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

Piotr Kłodziński|
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Since the beginning of the SARS-CoV-2 virus pandemic, we have been accompanied by: uncertainty about the health of our own and our loved ones, constant fear about jobs, as well as financial losses that are directly related to numerous restrictions on running a business. This article analyzes the legal situation of the catering and retail industries, which - due to the fact that they rent premises in shopping malls subject to trade bans - are currently in a particularly difficult economic situation. 

Amendment of the so-called Covid Act of March 31, 2020 (Act of March 31, 2020, amending the Act on special solutions related to the prevention, counteracting and combating of COVID-19, other infectious diseases and crisis situations caused by them and certain other acts (Journal of Laws 2020) item 568), also called anti-crisis shield, introduced specific legal solutions regarding the lease of commercial space in shopping malls with a sales area exceeding 2,000 m2, during the period of trade restrictions therein.

Commercial premises lease agreement

Pursuant to Art. 15 from section 1 anti-covid law, during the period in which trade restrictions in shopping malls are in force, the mutual obligations of the parties to the lease, tenancy or other similar agreement under which the commercial space is put into use expire. Pursuant to art. 15 from section 2 of the said Act, the entitled person should submit an unconditional and binding offer of will to extend the contract on the existing terms and conditions for the duration of the ban extended by six months. Extension offer commercial premises lease agreements should be submitted within 3 months from the date of lifting the ban on trading in the mall. After the ineffective expiry of this period, the lessor is not bound by the principle of extinguishment of obligations. Despite statutory attempts to provide instruments to minimize the economic effects of the pandemic, the dynamics of legislative changes generates uncertainty as to the validity of the temporal and material scope of validity of the regulations.

Solutions introduced in anti-crisis shield became a kind of contribution to starting a discussion about the difficult situation of tenants of premises in shopping malls. Entrepreneurs are openly demanding a reduction in rents and associated service fees, citing, among others, on art. 3571 Civil Code. Article 3571 Civil Code, also called the clause rebus sic stantibus, serves a protective function in the event of situations that the parties to the contract could not have predicted at the time of its conclusion. Pursuant to Art. 3571 Under the Civil Code, the court is given the power to change the legal relationship existing between the parties (for example, a lease agreement for premises in a shopping mall). The provision in question is an example of a limitation of the principle pacta sunt servanda (contracts must be kept), which since Roman law has been considered a guarantee of certainty in economic transactions. Clause rebus sic stantibus results directly from the principle of equity, ensuring the possibility of modifying the legal relationship in the event of an extraordinary event per se could not have been foreseen by the parties to the contract and thus exceeds the average contractual risk.

Disputes between tenants and landlords resulting from restrictions on commercial activities introduced as a result of the outbreak of the pandemic generate new controversial legal issues. The nature of the contract between the parties was questioned - whether it should be classified as commercial premises lease agreement, or perhaps as a lease agreement.

The classification of a contract is not determined by its name, but by its content. When examining the type of contract, its content should be analyzed, taking into account the rights and obligations of the parties, as well as the purpose of concluding the contract.

Example: A car rental contract for 150 years, in which the tenant undertakes to refuel it and take care of its condition, paying a one-time price equal to its value, is in fact a contract for the sale of this car. 

Above all lease agreement The rights granted to the parties differ from the lease agreement. Under the lease agreement, the tenant gains the right to use the item, while the lease agreement entitles the lessor not only to use the leased item, but also to collect benefits from it. The lease agreement is a mutual agreement - the lessor gives the thing for use and benefits, and the lessee undertakes to pay rent. According to the view expressed by the Supreme Court, ""every thing, regardless of its kind, can bring natural and civil benefits" (judgment of the Supreme Court of March 31, 1987, I CR 287/86, LEX no. 936454). Therefore, commercial space in the mall can also bring benefits

commercial premises lease agreement

Lease in shopping malls

Even though the Supreme Court indicated that conducting commercial activities on real estate should not be classified as receiving benefits from it: "direct use of an item in a business activity does not constitute receiving civil benefits from it, because in this case income is only the final effect of the business activity. (Judgment of the Supreme Court of November 30, 2000, I CKN 924/98), such a view, in the author's opinion, does not deserve full approval. The current social and economic situation shows, as if in a kaleidoscope, that an entrepreneur's profit depends not on the nature of the business, but primarily on the characteristics of the premises where the business is conducted. The location of a store or restaurant is one of the factors when a customer chooses a given premises. Often, stores that offer the same goods and are owned by the same person will earn different revenues depending on their location. Achieving the turnover that will ensure good prosperity of the premises depends primarily on the area in which the business is conducted. The quality of services becomes a secondary issue. 

Commercial real estate specialists repeat: “The 3 most important features of a commercial premises? Location, location and once again location.

Shopping malls are widely considered to be attractive locations for entrepreneurs because they offer greater traffic intensity of potential customers, which translates directly into higher profits for the company. rental in shopping malls. The previous considerations are also confirmed by the methodology for valuing the lease of premises in a shopping center: the rent for a premises located on the first floor will be, on average, half as much as for a premises located on the ground floor. Therefore, the view that using the premises in the mall should in fact be considered as receiving benefits from it is justified, because the profit directly depends on the quality of the premises, i.e. its attractiveness to the customer. Therefore, referring to the previously indicated features of the lease agreement, the tenant who rents commercial space de facto enters into a lease agreement because it collects benefits using its location.

If, after analyzing the content and purpose of the contract, the original lease agreement is recognized as a lease agreement, the lessee (tenant of the premises in the mall) may, pursuant to Art. 700 of the Civil Code to demand a reduction of the rent for the period in which circumstances occurred that significantly reduced his ordinary income, for which he is not responsible and do not concern him personally. 

The pandemic period can undoubtedly be considered as such circumstances. A pandemic is an external event that the tenant could not predict and is not responsible for and cannot prevent its effects. 

The Court of Appeal in Wrocław found that "the basis for the rent reduction provided for in Art. 700 of the Civil Code, there is only ordinary income from the subject of lease” – That is "average, on a scale of at least several years, the income that the subject of the lease would bring if it were rationally used for the purposes provided for in the contract" (Judgment of the Court of Appeal in Wrocław of February 15, 2013, I ACa 25/13). Trade restrictions related to the virus pandemic result in a decline in interest in retail trade, as a result of which entrepreneurs - tenants of premises - record a continuous decline in revenues compared to the pre-pandemic revenues they have obtained in recent years.

With the above considerations in mind, you should a casu ad casum assess whether the lease agreements for commercial space in the shopping mall do not in fact contain any material elements of the lease agreement (essentialia negotii), which would allow for a reduction in the rent for the premises pursuant to Art. 700 CC directly or by analogy. So far, unfortunately, the line of jurisprudence established by the Supreme Court over 20 years ago is different, but critical voices can be heard from many sides, pointing to the need to change it and issue judgments applying the so-called gallery lease agreements, leasing provisions. Lease is a much more appropriate legal relationship to define this relationship.

Piotr Kłodziński | Legal services for companies 

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Since the beginning of the SARS-CoV-2 virus pandemic, we have been accompanied by: uncertainty about the health of our own and our loved ones, constant fear about jobs, as well as financial losses that are directly related to numerous restrictions on running a business. This article analyzes the legal situation of the catering and retail industries, which - due to the fact that they rent premises in shopping malls subject to trade bans - are currently in a particularly difficult economic situation. 

Amendment of the so-called Covid Act of March 31, 2020 (Act of March 31, 2020, amending the Act on special solutions related to the prevention, counteracting and combating of COVID-19, other infectious diseases and crisis situations caused by them and certain other acts (Journal of Laws 2020) item 568), also called anti-crisis shield, introduced specific legal solutions regarding the lease of commercial space in shopping malls with a sales area exceeding 2,000 m2, during the period of trade restrictions therein.

Commercial premises lease agreement

Pursuant to Art. 15 from section 1 anti-covid law, during the period in which trade restrictions in shopping malls are in force, the mutual obligations of the parties to the lease, tenancy or other similar agreement under which the commercial space is put into use expire. Pursuant to art. 15 from section 2 of the said Act, the entitled person should submit an unconditional and binding offer of will to extend the contract on the existing terms and conditions for the duration of the ban extended by six months. Extension offer commercial premises lease agreements should be submitted within 3 months from the date of lifting the ban on trading in the mall. After the ineffective expiry of this period, the lessor is not bound by the principle of extinguishment of obligations. Despite statutory attempts to provide instruments to minimize the economic effects of the pandemic, the dynamics of legislative changes generates uncertainty as to the validity of the temporal and material scope of validity of the regulations.

Solutions introduced in anti-crisis shield became a kind of contribution to starting a discussion about the difficult situation of tenants of premises in shopping malls. Entrepreneurs are openly demanding a reduction in rents and associated service fees, citing, among others, on art. 3571 Civil Code. Article 3571 Civil Code, also called the clause rebus sic stantibus, serves a protective function in the event of situations that the parties to the contract could not have predicted at the time of its conclusion. Pursuant to Art. 3571 Under the Civil Code, the court is given the power to change the legal relationship existing between the parties (for example, a lease agreement for premises in a shopping mall). The provision in question is an example of a limitation of the principle pacta sunt servanda (contracts must be kept), which since Roman law has been considered a guarantee of certainty in economic transactions. Clause rebus sic stantibus results directly from the principle of equity, ensuring the possibility of modifying the legal relationship in the event of an extraordinary event per se could not have been foreseen by the parties to the contract and thus exceeds the average contractual risk.

Disputes between tenants and landlords resulting from restrictions on commercial activities introduced as a result of the outbreak of the pandemic generate new controversial legal issues. The nature of the contract between the parties was questioned - whether it should be classified as commercial premises lease agreement, or perhaps as a lease agreement.

The classification of a contract is not determined by its name, but by its content. When examining the type of contract, its content should be analyzed, taking into account the rights and obligations of the parties, as well as the purpose of concluding the contract.

Example: A car rental contract for 150 years, in which the tenant undertakes to refuel it and take care of its condition, paying a one-time price equal to its value, is in fact a contract for the sale of this car. 

Above all lease agreement The rights granted to the parties differ from the lease agreement. Under the lease agreement, the tenant gains the right to use the item, while the lease agreement entitles the lessor not only to use the leased item, but also to collect benefits from it. The lease agreement is a mutual agreement - the lessor gives the thing for use and benefits, and the lessee undertakes to pay rent. According to the view expressed by the Supreme Court, ""every thing, regardless of its kind, can bring natural and civil benefits" (judgment of the Supreme Court of March 31, 1987, I CR 287/86, LEX no. 936454). Therefore, commercial space in the mall can also bring benefits

commercial premises lease agreement

Lease in shopping malls

Even though the Supreme Court indicated that conducting commercial activities on real estate should not be classified as receiving benefits from it: "direct use of an item in a business activity does not constitute receiving civil benefits from it, because in this case income is only the final effect of the business activity. (Judgment of the Supreme Court of November 30, 2000, I CKN 924/98), such a view, in the author's opinion, does not deserve full approval. The current social and economic situation shows, as if in a kaleidoscope, that an entrepreneur's profit depends not on the nature of the business, but primarily on the characteristics of the premises where the business is conducted. The location of a store or restaurant is one of the factors when a customer chooses a given premises. Often, stores that offer the same goods and are owned by the same person will earn different revenues depending on their location. Achieving the turnover that will ensure good prosperity of the premises depends primarily on the area in which the business is conducted. The quality of services becomes a secondary issue. 

Commercial real estate specialists repeat: “The 3 most important features of a commercial premises? Location, location and once again location.

Shopping malls are widely considered to be attractive locations for entrepreneurs because they offer greater traffic intensity of potential customers, which translates directly into higher profits for the company. rental in shopping malls. The previous considerations are also confirmed by the methodology for valuing the lease of premises in a shopping center: the rent for a premises located on the first floor will be, on average, half as much as for a premises located on the ground floor. Therefore, the view that using the premises in the mall should in fact be considered as receiving benefits from it is justified, because the profit directly depends on the quality of the premises, i.e. its attractiveness to the customer. Therefore, referring to the previously indicated features of the lease agreement, the tenant who rents commercial space de facto enters into a lease agreement because it collects benefits using its location.

If, after analyzing the content and purpose of the contract, the original lease agreement is recognized as a lease agreement, the lessee (tenant of the premises in the mall) may, pursuant to Art. 700 of the Civil Code to demand a reduction of the rent for the period in which circumstances occurred that significantly reduced his ordinary income, for which he is not responsible and do not concern him personally. 

The pandemic period can undoubtedly be considered as such circumstances. A pandemic is an external event that the tenant could not predict and is not responsible for and cannot prevent its effects. 

The Court of Appeal in Wrocław found that "the basis for the rent reduction provided for in Art. 700 of the Civil Code, there is only ordinary income from the subject of lease” – That is "average, on a scale of at least several years, the income that the subject of the lease would bring if it were rationally used for the purposes provided for in the contract" (Judgment of the Court of Appeal in Wrocław of February 15, 2013, I ACa 25/13). Trade restrictions related to the virus pandemic result in a decline in interest in retail trade, as a result of which entrepreneurs - tenants of premises - record a continuous decline in revenues compared to the pre-pandemic revenues they have obtained in recent years.

With the above considerations in mind, you should a casu ad casum assess whether the lease agreements for commercial space in the shopping mall do not in fact contain any material elements of the lease agreement (essentialia negotii), which would allow for a reduction in the rent for the premises pursuant to Art. 700 CC directly or by analogy. So far, unfortunately, the line of jurisprudence established by the Supreme Court over 20 years ago is different, but critical voices can be heard from many sides, pointing to the need to change it and issue judgments applying the so-called gallery lease agreements, leasing provisions. Lease is a much more appropriate legal relationship to define this relationship.

Piotr Kłodziński | Legal services for companies 

Rate this post