its first steps into a new world after several months of almost total lockdown following the outbreak of the COVID-19 pandemic.

It seemed for a while that life had stopped and that Mother Nature was on the verge of reclaiming territory she had lost in the thousands of years of human evolution. In these first months of the pandemic, lawyers around the world turned to old case-law books and reviewed existing contracts to find ways for business to continue. Memories of the almost decade-long consequences of the 2008 financial crisis only increased anxiety about the potential fallout of COVID-19.

But within a short time, the pandemic started to feel familiar, at least to the legal world, where previous experience with similar crises led to the development of mechanisms to help regulate contractual relations such as force majeure and frustration-of-contract. Like most EU countries, Bulgarian law defines both concepts, so it is not mandatory for a party to have explicitly provided for either force majeure or frustration-of-contract in the agreement for these concepts to apply if necessary.

It soon became clear that the COVID-19 pandemic and the temporary lockdown measures constituted force majeure in only a limited number of cases and for a limited time. Therefore, most lawyers and webinars (very popular in the first months of the pandemic) focused on the doctrine of frustration.

This doctrine was much discussed and reviewed in Germany following the hyperinflation that the country experienced in 1923. But as time passed and the world economy started to function again, it became evident that even this doctrine might not apply. For example, in November 1923, the price of a loaf of bread in Germany, which had cost only 250 marks in January 1923, had risen to 200,000 million, and workers were often paid twice per day because prices rose so fast their wages were virtually worthless by lunchtime. Luckily, we did not see such drastic changes in Bulgaria in 2021, either in prices or in most of our daily activities.

The negative effects of the COVID-19 lockdown measures were felt mostly by the owners and landlords of businesses in shopping malls, office buildings, hotels, and restaurants. However, since most of these owners and tenants are professionals, they realized that it is better to renegotiate and settle their contractual relations between themselves rather than go to court and see how judges will apply the 100-year-old doctrine of frustration. As a result, for now, at least, no major negative effects are visible in these sectors, compared to the gloomy aftermath of the financial crisis a decade ago. Still, it is early days, and the situation may change as the crisis unfolds.

Another surprising effect of the crisis is the continuous rise in residential property prices. Statistical data for the largest Bulgarian cities shows that, after a brief period of stagnation in the first quarter of 2020, prices not only continued to rise but the pace of development of new residential projects by the end of the year had reached the levels of 2019, which was already the best year in the past decade. Office development took a big hit, however, and it is still too early to predict when this market will return to pre-pandemic levels.

The article was first published on CEE Legal Matters Magazine, 06.09.2021.
author: Dimitar Vlaevsky