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Coronavirus - questions and answers about contracts and regulation

  • Czech Republic

    08-04-2020

    In connection with the spread of Covid-19, the Czech government has announced extensive crisis measures with a major impact on the performance of all business activities nationwide.

    Below we provide answers to frequently asked questions, especially in the area of contracts and regulation. Employment law and related issues are dealt with in more detail in our Practical Guide for Employers.

    Updated on 8 April 2020, 11 a.m. We continue to monitor the situation closely.

    Question No. 1 – Can we claim compensation from the Czech Republic for damage caused by the crisis measures?

    Yes, under certain conditions, the state may be required to pay damages. We have prepared the following summary and should you have any questions, please contact the colleagues specified therein: Covid-19: Recovery of Business Interruption Losses

    Question No. 2 – As a result of the crisis measures, the other party will not fulfil an already concluded contract. Is it entitled to fulfil later and can we terminate the contract?

    It depends what you have agreed in the contract.

    At this difficult time, many clients prefer to take a business approach and try to find a mutually acceptable solution, either by:

    • accepting a delay for a certain period of time (beware of the statute of limitations) without waiving the demand for the given performance (or even the right to any penalties);

    or, if certainty is desired,

    • entering into an amendment to the contract with the debtor governing the conditions of performance.

    It is possible that the debtor will attempt to reach out to you because of:

    • the subsequent impossibility of performance, i.e. that the debt became completely impossible after the liability was incurred and thus ceased to exist by law. In such a case, the payment already made constitutes unjust enrichment and the party is obliged to return the payment in full;

    or at least because the following occurred:

    • a material change in circumstances entitling the debtor to claim from you the renewal of the contractual negotiations (conclusion of an amendment) if the change in circumstances was not foreseeable and caused a particularly gross disproportion in the rights and obligations of the parties by disadvantaging one of them. If you do not agree within a reasonable period of time, either of you may file a motion with the court, which may then decide to amend or terminate the contract. However, a material change in circumstances cannot be invoked by the debtor if it has assumed in the contract the risk of a change in circumstances.

    If your debtor attempts this procedure and you disagree with it, we recommend that you respond promptly and, if in doubt, refuse the procedure and insist on proper performance. In the event of a dispute, the assessment of whether the above conditions have been met will then depend on the judgment of the court.

    A specific and, in practice, not very frequent situation is

    • a fixed obligation, i.e. it follows from the contract or the nature of the obligation that you cannot be interested in late performance and therefore the contract is terminated upon the debtor's default, unless you notify the debtor without delay that you insist on the performance of the contract.

    Only if none of the above has occurred can you consider early termination (withdrawal) and possible contractual or legal penalties. However, damages can be ruled out, as it will probably be a case of force majeure.

    With respect to the obligation to prevent damage and the obligation to notify the threat of damage without undue delay, if you cannot fulfill your obligation, communicate this fact and possible consequences to the other party as soon as possible.

    Question No. 3 – As a result of the crisis measures we had to close our business premises. Do we still have to pay rent?

    With respect to this and other questions relating to lease agreements (both from the perspective of the tenant and the landlord), we have prepared the following practical summary: Impact of COVID-19 pandemic on rights and obligations under lease agreements.

    Question No. 4 – The crisis measures have banned retail sales and provision of services in business premises, with specific exceptions. Within a single store we carry out several businesses, some of which are prohibited and others not. Can we leave the store open?

    According to the current interpretation of the Czech Ministry of Industry and Trade it is necessary to assess which business activity is the dominant one, and if the dominant activity prevails, the store can be left open.

    Question No. 5 – We run a hotel and we already have reservations (partly paid and partly unpaid) during the crisis measures. What do we do? And may we accept reservations for the post-crisis period?

    There is no doubt that already accommodated guests may complete their stay. The Government Resolution speaks of a ban on the sale of accommodation services.

    According to the current interpretation of the Czech Ministry of Industry and Trade, it is even possible to accommodate guests who have only reserved a stay, but only if the accommodation was already paid for when the resolution was adopted.

    According to the Association of Hotels and Restaurants of the Czech Republic, it is still possible to accept reservations at this time, but only for the period after the crisis measures (i.e. after 1 April 2020). There is, of course, a risk that the crisis measures will be prolonged and the conditions for such an extension are not known at this time.

    The prohibition does not apply to extending the accommodation of foreigners until they leave the territory of the Czech Republic, foreigners with work permission for the territory of the Czech Republic and accommodation of persons for the purpose of pursuing their profession or business. The prohibition likewise does not apply to spa facilities, provided that only spa services covered at least in part from public health insurance is provided. Admission of new patients to spa facilities, however, has been prohibited since 19 March 2020.

    Question No. 6 – Do we have to file an income tax return by the end of March 2020?

    If the personal or corporate income tax return is filed before 1 July 2020, the Czech Ministry of Finance has announced that it will not claim any fines or penalties for such late filing.

    Question No. 7 - States newly provide grants, guarantees, interest-free loans, tax and other benefits in connection with the pandemics. Is such aid permissible and must states notify it to the European Commission before granting to businesses? Is there a risk that we will have to return the aid?

    In addition to other exceptions, the European Commission in its recent document ‘The state aid temporary framework to support the economy in the context of the COVID-19 outbreak‘ set out the parameters under which aid will be considered compatible with the EU internal market. This aid as well, however, must be notified to the European Commission and its provision is only permitted after a favorable decision has been taken. The first case was approved by the Commission within 24 hours. However, given the magnitude of the current situation, delays can be expected, and therefore it cannot be ruled out that states will grant state aid without the necessary approval. The practice so far in similar cases was that, in the absence of unlawful aid, the European Commission eventually refrained from the punishment. Likewise, the obligation of state aid recovery or obligation to pay recovery interest rates apply only to the aid that was unlawful.

    Question No. 8 – Do appeals and other procedural time limits run in ongoing proceedings even when authorities and courts are now largely closed to the public?

    Yes, the time limits continue to run. Force majeure is not reglemented in the applicable procedural rules, so the time limits are not stopped and delays in procedural acts are not remitted.

    Question No. 9 - Owing to the fact that some production plants have stopped operating, we expect a decline in the demand for transport of goods. Are there any measures to support haulers?

    Yes, in addition to general measures the so-called ‘transport package‘ is under preparation, according to which (if adopted) there will be a three-month suspension of the obligation to pay tolls between 1 April 2020 and 31 July 2020.

    At the same time, the Ministry of Finance decided to waive the interest on late payments on road tax advances, which you, as a tax entity, are obliged to pay by 15 April 2020 and by 15 July 2020. Interest on late payment shall be waived only if the advance on the road tax will be paid no later than 15 October 2020.

    Question No. 10 - We are currently paying off the loan and we need to temporarily postpone the installments. Can we do so without the bank's approval?

    Not yet, however, on 7 April 2020, the Chamber of Deputies should discuss a bill on the basis of which both consumers and entrepreneurs could request the postponement of their instalments by 3 or 6 months.

    This option should apply only to credits concluded and drawn before 26 March 2020, and credits concluded before 26 March 2020 and secured by immovable property or granted for a specific purpose (e.g. acquiring the immovable property or payment for transfer of a cooperative share in a housing cooperative).

    The debtor will be entitled to choose whether to postpone the instalments by 3 or 6 months, or may not use this option at all.

     

     

    Disclaimer

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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