Rebus sic stantibus, can increases in electricity and gas fees be the basis for terminating the lease agreement?

Krzysztof Bardel|
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Increases in electricity and gas fees have become a common and troublesome problem for entrepreneurs in recent months. Everyone experiences them, but they are particularly severe for people running businesses - especially those that require high consumption of electricity or gas. Additionally, if the business is conducted in a rented premises and the utility costs, as is usually the case, fall entirely on the tenant, the financial situation of the business owner becomes complicated because the utility costs have already increased several times. However, in this article we present some solutions that can help tenants renegotiate the contract or terminate it completely. One of them may be a clause rebus sic stantibus

You don't have to spend 5 years studying law and another 3 on legal training to know the famous principle resulting from Roman law, which is "pacta sunt servanda", i.e. "contracts must be kept". It means nothing more or less that if you enter into an agreement with the other party, you must comply with its provisions and fulfill your obligations. Therefore, if the tenant agreed to pay monthly rent in the amount of you have to pay. In principle, this should not be a problem, after all, the tenant, knowing his financial capabilities, knew what he was agreeing to.

Problems begin when the fees begin to be influenced by factors whose scale (or not at all) were taken into account when concluding the contract. We are talking about constantly growing inflation (after all, rent indexation is common and well-known, but few people, especially when concluding long-term lease agreements, expected such a rapid increase in inflation) and increases in electricity and gas prices on a previously unknown scale. Take the Jagiellonian University as an example, the functioning of which in the beginning academic year was questioned due to the increase in electricity fees from PLN 27 million a year to... PLN 182 million!

And while households may be talking about some financial turbulence in this situation, companies are often one step away from disaster. When electricity and gas fees increase, which are usually charged to the tenant regardless of the rent amount, the entire business may turn out to be unprofitable - after all, we will be paying more for utilities than we will earn from business activity. When, due to high costs, the business is generating losses, we may want to close the business. However, if we are bound by a long-term lease, the landlord may be reluctant to terminate it. And although increases in gas and electricity fees are completely beyond the landlord's control and it is difficult to blame him for them, we can consider whether the Polish Civil Code does not provide for an institution enabling us to renegotiate the terms of the contract or terminate it completely.

Clause rebus sic stantibus – opportunity for tenants?

The Polish legislator has provided for the possibility of extraordinary circumstances that may justify a change in the relationship between the parties. This means that if the conditions specified in the Civil Code are met, you can demand a different shape of the relationship between the parties (to put it simply - a change in the terms of the lease agreement) or even its termination (termination of the agreement). However, there is one catch - taking advantage of this benefit requires taking the case to court. This is potentially a big obstacle, because court cases can drag on for many months, which in the meantime may lead to the loss of justification for amending the contract due to the previous bankruptcy of the company. Without anticipating the facts, however, let us first focus on Article 357 itself1 § 1 of the Civil Code, which establishes this clause rebus sic stantibus, i.e. the clause of extraordinary change of relations.

Therefore, in accordance with the cited regulation:

Art. 3571 § 1 CC:

"If, due to an extraordinary change in relations, the fulfillment of the obligation would be associated with excessive difficulties or would threaten one of the parties with a significant loss, which the parties did not foresee when concluding the contract, the court may, after considering the interests of the parties, in accordance with the principles of social coexistence, determine the method of performance of the obligation and the amount of the benefit. or even decide to terminate the contract. When terminating the contract, the court may, if necessary, decide on the parties' settlements, guided by the principles set out in the preceding sentence.

To clause rebus sic stantibus has been applied, it is necessary to demonstrate the fulfillment of several conditions described below and arising directly from the provision. These are: the occurrence of an extraordinary change in relations, excessive difficulty in fulfilling the benefit and/or the threat of a glaring loss, the causal relationship between the extraordinary change in relations and excessive difficulty in fulfilling the benefit and/or the threat of a glaring loss, and the unpredictability of the causative event at the contracting stage. Below we present brief considerations on each of these premises.

An extraordinary change in relations

Based on case law and the well-established position of legal doctrine, it should be noted that an extraordinary change in relations is understood as a change that relates to social relations, with particular emphasis on economic relations. This change must be universal, i.e. refer to a wide group of entities, and not only to individually designated parties to the contractual relationship. In accordance with the jurisprudence of the Supreme Court, Art. 3571 § 1 of the Civil Code applies only to extraordinary events of a general nature, independent of the will of the party, which go beyond typical economic risk.

The change described must also be of an extraordinary nature. This should be understood as an exceptional event and unheard of in the normal course of affairs. However, what is extraordinary is the change itself, not the event that caused the change. There is no doubt that such high price increases are of an extraordinary nature and - even if certain price fluctuations can be considered predictable and consistent with normal contractual risk - we are dealing with unprecedented values of increases. Therefore, there is no doubt that the events on which we want to base the application of the clause are of an extraordinary change in relations.

Excessive difficulty in performance and/or threat of significant loss

The extraordinary change in relations described above must result in a situation in which the performance of the benefit would be excessively difficult for one or both parties to the civil law relationship or would pose the risk of a significant loss. The above means that a change in circumstances "(...) should therefore lead to a significant disruption of the contractual balance, questioning the economic sense of the benefits and destroying the goals that the parties intended to achieve when concluding the contract." According to the jurisprudence of the Supreme Court, "the gross loss is determined not by the mere comparison of the current value of the benefits, but by the overall effects of the performance of the obligation on the party's assets, taking into account the purpose of the obligation and what benefits the party could expect from its performance. Scientific literature and case law have shown that a gross loss occurs when the rate of return on the subject of the service has been radically reduced, i.e. when, for example, the tenant - who makes a certain investment in a good such as premises by renting - achieves much lower benefits (due to extraordinary changes in relations) than those assumed at the time of concluding the contract.

In a situation where our business loses its economic justification due to maintenance costs exceeding profits, we can certainly talk about excessive difficulty in fulfilling the service or the threat of a significant loss in the sense mentioned above. However, it should be remembered that in a situation where the increases are significantly high, but at the same time the revenues obtained by the tenant are even higher, proving compliance with this condition may be much more difficult. However, if there is a situation where, due to the amount of electricity and gas fees, the activity loses its economic justification, the application of the clause may always be considered. rebus sic stantibus and fulfillment of this condition.

Rebus sic stantibus – causal relationship

If this clause is applied, there must also be a causal link between the extraordinary change in relations and the excessive difficulty in performance and/or the threat of a significant loss. This causal relationship should not be equated with that existing in the civil law system under the provisions on liability for damages. It is simply an objective causal relationship, so the significant loss results from an unforeseen event. If the rebus sic stantibus clause is applied as a result of an increase in electricity and gas fees, the event in the form of an increase is undoubtedly the direct causative factor of the gross loss and/or excessive difficulty in fulfilling the benefit. It is these increases, caused by various factors which, however, remain outside the subject of considerations, which directly result in the obligation to pay a much larger amount than at the stage of initial contracting. Therefore, if in a given factual situation the first two conditions (extraordinary change in relations, excessive difficulty in fulfilling the benefit and/or threat of significant loss) are met, there is almost certainly a causal relationship between them.

Rebus sic stantibus – unpredictability

Due to the content of art. 3571 Civil Code, the parties to the contractual relationship could not have predicted at the stage of concluding the contract what impact an extraordinary change in relations would have on the legal relationship between them. The doctrine emphasizes that in order to demonstrate unpredictability, the party invoking an extraordinary change in relations must demonstrate that while exercising due diligence (Article 355 of the Civil Code) it could not have foreseen the significance of the change in relations for a given obligation.

Therefore, two situations should be distinguished: signing a lease agreement under "normal" conditions, when no one could expect such large increases in electricity and gas prices, and signing the agreement recently, i.e. at a time when the said increases were predictable or were already taking place. In the first case, this condition will be met, in the second - not.

In the second situation, if the tenant signed the contract at a time when there was a war going on or specialists said that gas and electricity prices might inevitably increase, it would be difficult to talk about unpredictability. This is especially true when the tenant is an entrepreneur, i.e. an entity that requires certain diligence and knowledge of the market.

See also: Is the lease agreement for commercial space in a shopping mall de facto a lease agreement for premises? 

How to assert your rights?

After determining that all of the above conditions are met, you can try to change the lease agreement or terminate it. And here we distinguish two paths: amicable and judicial.

It is always worth starting with an amicable path, i.e. starting talks with the landlord to demand an appropriate reduction in rent (which N.B. also in current conditions due to inflation it is usually increased) or termination of the contract - depending on our needs. If he is not willing, you can also send him a formalized pre-court request to reduce the rent/terminate the contract, in which, demonstrating the validity of the claim due to the fulfillment of the conditions under Art. 3571 § 1 of the Civil Code, "threatens" to take the case to court if there is no will to enter into talks aimed at reaching a compromise corresponding to the tenant's economic situation.

If the above are ineffective (after all, the willingness of the landlord to cooperate is required), not only can but even should file a lawsuit in court. In such a lawsuit, a legal relationship is requested pursuant to Art. 3571 § 1 of the Civil Code. If the validity of the claim is successfully demonstrated, the court will appropriately shape the relationship between the parties or terminate the contract - depending on the will of the plaintiff.

However, there is one "catch" mentioned in the introduction - time. Usually, tenants need a rent reduction or termination of the contract "here and now" so as not to generate costs and not fall into debt. Taking a case to court will probably take several months, which may drag on even after a satisfactory resolution is reached in the first instance. This development of the situation partially distorts the sense of seeking justice in court, because the tenant's losses and debts will increase all this time. However, there is a way to combat this problem.

A wisely constructed application for security in the lawsuit - if the court agrees to it - may appropriately reduce the rent or even (which should be considered in the sphere of procedural abstraction) lead to a temporary suspension of the obligation to pay it.

However, both the lawsuit and the application for security (which is crucial in this case), as well as wisely constructed letters at the pre-trial stage, require the assistance of an experienced lawyer. As part of our law firm's practice, we have successfully conducted many cases based on the clause rebus sic stantibus (mainly in terms of reducing the rent of commercial premises during the COVID-19 pandemic). Our experience shows that selecting the right strategy at the pre-trial and court stages may result in a positive outcome. Sometimes, it is only after filing a lawsuit that the landlord, fearing losing the case, decides to enter into settlement negotiations - this is how many of our cases conducted under this provision ended.

Therefore, please contact our office – after an initial assessment of the situation, we will advise you whether we see any prospects for reducing the rent/terminating the contract, select pre-court tactics, conduct negotiations, and - if necessary - file an appropriate lawsuit to court.

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