The closure of shops and gyms has caused massive financial losses for many entrepreneurs. Tenants in shopping centres are feeling the effects of the ongoing pandemic very acutely. Empty premises only generated expenses, and maintaining them while waiting to resume operations represents a considerable cost. The Anti-Crisis Shield provided for rent exemptions (Article 15ze), but its mechanisms were sometimes insufficient. In such situations, tenants are increasingly seeking help in the courts, invoking the contractual clause *rebus sic stantibus*.
💡 Key takeaways
- Tenants, in connection with an extraordinary change in circumstances (the pandemic), may request the court to amend the lease agreement, including a significant reduction in rent, using the clause *rebus sic stantibus* (Article 3571 k.c.)
- Courts are increasingly granting tenants’ applications to secure their claims for the duration of the proceedings, for example by reducing the rent to a percentage of turnover (e.g. 10%).
- To effectively submit an application, it is necessary to provide evidence of the claim: including demonstrating a drastic drop in turnover caused by epidemic restrictions and the threat of a serious loss.
- If a new rental agreement is concluded during the pandemic (e.g. in June 2020), proving the "unforeseeability" of the situation can be difficult.
The application of the *rebus sic stantibus* clause by courts acts as a kind of lifeline for tenants who have lost financial liquidity and entered into an agreement under completely different economic conditions.
The impact of the epidemic on shopping centre lease agreements – case law
Does the principle of *pacta sunt servanda* have limitations?
Pacta sunt servanda, that is, the principle that a person who has entered into a valid contract must fulfill it. This institution is intended to ensure stability and certainty of trading. However, it may experience certain limitations as a result of the operation of the clause rebus sic stantibus (Article 3571 The aim of this institution is to provide protection against events that the parties to an agreement did not take into account when shaping its content.
In order for this clause to be applied, certain conditions must be met:
- the source of the obligation must be a contract,
- there has been an extraordinary change in circumstances,
- a change causes excessive difficulty in fulfilling the obligation or threatens one of the parties with a glaring loss, which the parties did not foresee,
- There is a causal relationship between the extraordinary change and the difficulties.
Case law practice during the pandemic
Under this procedure, tenants apply for an interim order to reduce the rent before legal proceedings are brought. Regional Courts have repeatedly considered such applications. For example, one business owner applied to have the rent for premises located in a shopping centre reduced to 10% of monthly turnover from 2 May 2020. The Regional Court in Warsaw ruled that the claimant had substantiated their claim on the basis of commercial premises lease agreements and the fact of an extraordinary change (closure due to an epidemic threat). The court granted the request for a rent reduction, however, indicating that the tenant should not be released from operating costs. (post. In Warsaw, XXVI GCo 151/20).
In another case, the court refused to grant interim relief because the tenant, despite evidencing the outbreak of the pandemic, failed to adequately prove the extent of their loss (a significant portion of sales moved online, and e-commerce was thriving). (post. Warsaw, XVI GCo 195/20).
Leases in shopping centres and fitness clubs – specific rulings
In matters of fitness clubs, e.g. tenant renting 1278 m2, the court ruled that the complete closure of the club constituted an extraordinary change in circumstances that could lead to bankruptcy. The tenant had demanded a rent of 0 zł, but the court held that the parties should share the risk of the crisis and reduced the rent by 50% (post. SO in Warsaw, XX GCo 246/20).
A similar case involving a fitness club concerned a request to suspend rent payments under clause 25% of the contract and to prohibit the landlord from making a statement regarding Termination of the lease agreementThe court reduced the rent but dismissed the application for an injunction against termination of the contract. SO w Warszawie, XX GC 303/20.
Termination of a lease agreement and Article 495 of the Civil Code.
Some tenants, instead of being rebus sic stantibus they are trying to rely on Article 495 of the Civil Code, i.e. subsequent impossibility of performance. It states that if performance becomes impossible for reasons beyond the parties' control, the party cannot demand counter-performance. One must be careful, as simply finding oneself in a difficult situation is not enough to benefit from this provision. What's more, invoking Article 495 of the Civil Code ultimately leads to the extinction of the entire obligation – i.e. the termination of the lease agreement, and not to its temporary modification.
For the application of the clause rebus sic stantibus The date the contract was concluded is of great importance – contracts concluded during the pandemic (e.g. in June 2020) may not be covered by such strong protection, as the landlord will argue that this was a risk the tenant should have taken into account.
Summary
Courts are increasingly favouring tenants' demands. The best solution for both parties is often a mutually agreed rent reduction or the establishment of turnover rent. If reaching an agreement fails, it becomes necessary to obtain a court injunction. This requires specialised knowledge. Surprisingly, interim injunctions in such cases are sometimes issued in just a few weeks, allowing for effective protection against significant losses.