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How to avoid rental payment in a quarantine

The fight against the negative consequences of coronavirus disease (COVID-2019) did not avoid the issues of rent.
Over the past two weeks, the legislator has taken several steps that are aimed at helping the entrepreneurs to save on rental costs during the quarantine.

We can distinguish three ways to resolve this issue:

– obtaining a certificate of force majeure;
– exemption from rental payments in accordance with Part 6 of Art. 762 of Civil Code of Ukraine;
– conclusion of an additional agreement with the landlord.

Obtaining a certificate of force majeure

On March 17, the Verkhovna Rada adopted the Law of Ukraine “On Amending Certain Legislative Acts of Ukraine aimed at Preventing the Outbreak and Spread of Coronavirus Disease (COVID-19)” (hereinafter – Law No. 3219), which determines the quarantine as a force majeure.

That means, that the adoption of the resolution of the Cabinet of Ministers of Ukraine No. 211 as of 03/11/2020 indicates the commencement of force majeure circumstances and gives you the right to apply to the Chamber of Commerce and Industry of Ukraine (hereinafter – CCI of Ukraine) in order to obtain the appropriate certificate.

23th of March, in response to the actions of the Verkhovna Rada, the CCI of Ukraine made an announcement that it (CCI) simplifies the procedure for submitting applications for the obtaining of the certificates of force majeure.

In order to receive it, it is enough to send the following documents to the CCI of Ukraine email address:

– the corresponding application form signed by the head of the enterprise (a sample is available on the website of the Ukrainian CCI);
– copy of the contract (lease agreement with all additional agreements and annexes)
– a copy of the order (s) in connection with the nesessity to terminate activities on the basis of relevant regulatory legal acts (an order to terminate the activities of the enterprise in connection with the decision of the Cabinet of Ministers of Ukraine No. 211);
– notice (notifications of the other party).

What do you get in a result?

As a result, you will receive a certificate of force majeure, which will be a proof that you cannot fulfill your obligations under the contract (that means, paying rent) due to force majeure circumstances, or in other words, the circumstances that do not depend on you.

The main risk of such way is the presence of the term in the contract about the termination of the contract in case of durational force majeure circumstances. Carefully read the terms of the contract, in the part about force majeure (force majeure circumstances) there is an agreement that in case of force majeure circumstances for a certain period (for example, 3-6 months), each of the parties of the contract can terminate it without penalties.

If you do not want to terminate the rent, and your goal is only to optimize expenses for the quarantine period, you should consider other ways described below.

Exemption from payment of rent

03.30.2020 the Verkhovna Rada adopted the Law of Ukraine “On Amendments to Certain Legislative Acts to Provide Supplementary Social and Economic Guarantees in Relation to the Spread of Coronavirus Disease (COVID-2019)” (hereinafter – Law No. 3275).

By Law No. 3275, the final and transitional provisions of the Civil Code of Ukraine (hereinafter – the CC of Ukraine) were supplemented by the clause 14 “Since the establishment of the quarantine introduced by the Cabinet of Ministers of Ukraine” On Prevention of Spread in the territory of Ukraine of an Acute Respiratory Disorder COVID-192, caused by coronavirus SARS-CoV-2”dated on March 11, 2020, No. 211 (as amended) and until its completion in accordance with the procedure established by law, the employer shall be exempted from payment for the use of property in accordance with part six of Article 762 of this Code”.

Part 6 of Art. 762 of the Civil Code of Ukraine provides that the tenant is exempted from payment for whole period of time during which the property could not be used by him due to the circumstances for which he is not responsible.

In fact, a circumstance that prevents the tenant to use the property and for which the employer is not responsible is the introduction of the quarantine by the resolution of the Cabinet of Ministers № 211, but the case law of application by Courts of part 6 of Art. 762 of the Civil Code of Ukraine indicates the need to prove the following: the non-use of the premises for the intended purpose and the absence of such possibility in general (for example, the building, where your office is located, is completely closed by the owner).

Therefore, this way also implies risks. First, it should be used only by entrepreneurs who have been banned from carrying out activities in accordance with the resolution of CMU No. 211, and secondly, you should not simply avoid paying and hope that the law will protect you. It is better to consult with a specialist whether you should use this mechanism, because the landlord may not voluntarily make a concession and the dispute may arise and to be considered in the court. Therefore, there is a risk that even a one-time visit to an office or visit of shop for 5 minutes with a customer to show the product with half an eye can break the entire line of defense.

The legislator, trying to simplify the submission of amendments to the law, kept for the tenant the burden of proving the certain circumstances provided in Part 6 of Art. 762 of the CC of Ukraine.

Supplementary agreement

This way is NOT a novelty of the legislation, but it contains fewer disadventages and difficulties in terms of the implementation mechanism.

The parties of the lease agreement have the right to conclude an additional agreement, that will regulate the lease relationship for the quarantine period. The rent can be reduced or canceled altogether for the period of quarantine with the maintenance of utility bills. It all depends on the agreements reached by the parties themselves.

Professional mediators can help to achieve mutually beneficial conditions and maintain good relations between the parties. They will adjust the negotiation process and draw up the text of the corresponding agreement.

As a result, you will receive a document confirming the reached agreements. You should carefully consider the text of the supplementary agreement in order to avoid manipulation in the future.

The selection of the one of the above mentioned mechanisms depends on the circumstances in which your business finds itself, and its priorities.

Separately, we drew your attention that part 6 of Art. 762 of the Civil Code of Ukraine DOES NOT provide for the possibility to exempt the tenant of the apartments from the rent payment, because the access to apatment is not limited.

Lawyer Bogdan Pavlyuk