Support measures for tenants of commercial real estate: deferral and reduction of rent payments

We would like to inform you about the entry into force of legislative provisions introducing the right of commercial property tenants to request a landlord to defer rent payments and/or decrease rent payments in certain circumstances and, accordingly, landlord's duty to provide such deferral of payment and/or decrease.

Please note that these provisions are also applied to tenants of state and municipal property. A set of support measures for the tenants of state and municipal property will be addressed in a separate legal alert.

DEFERRAL OF RENT PAYMENTS

1. Tenants eligible for deferment

The right to defer lease payments is granted to tenants operating in sectors of the economy that have been most affected by the spread of a novel coronavirus infection.

Tenants are entitled to a deferral, even if they have the possibility to continue to use the leased property.

Currently there is only one list of affected economy sectors, established by Decree of the Government of the Russian Federation dated 04.03.2020 № 434, according to which the following industries are recognized as the most affected (for each of these sectors, the Decree indicates relevant OKVED codes):

-        air transportation, airport activities, motor transportation;

-        culture, leisure and entertainment;

-        fitness and sports activities;

-        activities of travel agencies;

-        hotel business;

-        food service industry;

-        activities of continuing education organizations, non-governmental educational institutions;

-        organization of conferences and exhibitions;

-        household services to the population (repair, washing, dry cleaning, hairdressing and beauty salons).

This list, by virtue of a direct indication in the Decree, can be used only for the purposes of applying the law on repayment holidays. We believe that in the absence of another list, it would be logical to apply this list on the basis of analogy to the provisions on deferral of rental payments, but we believe that it would be reasonable to wait for the authorities to clarify the possibility of using this list for the purpose of obtaining a deferment.

2. Lease agreements under which the right to defer rent payments is granted

The right to deferment is granted under lease agreements of real estate owned by state, municipal or private property (with the exception of residential premises), which were concluded before the decision on introducing a high alert regime or emergency situation regime on the territory of a constituent entity of the Russian Federation, which took place during 2020.

3. Conditions for granting a deferral

Deferral period:

-       Starting on introducing a high alert regime or emergency situation regime and ending on October 1, 2020.

Deferral amount:

-       100% of the rent - during the period of high alert or emergency situation regime;

-       50% of the rent - from the date of termination of the relevant regime until October 1, 2020.

At the same time, if payments for utility bills or expenses for maintaining property are included in rental payment, no deferral of payments is provided in this part (except for cases when the landlord is exempted from these payments during the period of high alert or emergency situation regime).

Procedure for payment of debts accumulated during the deferral period:

-       rent arrears shall be paid between January 1, 2021 and January 1, 2023;

-       payments should be made in a phased manner no more than once a month;

-       payments should be made in equal installments, the amount of which should not exceed half the monthly rent.

Landlord does not have the right to apply liability measures for violation of the terms of paying the rent due to the specified deferral, and also does not have the right to establish additional payments in connection with the provision of the deferral.

The amount of rental payments, in respect of which a deferment is granted, may be reduced by agreement of the parties.

The landlord is obliged to sign an additional agreement to lease agreement on deferral within 30 days from the date of the tenant’s address to the landlord.

Deferral conditions listed above apply to additional agreements to lease agreements on deferral, regardless of the date when such agreement was concluded.

Apart from that, state authorities of the constituent entities will be able to establish milder deferral periods for tenants.

Source:  

  1. Federal Law dated 01.04.2020 N 98-FZ "On Amendments to Certain Legislative Acts of the Russian Federation Regarding Emergency Prevention and Relief" (http://publication.pravo.gov.ru/Document/View/0001202004010072) (entered into force on April 1, 2020).
  2. Decree of the Government of the Russian Federation dated 03.04.2020 № 439 "On establishing requirements for the conditions and deadlines for rent payments deferral under real estate lease agreements" (http://publication.pravo.gov.ru/Document/View/0001202004060005) (entered into force on April 6, 2020).

RENT REDUCTION

1. Tenants who were entitled to rent reduction

Tenants who entered into lease agreements before on introducing a high alert regime or emergency situation regime on the territory of a constituent entity of the Russian Federation, taken in 2020, have the right to demand a reduction in rent payments for the period of the year of 2020  

The law does not expressly state the obligation of landlords to provide such reductions of payment. However, taking into account the purpose of the adoption of the law, we understand that landlords nevertheless are required to provide such a reduction.

The law does not establish a list of industries that may require a reduction in payments, hence, any organization that has encountered the inability to use the leased property has the right to demand a reduction in rent.

2. Legal ground for rent reduction

The reason for the reduction of rental payment is inability to use property due to the introduction of a high alert or emergency situation regime in the constituent entity of the Russian Federation.

3. The procedure and amount of rent reduction

The procedure and amount of reduction in payments is not regulated by the law. In the absence of regulation, this issue can be settled by agreement of the parties basing on provisions of civil law.

Source: Federal Law dated 01.04.2020 N 98-FZ "On Amendments to Certain Legislative Acts of the Russian Federation Regarding Emergency Prevention and Relief" (http://publication.pravo.gov.ru/Document/View/0001202004010072) (entered into force on April 1, 2020).

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