“Anti-virus” law: rent adjustment option for tenants of private commercial property
“Anti-virus” Federal Law No. 98-FZ Amending Certain Legislative Acts of the Russian Federation on Emergency Prevention and Mitigation (further “Law No. 98-FZ”) was officially published and became effective on April 01, 2020.
Article 19 of Law No. 98-FZ provides for three rent adjustment options:
- Deferment of rent payment;
- Multiple change of rent in 2020;
- The tenant’s right to request a reduction in rent for 2020.
Deferment of rent payment
Part 1 of Article 19 of Law No. 98-FZ entitles tenants to apply for a deferment of rent payment if high alert or emergency procedures are introduced:
- Tenants are entitled to submit to their landlord a proposal for concluding an additional agreement for deferment of rent payment payable in 2020;
- Landlords must sign such additional agreement within 30 days of the proposal date.
The terms and conditions for granting deferment are set out in Government Decree No. 439 dated April 03, 2020.
Tenants (organizations or individual entrepreneurs) from the most affected sectors of the economy are entitled to rent deferment. The Federal Tax Service recommends referring to the list approved by Government Decree No. 434 dated April 03, 2020[1] and the code of main activity as recorded in the State Register of Legal Entities/State Register of Individual Entrepreneurs as of March 01, 2020.
Deferment is granted for the rent payable from the date of introduction of high alert or emergency procedures until October 01, 2020. If high alert or emergency procedures are canceled before this date, then deferment of half the rent is granted for the remaining period.
No penalties, interest for wrongful use or retention of funds, and other sanctions are to be applied in connection with the deferment.
The following requirements have also been established:
- Arrears should be paid no earlier than January 01, 2021;
- Payments should be made in equal installments no more than once a month;
- The amount of one payment cannot be more than half of the monthly rent.
What to do if your landlord ignores and rejects your deferment request? In this case, the tenant may file a petition with a court to order the landlord to conclude an agreement under Article 445(4) of the Russian Civil Code.
Multiple change of rent
Part 2 of Article 19 of Law No. 98-FZ provides that the rent under real estate lease agreements concluded before the introduction of high alert or emergency procedures in 2020 may be changed by agreement of the parties at any time in 2020.
This provision has most likely been introduced to address the restrictions of Article 614(3) of the Russian Civil Code which are sometimes interpreted as a prohibition to change the rent more than once a year, including by agreement of the parties.
Rent reduction
Part 3 of Article 19 of Law No. 98-FZ provides that tenants are entitled to request a rent reduction for 2020 due to the impossibility of using property following the introduction of high alert or emergency procedures.
It should be noted that this rule provides only for the tenant’s right to request a reduction in rent but does not provide for the landlord’s obligation to grant it.
The question as to what circumstances constitute “impossibility of using property” is also unclear. Does this apply only to companies whose activity has been completely suspended? Or is this also valid for partial impossibility of using property (for example, a restaurant is closed to the public, but its kitchen is still operating for deliveries and take outs)? The answers to these questions are likely to be provided by case law.
If you have any questions or would like more detailed information about the new rent adjustment options, please do not hesitate to contact Mikhail Borodin or Julia Talagaeva.
Truly yours,
[1] Government Decree No. 434 dated April 03, 2020 Approving the List of the Most Affected Sectors of the Russian Economy Amid the Coronavirus Pandemic