Lease agreement for premises in a shopping mall. Termination

termination of the lease agreement in the shopping mall
Piotr Kłodziński|
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Lease agreement for premises in a shopping mall. Is it possible to terminate a fixed-term lease agreement early?

 

In principle, no. But as is usually the case in law, there are several dozen exceptions to this rule. There have been a number of exceptional circumstances in recent years. Based on articles: 375, 495, 664 §1 of the Civil Code and the most common (i.e. most typical) contractual provisions, it is sometimes possible to terminate a fixed-term lease agreement. Therefore as law firm specializing in commercial real estate lease agreements We present a legal analysis of the possibility of early termination lease agreements for premises in a shopping mall. Day after day, from the beginning of the pandemic, through the outbreak of war in a neighboring country (unfortunately), we receive calls from nervous clients interested in obtaining reliable legal support in terminating such contracts.

[NOTE: the article was prepared at the height of the pandemic restrictions - i.e. on May 3, 2020, and then was partially updated several times;
see also prepared by ours Law Firm slightly newer discussion of court judgments in cases between tenants and landlords. of February 26, 2021]

Law basics

    1. Regulation of the Minister of Health of March 13, 2020 on the declaration of an epidemic threat in the territory of the Republic of Poland (Journal of Laws of 2020, item 433)
    2. Regulation of the Minister of Health on the declaration of an epidemic in the territory of the Republic of Poland (Journal of Laws 2020, item 491)
    3. Regulation of the Council of Ministers on the establishment of certain restrictions, orders and prohibitions in connection with the occurrence of the epidemic, announced on March 31, 2020 (Journal of Laws of 2020, item 697)
    4. Act of April 23, 1964 - Civil Code (consolidated text: Journal of Laws of 2019, item 1145 - hereinafter referred to as the Civil Code)
    5. Act of March 2, 2020 on special solutions related to the prevention, counteracting and combating of COVID-19, other infectious diseases and crisis situations caused by them (Journal of Laws of 2020, item 374)
    6. Regulation of the Council of Ministers of May 2, 2020 on the establishment of certain restrictions, orders and prohibitions in connection with the occurrence of an epidemic

Lease agreement for premises in a shopping mall is the subject of an opinion examining the admissibility of terminating or terminating a lease concluded for a fixed period.

Facts

For the most part lease agreements for premises in shopping malls are concluded for a specified period of time from the date of handing over the premises to a specific date. At the same time, the Parties anticipate a number of situations in which the Landlord will be entitled to early termination of the lease relationship, while the Tenant, in most concluded contracts, is granted such a right only in extremely rare situations. These include: the Landlord's delay in handing over the premises to the Tenant for several months and the shopping center completely burned down. Apart from the cases mentioned in such an agreement, the Tenant, as a rule, has no right to terminate the lease relationship earlier and unilaterally. The thing about rules, however, is that they only apply strictly in normal times.

Due to the epidemic threat, further temporary restrictions on retail trade were established. They concern tenants of commercial space in commercial facilities with a sales area of over 2,000 m² and tenants of catering establishments. They amounted to a complete ban on running a business or to strict restrictions on the number of customers or the nature of the services provided (takeaway only), as well as the conditions that retail and catering outlets, as well as entire malls and shopping centers, were forced to meet.

Possibility of terminating the lease agreement for premises in a shopping mall.
Analysis of the legal status

In order to answer the question whether the Tenant has the right to terminate the lease agreement between him and the Landlord, it is necessary to make a few preliminary remarks regarding the very nature of the lease agreement for commercial or service premises.

Termination of the lease agreement in a shopping mall on the basis of the notice clause contained in the agreement

Lease agreement for premises in a shopping mall regulated by the legislator in the provisions of Art. 659 and the Civil Code is a consensual and mutual contract, and the obligation relationship resulting from its conclusion is continuous. At the same time, the lease agreement may be shaped by the parties as an agreement concluded for an indefinite or fixed period. In the first case, the parties have the right to terminate the contract - as a rule - no later than three months in advance at the end of the calendar month (Article 688 of the Civil Code); this period is often modified in contracts (the validity of such modifications is sometimes questionable).

The situation of the parties is different in the case of concluding a lease agreement for a fixed period, because this relationship is assumed to be permanent, and therefore, this form of lease does not allow the parties to freely decide to terminate the legal relationship.[2]. Therefore, referring to the content of Art. 673 § 3 of the Civil Code "if the duration of the lease is specified, both the landlord and the tenant may terminate the lease in the cases specified in the contract." As follows from the above regulation, the basic possibility provided by the legislator for terminating a premises lease agreement concluded for a fixed period (=definite period) is for the parties to the agreement to reserve an appropriate termination clause. We will discuss exceptions to this rule below.

Most lease agreements provide for a number of situations in which the Landlord is entitled to terminate the contract, but the Tenant has no similar rights. The doctrine clearly emphasizes that the failure to provide an appropriate termination clause essentially excludes the possibility of terminating a contract concluded for a fixed period.[3].

However, there are other grounds for terminating such a contract - it can be done based on the provisions of the Civil Code, sometimes based on the provisions of the Civil Code, asking the court for help, and sometimes even using inconspicuous contractual provisions.

Each of these contracts requires an individual interpretation by an experienced professional in the field of contract law and real estate law, because some of them contain provisions that at first or even second glance will not be helpful to the tenant. However, as several dozen recent orders have shown, they can often become the support for a quite solid termination notice structure.

Lease agreement for premises in a shopping mall - termination pursuant to Art. 664 CC

Pursuant to the content of Art. 664 § 2 of the Civil Code: "If at the time of handing over the item to the tenant, it had defects that prevent the use of the item specified in the contract, or if such defects arose later and the lessor, despite receiving notice, did not remove them in due time, or if the defects cannot be removed, the tenant may terminate the lease without observing the notice periods.

A defect within the meaning of the above-mentioned regulation should be understood as both physical and legal defects of the leased item[4]. The legal defect has not been regulated by the legislator in the provisions on lease, therefore it is necessary to use the definition of a legal defect established in the provisions on the warranty on sale. Pursuant to Art. 5563 of the Civil Code, the term legal defect of an item should be understood, among others, as: a situation where the restriction on the use or disposal of an item results from a decision or ruling of a competent authority. It should be noted here that the doctrine raises doubts about the position that the hypothesis of this provision - in addition to judgments or decisions, i.e. acts of an individual and specific nature - should also include restrictions resulting from regulations, i.e. acts of a general and abstract nature.

At the same time, the legislator differentiates the Tenant's situation depending on the assessment of whether a given defect is removable or irremovable. In the event of a removable defect, the Tenant must set an appropriate deadline for the Lessor to remove the defect, and termination of the contract will be possible if the Lessor does not remove the defect in due time. In the event of irremovable defects, the Lessee may terminate the lease immediately lease agreement for premises in a shopping mall without notice periods.

In the current state of affairs during the COVID-19 pandemic, due to the provisions referred to in point And regulations, there was a temporary exclusion of the possibility of running a business in rented premises, which could Prima facie justify resorting to the provisions of Art. 664 § 2 of the Civil Code, however, such an assessment seems highly doubtful, considering that trade restrictions will be partially lifted on May 4, 2020, and then on November 28, 2020, and therefore it will not be possible to claim that the leased item is completely defective preventing the use of items specified in the contract.

However, if it were assumed that - due to restrictions on the number of customers who will be able to use the commercial space at the same time - there is a legal defect that prevents the use of the goods specified in the contract, it would be necessary to consider whether this defect is removable or irremovable. A defect that the Landlord is unable to remove in due time should be considered an irremovable defect. Taking into account that the restrictions on the use of the rented premises result from generally applicable legal provisions and that it is currently unknown how long they will last, it should be considered that this defect could be classified as an irremovable defect and, therefore, enable immediate termination. contract by the Tenant.

In conclusion, it should be stated that it is very risky to terminate the contract invoking Art. 664 § 2 of the Civil Code, and such termination may very likely turn out to be ineffective, which would entail - in the worst-case scenario - the risk of having to pay the entire agreed rent for all periods and possible contractual penalties.

It is worth mentioning that Art. 664 §1 of the Civil Code fits the situation a bit better, because although it must still be based on the existence of a defect (here again the question is whether the defect we are currently dealing with will be recognized by the courts as a defect within the meaning of this provision, as it is independent of the lessor - on the other hand, in the author's opinion, this is a legal defect), However, this provision applies to defects that limit the use of things and grants the Tenant the right to reduce the rent for the premises in such a case. However, the question arises whether the provisions of certain contracts limit the possibility of invoking defects in the premises. In some (but not all) contracts such a restriction has in fact been implemented. Considering that, according to the dominant view of the doctrine, liability under warranty regulated in the norm of Art. 664 of the Civil Code is relatively binding (jus dispositivum), the above limitation will prevent the free use of the instrument provided for in Art. 664 § 1 CC[5] However, it is possible that the representative of a shopping mall or shopping center will not want to question that limiting the number of customers per square meter is a defect, or that the courts will reasonably find that contractual restrictions in this respect are not effective - which may open the way to an effective reduction in rent, e.g. in connection with a decline in turnover.

Lease agreement for premises in a shopping mall. Withdrawal from the lease agreement with reference to the subsequent impossibility of performance - Article 495 of the Civil Code

Pursuant to Art. 495 § 2 of the Civil Code: "If the performance of one of the parties becomes only partially impossible, that party loses the right to the appropriate part of the mutual performance. However, the other party may withdraw from the contract if partial performance would not be important for it due to the nature of the obligation or due to the purpose of the contract intended by that party, known to the party whose performance has become partially impossible.

The above-mentioned regulation shapes the situation of the parties to the contractual relationship in the event of partial and consequential impossibility of performance by either party. The term "impossibility to provide" has not been defined by the legislator in the provisions of the Civil Code, and the doctrine presents different approaches to this issue. According to the objective concept, performance is impossible to perform if no one, and not only a specific debtor under the obligation relationship, would be able to fulfill it. In opposition there remains a subjective concept, which considers it impossible to provide a performance that could not be provided by a specific debtor[6]. Regardless of which of the above concepts is accepted as accurate, the doctrine and case law emphasize that the circumstances that make it impossible to perform the benefit must be permanent and complete.[7]. The term "permanence of impossibility of performance" should be understood as "(...) a stable situation (actual or legal situation), in relation to which it can be reasonably and objectively assumed that it will not change in a way that will enable the debtor to perform the performance, e.g. loss of an identified item "benefits"[8].

A certain doubt arises here - can the situation arising as a result of the epidemic, and therefore restrictions on access to commercial establishments, be treated as the impossibility of providing services on the part of the Landlord in the above-mentioned sense? On the one hand, it can be argued that the Landlord continues to provide the Tenant with commercial space and therefore fulfills its obligation. On the other hand, it seems that in this case we cannot ignore the purpose of the contracting parties lease agreement for premises in a shopping mall. Conducting commercial activities in a place which, due to its attractiveness, ensures constant access to a large number of customers, allows the Tenant to generate appropriate revenues. Therefore, one can try to claim that the Landlord's service is not limited only to providing commercial space, but also to providing commercial space in a shopping center ensuring constant access to a large number of customers. And although many court judgments have so far ruled in the opposite direction, and some shopping malls have decided to add an exclusion of their liability for a decrease in the number of customers to their contracts, in the opinion of the person preparing these opinions, it is impossible (keeping to the rules of correct logical inference) to claim that renting premises in a shopping mall commercial use is completely accidental, and the Tenant's main motive is not to gain access to an increased number of customers. The connection between a large number of customers and the lease of premises in a shopping mall and the rent it offers (much higher than in so-called street locations) is obvious to every person who understands the basics of economic life.

However, it should not be forgotten that the legislator, in the regulations introduced as a result of the epidemic, referred to the situation of tenants of commercial premises through the norm of Art. 15ze of the Act on special solutions related to the prevention, counteracting and combating of COVID-19, other infectious diseases and crisis situations caused by them. According to this regulation: "During the period of the ban on conducting business in commercial facilities with a sales area exceeding 2,000 m² in accordance with the relevant provisions, the mutual obligations of the parties to the lease, tenancy agreement or other similar agreement through which the commercial space is put into use (contract) expire. )”. The above recipe de facto indicates that, in the legislator's opinion, the situation resulting from the introduced restrictions is close to the actual impossibility of providing services on the part of the Lessor. However, a different interpretation can be presented, according to which the legislator decided that the situation did not correspond to the hypothesis of Art. 495 § 2 of the Civil Code, and therefore it is necessary to positively regulate it in a separate act. Adopting the latter, much less convincing position, some people try to unjustifiably claim that withdrawal from the contract with reference to Art. 495 § 2 of the Civil Code is contrary to the purpose of the introduced regulations.

In particular, the inadmissibility of the above-mentioned the position is expressed by the mouth. 4 of the above-mentioned regulation, according to which: "The provisions of section 1-3 do not prejudice the relevant provisions of the Act of April 23, 1964 - Civil Code regulating the contractual relations of the parties in states where legal restrictions on the freedom of business activity are introduced. It follows from the above that the parties are still left to invoke Art. 495 CC

With this in mind, it cannot be ruled out that due to restrictions on the number of customers allowed in shopping malls, as well as further-reaching restrictions in the form of, among others, the need to use sanitary products, such as masks, the need to constantly disinfect commercial areas, lack of access to catering outlets in shopping centers, etc. the Lessor's performance has become partially impossible. Even more so if we add the logical conclusion that the Landlord's service consists not only of providing the premises, but also of providing the premises in a place where there is a large number of customers making purchases.

However, such an assessment is not certain and its verification will only take place at the adjudication stage, and therefore using this route carries a certain risk of ineffective withdrawal. However, this is the path that many entities have chosen so far, including one of the largest clothing brands in Poland, terminating several dozen lease agreements.

Termination of the lease agreement for premises in a shopping mall on the basis of the extraordinary change of relations clause "rebus sic stantibus"

Pursuant to the content of Art. 3571 of the Civil Code: "If, due to an extraordinary change in relations, the performance of the benefit 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 manner of fulfilling the obligation. , 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.

As stated in the literature on the subject, an extraordinary change in relations should be understood as exceptional situations that are not normally encountered. At the same time, this change must concern general relations, and not the individual situation of the parties to a given obligation relationship[9]. From this perspective, it is questionable whether a change in generally applicable legal provisions may constitute the extraordinary change in relations referred to in the above-mentioned regulation. The position expressed by P. Machnikowski is correct, according to which: "The introduction of new legal prohibitions, impossible to predict and not applied in properly functioning societies, related to a specific situation (e.g. natural disaster, epidemic, armed conflict, serious economic crisis), should be be considered, in my opinion, an extraordinary change in relations.

With this in mind, there should be no doubt that the situation caused by COVID-19 should be treated as an "extraordinary change in relations" within the meaning of Art. 3571 of the Civil Code. At the same time, due to the date of conclusion of the contract, it usually seems that the parties did not foresee such far-reaching restrictions on the use of the leased property. Moreover, due to the precautionary measures announced by the authorities regarding the use of shopping centers, in particular the quantitative limitation of the number of customers in relation to the commercial space, it should be concluded without any doubt that the provision of the full rent by the Tenant would be associated with excessive difficulties or would pose a risk of a significant loss. – exactly as provided for in the regulation.

At this point, however, it should be noted that invoking the clause rebus sic stantibus is possible mainly in court proceedings against the other party to the contractual relationship, which, to be honest, makes its implementation somewhat more difficult[10]. Although the mere threat of such a trial to reasonably acting parties is a good basis for reaching a compromise. When issuing a decision, the court should consider the interests of both parties to the obligation relationship. Therefore, it cannot be guided by the benefits of only one of them (in this case, demanding termination of the obligation), but must also take into account the conditions, needs and aspirations of the other party. It should also be noted that termination of a contract by a court is an exception to the rule pacta sunt servanda, and therefore, it is used rather extraordinarily. So far, the courts have expressed rather positive opinions about the possibility of applying such termination of the contract retroactively (although before the epidemic, the vast majority of claims based on 357[1] were rejected due to the lack of an extraordinary change in relations), however, it is necessary to point out that some representatives of the doctrine state in their comments that the application of rebus sic santibus backwards for continuous intercourse. Their recommendation is not only inaccurate, but may also apply primarily to judgments retroactive to the date of filing the lawsuit (and should not apply to them either). A new judicial practice will probably develop in this respect. In our opinion, this is the surest, although the longest, way to terminate the lease agreement. 

This possibility is available not only for premises in shopping malls, but also for many other service and commercial premises that have ceased to be completely economically profitable due to the COVID-19 pandemic.

Summary of the analysis of the possibility of terminating lease agreements for premises in shopping malls

To sum up, it should be stated that, in our opinion, tenants usually have the right to bring an action for a change (by reducing the rent) or termination of the legal relationship (possibly also with retroactive effect), you can also try to exercise the slightly more risky right to withdraw from the contract due to for defects in the premises. Therefore, we propose the use of a multi-story structure combining all these solutions in one letter terminating the lease agreement and reserving a possible lawsuit in court if such termination is not accepted. However, for the sake of accuracy, we would like to point out that although there are many arguments that our actions are effective both factually and legally, the practice of courts in assessing such terminations is still developing.

This does not mean, however, that the parties cannot independently - by way of an annex or agreement - terminate the lease relationship or significantly reduce the rent. A reasonable agreement that takes into account the basic interests of both parties in the current situation seems to be the most desirable termination of the lease of premises in a shopping mall. However, this requires responsibility on both sides.

UPDATE 02/12/2020:

New ideas also appear. More and more often, tenants fight to terminate lease agreements or reduce the rent and at the same time apply to the courts to secure the lawsuit by reducing the rent due for the duration of the proceedings (temporary resolution) or by prohibiting its entire enforcement by the landlords of commercial and service premises (when terminating contracts). The first court decisions in this regard are in most cases positive for Tenants. Some law professors also propose the application of Art. 700 of the Civil Code and this may also make sense, because it regulates the relations between the parties when the lease (a similar relationship to the rental) of real estate, through no fault of the user, ceases to generate adequate income. Perhaps it will find its application in court decisions.

Reasonably operating and responsible shopping malls most often agree to such compromise solutions as:

a) switching to rent from turnover or reducing the fixed rent and increasing the rent from turnover - this solution allows both parties to the lease agreement to function, while ensuring a fairly fair division of losses and profits;

b) rent reduction combined with shortening the notice period (e.g. to two weeks or a month) - this solution allows, on the one hand, the Tenant to maintain his business and sell his goods, and on the other hand, it allows the Landlord to find another tenant to replace the current one. It is common knowledge that it is easier to rent new premises in a shopping center or mall when the vast majority of the premises there are open and not empty;

c) termination of the lease agreement on other terms suitable to the parties.

OUR LAW OFFICE ASSISTS TENANTS IN CONFLICT SITUATIONS, COURT DISPUTES, PREPARATION OF TERMINATION DOCUMENTS, AND IN NEGOTIATIONS WITH LANDLORDS IN ORDER TO RESULT IN A REDUCTION OF THE RENT OR TERMINATION OF THE RENTAL RELATIONSHIP TO YOUR SATISFACTION ENJOYING ALL SIDES.

DO YOU HAVE ADDITIONAL QUESTIONS? DO YOU NEED LEGAL ASSISTANCE IN TERMINATING A RENTAL AGREEMENT?

PLEASE CONTACT THE AUTHOR VIA BIURO@KLODZINSKIKANCELARIA.PL

Also review the latest coverage of the latest court decisions in landlord-tenant cases 

Footnotes:
[1] these restrictions were then maintained in the regulation of the Minister of Health on the declaration of an epidemic state in the territory of the Republic of Poland, announced on March 20, 2020, and in the regulation of the Council of Ministers on the establishment of certain restrictions, orders and prohibitions in connection with the occurrence of an epidemic state, announced on March 31, 2020 .

[2] J. Panowicz Lipska, [In:] J. Panowicz-Lipska (ed.), Private Law System, vol. 8, Law of obligations - detailed part, Warsaw 2019, p. 56.

[3] see J. Górecki, G. Matusik, [In:] K. Settlement (ed.), Volume III B. Civil Code. Comment. Commitments. Detailed part. Act on payment terms, Legalis 2020, reference to art. 673, Nb. 13.

[4] J. Panowicz-Lipska [In:] M. Gutowski (ed.), Civil Code. Volume III. Commentary on art. 627–1088, Warszawa 2019, comm. to art. 664, Nb. 2; judgment of the Supreme Court of November 27, 1973, II CR 335/73, Bull. SN 1974, No. 5, item 84.

[5] J. Panowicz-Lipska, Ibid.

[6] see Z. Radwański [in:] Obligations…, p. 328.

[7] see J. Dąbrowa, [In:] Z. Radwański (ed.), Civil Law System, vol. 3, part 1, Warszawa 1981, p. 800; Judgment of the Supreme Court of August 30, 1984, I CR 164/84, Legalis No. 24336.

[8] see W. Popiołek, [In:] K. Pietrzykowski (ed.), Civil Code. Volume II. Comment. Art. 450-1088, Warsaw 2018, reference to art. 475, nb. 3.

[9] P. Machnikowski [In:] Anger (ed.), Civil Code. Comment, Warsaw 2019, comm. to art. 3571 Nb. 7.

[10] resolution Supreme Court of 11/09/1991, III CZP 80/91, Legalis

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