The COVID-19 epidemic has probably caught everyone by surprise, reorganising people's lives and forcing them to adapt to the new socio-legal situation. Due to gastronomic restrictions (lockdowns), many restaurant tenants lost the ability to generate income from their leased premises overnight, while still facing full rental payments stipulated in advance in long-term agreements. We summarise all possible mechanisms to protect the budgets of the beleaguered catering industry from the perspective of a Law Firm.
💡 Key takeaways
- The termination of a fixed-term lease agreement without grounds and the consent of the parties will result in severe financial penalties, and the Court will certainly deem it invalid. Solid grounds based on the Civil Code (Termination of a Fixed Term) are required.
- A clause included in a contract, which appears at first glance to be disadvantageous to the tenant, can very often be interpreted by an experienced lawyer as an excellent loophole to break free from the rental obligation.
- Higher-order institutions (Legal Defect, Partial Impossibility of Performance, Rebus Sic Stantibus Clause) require difficult analysis by the Court each time, however, they build a powerful negotiating position for reaching a settlement.
The extraordinary situation of the pandemic perfectly fits the definition and concept of "important reason". Even the most stringent Tenancy Agreements prohibiting early termination succumb to the weight of the objective impossibility of hosting guests.
Terminating a lease agreement for a catering premises due to a crisis – is it possible?
I. Introduction
The alarming lockdowns, introduced by decree, essentially amounted to a complete ban on operating in the brick-and-mortar gastronomy sector and table service. This lasted for months. Restrictions and the disappearance of clientele left businesses in dire straits. The gastronomy industry is inextricably linked to renting commercial premises at astronomical "premium" prices. In such a devastating situation, are tenants of these premises doomed to the spectre of bankruptcy and lifelong debt?
II. Basic issues – admissibility of termination
The concept of paramount importance in civil law is Time rental agreements
In the event of its conclusion on Indefinite time – anyone can freely terminate it over time (this is often regulated as 3 months under Article 688 of the Civil Code). What if the contract stipulates a rigorous marked time (e.g. minimum 5 years)? Such a relationship is characterised by hard durability by definition. The only way to break it is to look for provisions and clauses that allow for an escape (e.g. from for important reasonsOften The devil is in the detailsTherefore, when evaluating such clauses in 50-page agreements with a developer, it is always worth engaging a trusted law firm to thoroughly scrutinise every sub-point on behalf of the buyer.
III. Warranty for Defects of the Premise – Art. 664 of the Civil Code
If the landlord returns an item with a defect that makes it impossible to use it – the law allows for the termination of this lease.
Lawyers consider "government bans on serving meals" a major and serious "legal defect". This means that the premises (despite having walls and a roof) are formally burdened by a legal defect, the purpose of the contract being "contrary to the original and regulated expectations of the buyer". The tenant rented a restaurant and effectively received a useless warehouse in the centre of a large city.
IV. Subsequent impossibility of performance – Art. 495 of the Civil Code
Another powerful shield is "partial impossibility of performance". The landlord (Owner) has a strict obligation to rent out space that is legally suitable for business. The epidemic thwarted this – not through their fault, but certainly not through the tenant's fault either. The tenant therefore has grounds for legitimate claims to not pay rent, as "The landlord is unable to provide me with a restaurant that can accommodate crowds of people as was the case at the time the agreement was made." As we see in the firm – invoking this article has found colossal support in the courts, successfully including not only restaurants but also gyms in its rulings.
V. Clause Rebus sic stantibus – Art. 357(1) of the Civil Code
The ultimate legal protection option in rescuing a business in financial distress is Extraordinary Change of CircumstancesThis is a principle protecting against "exploitation in the sense of great injustice" in the face of sudden disasters (war, epidemic). Someone who took out a rent debt of PLN 20,000, after a month in lockdown, lost the point of paying such a horrendous instalment not due to their own incompetence, but as a result of an earthquake in the state's economy (which neither side foresaw). In such extreme outcomes, the Court intervenes – autonomously, under this provision, it cuts and corrects the tenancy agreement, and even decides to terminate it, bringing the financial relations to a fair level (the so-called "action for shaping").
VI. Podsumowanie
The situation for tenants operating brick-and-mortar businesses with ongoing rents is difficult, but by no means hopeless! Whenever faced with court proceedings, we always encourage both parties to "Renegotiate a settlement" (reductions and deferrals) even before entering the courtroom.