Deferral and reduction of rental payments

Because of new coronavirus infection spreading the high alert regime was established in Moscow and other regions of the Russian Federation that made almost impossible for many of businessmen to use premises rented before the restrictions.

In this regard the government developed measures of support tenants of state and private commercial real estate.

Currently the principal legal acts relating to the issue of rental payments deferral granting are (1) the Federal Law dated 01.04.2020 “On Introduction of Amendments to Certain Legal Acts of the Russian Federation on prevention and control of emergencies” (hereinafter referred to as FZ N98); (2) Decree of the Government of the Russian Federation № 439 dated 03.04.2020 (hereinafter referred to as «Decree № 439»).

The Law Company BLS CUSTOS GROUP, LLC offers to find out more about the most principal issues on opportunity and order of getting the rental payment deferral or reduction of rent amount.

1. In what cases the landlord is obliged to provide the rental payment deferral.

New legal acts are adjusted that the landlord is legally bind to execute an additional agreement to provide a deferral of rental payments, which was supposed to be paid in 2020 year, within 30 days from the date of request from the tenant of related real estate object.

At the same time, the landlord is obliged to satisfy the tenant’s demand only if the tenant carries out activities in the fields most affected by conditions taking a turn to the worse by spreading of a new coronavirus infection.

That is, the deferral is not granted automatically, but only after the relevant request form the tenant, and can be applied only in respect of the tenants that operate in the most affected fields.

More over, the deferral is not applied to accommodation facilities.

2. More over, the deferral is not applied to accommodation facilities.

The terms and order for granting a deferral as well as the payment of indebtedness have been established by Decree № 439.

The definite term of deferral to be granted to tenant starts from the date of high alert regime establishment in each related region of the Russian Federation.

Throughout the duration of the high alert regime, the deferral of rent is provided for the entire amount of the rent, and for the period after its completion and until October 01, 2020 – for half of this amount.

Rent indebtedness arising during the period of corresponding deferral shall be paid in stages not earlier than January 1, 2021 and not later than January 1, 2023 in equal monthly installments, given that the amount of the corresponding payment cannot be more than half of the monthly rent.

3. What will happen to the landlord for violating the obligation to provide the tenant with a deferral.

Currently, legal norms establishing the administrative or criminal liability of landlord for refusing to provide the tenant with a deferral, if he is obliged to provide such deferral, is not established.

However, we recommend to take into account the possibility, in such cases, of bringing the landlord to a civil liability at the tenant’s suit (including the recovery of losses in full) due to the fact that the landlord has not fulfilled its obligations to provide a deferral of rental payments.

4. Is the landlord obliged to reduce the rent?

Subsection 3 of article 19 FZ № 98 states the tenant is entitled to demand the reduction of rent amount for the period of 2020 due to the impossibility to use the facilities caused by establishment of high alert regime or emergency regime.

However, the Decree No. 439 contains a recommendation to a tenant to provide for a reduction of the rent amount.

In this regard, we recommend to take advantage of the fact that the parties to the relevant agreement have right to determine and fix the amount of the rent by themselves in the respective additional agreement.

However, if the parties do not agree, then the tenant will not be denied the right to demand a proportional reduction of rent in the court.

We will be happy to provide you with a legal support you on the issues arising from your agreements, including:

• consult whether your company’s field of activity is among the most affected by conditions taking a turn to the worse by spreading of a new coronavirus infection;
• support you in the negotiations on the settlement of disagreements with your counterparty on the provision of a deferral or reduction of rental payments;
• draft the all required requests and additional agreements to real estate lease agreements;
• prepare a statement of claim to the arbitration court and ensure the protection of your interests in litigation.