We recently wrote an article regarding the leasing of business premises that had been affected by the emergence of the new type of coronavirus and the associated emergency measures. In the article, we brought bad news for business owners who had been forced to reduce retail sales and service sales at their premises or, due to the emergency, had had to delay various deliveries, i.e. that they must continue to pay rent for those premises. However, this will be changed by a new law [1] which has been prepared for these situations.

The new law provides relief for tenants of business premises (including mere rooms even if the purpose of their lease is not included in the contract) in the case that they fell into default in paying the rent associated with the use of the business premises during the relevant period (i.e. the period from 12 March 2020 to 30 June 2020). The assumption is, of course, that the delay was mainly due to restrictions resulting from the emergency measures during the epidemic, which made it impossible or substantially more difficult to carry out business. The affected entrepreneur is thus protected against the termination of the lease by the landlord on the grounds of default in the payment of rent for the period from the promulgation of the law [2] 12. until 31 December 2020 (the so-called protection period).

However, it must be remembered that the lease may be terminated for other reasons and the landlord may exercise other rights arising from the default in the payment of rent. In view of this, the phrase “deferral of rent” is not accurate. This is only to protect the tenant from the termination of the lease for one of several reasons (default in the payment of rent, due to restrictions on the tenant’s business in the business premises for which the tenant should pay rent), and the due date of rent remains the same. Landlords can therefore also exercise other rights, such as the right to default interest. It can be expected that numerous disputes will arise between landlords and tenants in this respect.

Tenants will find problematic the passage of the law that requires them to certify that they were in default as a result of the restriction resulting from the emergency epidemic measure that prevented or substantially impeded them from conducting business. Some cases may be simple (for example, a small shop that had to close because of the government resolution), while others will be more complicated (for example, an establishment may not have been forced to close, but the emergency measures prevented it from doing business). The law is not only aimed at protecting tenants of businesses who had to close their establishments (shops, hairdressers, etc.) as a direct result of the emergency measure, but also those who were simply negatively affected by the emergency measures (they were unable to do business or their business was significantly hindered by the emergency circumstances).

The protection period, during which tenants’ leases cannot be terminated, will last until 31December 2020. 12. 2020. By the end of that period, the tenant will be required to pay all of its outstanding rent due for the period 3. from 12 March 2020 6. to 30 June 2020. If the tenant fails to do so, the lease can be terminated with five days’ notice. During the protection period, this could only happen if the tenant declares that it will not pay its debt during the protection period or if the specific circumstances of the case make this beyond doubt. The law also specifically takes into account cases where the lease does not last until the end of the protection period; in such cases, the law obliges tenants to pay claims due in the protection period within 30 days of the end of the lease.

Tenants will appreciate the protection we have described above. For landlords, however, this is a rather unfavourable situation, as they are largely dependent on the income from their leased premises and will now lose it for some time, which may be critical for some of them. At the very least, the law allows landlords to seek the termination of a lease after the circumstances that caused the tenant to be granted a “deferral” of rent have passed, but not before the emergency has ended [3]. The condition will be that it would be unfair to require the landlord to endure such a restriction. The law does not further explain this right, but it can be expected that the determination of whether or not a given situation is fair to the landlord or not will have to be assessed on a case-by-case basis.

Finally, we note that the above issue does not only concern the lease of business premises, but also usufructuary leases. This puts tenants under usufructuary leases on the same footing as tenants of business premises and puts landlords under usufructuary leases in the same situation as landlords of business premises.

However, the law is quite brief and raises questions about many of its provisions, which will only increase in number as the law is applied in practice. If you need any advice on this issue, please do not hesitate to contact us.

[1] Act on certain measures to mitigate the impact of the SARS CoV-2 coronavirus epidemic on tenants of business premises.

[2] As of the date of publication of this article, the law has been approved by the Parliament of the Czech Republic and sent to the President of the Czech Republic for signing.

[3] As of the date of publication of this article, the state of emergency has been extended until 30 April 2020. 4. 2020. However, this may not be the last day of the state of emergency, as it may be extended again.

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