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Coronavirus - Which approach in commercial leases - Czech Republic

  • Czech Republic
  • Coronavirus - Contractual issues

23-04-2020

The government measures taken in relation to the spread of coronavirus affect each of us. However, the obligation to close most retail stores cannot be circumvented neither by the tenants nor landlords. The situation has a very severe impact on both groups.

Below we summarize the position of both parties in this situation, related risks and possibilities of further actions.

The lease agreement has preference

  • the arrangement of the lease agreement usually has preference over the provisions of the law. Therefore, always start with review of your contract
  • in the contract, focus not only on the frequently declaimed force majeure clause, but also on any clauses regarding rent discounts, lessor's right to use a security provided by the tenant, tenant's liability for non-payment of the rent, possibility of early termination of the contract, etc.

Can the lease agreement be prematurely terminated?

  • according to the new act on mitigation of the effects of the coronavirus epidemic on tenants of business premises, the landlord cannot terminate the lease solely on the grounds that the tenant has been in default with payment of the rent in the period between 12 March 2020 and 30 June 2020, provided that the delay was caused by the government restrictions which prevented or significantly hindered the tenant from operation of its business
  • however, the right to terminate the lease for other reasons as well as other rights of the landlord are not affected
  • if the landlord is prevented from fulfilling its obligations under the lease agreement directly by the government measures, it is not liable for that and it does not constitute a reason for termination of the lease by the tenant
  • the landlord is also not liable for any damages incurred by the tenant due to the fact that it cannot use the leased premises

Rights vs. Obligations / tenant vs. landlord

Is the tenant obliged to continue paying the rent?

  • yes, the rent and other payments under the lease agreement (such as service charges) are still payable, as Czech law does not expressly provide for tenant’s right to claim discount on rent in this situation. However, the landlord is not allowed to terminate the lease early due to the non-payment of the rent (only the rent!) for the period granted by the law
  • under the current practice, decrease or loss of revenue is not considered to be a force majeure event which would entirely release the tenant from its obligation to pay the rent or other payments

Does the tenant have a right to claim discount on rent?

  • the loss or decrease of revenue does not release the tenant from its obligation to pay the rent
  • tenant’s claim to a discount may arise if it is agreed in the lease agreement that the tenant is entitled to a discount on rent if the tenant cannot use the premises for a reason not caused by the landlord (i.e. in cases like this)

Is it possible to change terms of the lease agreement?

  • yes, under certain circumstances, as the forced closure of the leased premises might be considered as a material change of circumstances, which causes a gross disproportion in the rights and duties of the parties by disadvantaging one of them
  • in the event of material change of circumstances, each party is entitled to ask the other party to renegotiate the terms and conditions of the lease agreement, including the rent
  • the application of the material change of circumstances clause can be excluded in the lease agreement (exclusion is market standard)

Coronavirus: what to do next with your commercial lease

  • analyse relevant lease agreements and prepare for negotiations with the other party
  • remember that even though the new law allows the rent to be unpaid without the risk of early termination of the lease, the payments are not waived and will have to be settled by 31 December 2020 at the latest
  • communicate with the other contracting party - it is the only way to find a mutually acceptable solution
  • a new law on loan repayment has also been adopted that allows the postponement of maturity of cash debts under loan agreements. Check if this option applies to you and how to use it
  • stay in touch with your financing bank and try to prevent other complications arising

For more information contact

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