COVID-19: Emergency Government Ordinance no. 29/2020 – impact on lease agreements
Emergency Government Ordinance no. 29/2020 (“EGO 29/2020”) has just been published in the Official Gazette and contains in its art. X, paragraph (1) provisions (generally favorable to certain categories of tenants) regarding the performance of parties’ obligations under the lease agreements.
What are the benefits?
Art. X, paragraph (1) of EGO 29/2020 gives the entitled beneficiaries the right to a postponement of the rent payment with respect to locations used in their business, such postponement to apply for the duration of the state of emergency.
The legal text refers only to rent, it is not clear if the other charges due under a lease agreement would be also postponed (e.g., service charge).
Also, the legal text refers to “postponement of the payment” and not to “exemption from the payment”, so that it seems (at least from the drafting) that EGO 29/2020 does not cancel / exempt the tenants from the obligation to pay the rent during the state of emergency period.
However, it remains unclear whether this was actually the intention of the legislator and, if so, what will happen with such payment obligations when things will come back to normal and the postponement will cease. If such obligations are deemed to become immediately due thereafter (as they would have to be in a legal logic), it is expected that the tenants will try to claim the benefit of force majeure / fortuitous event / hardship in such situation, or perhaps the legislator will further regulate an exemption or a rescheduling.
Which tenants may benefit?
The rent payment postponement applies to the tenants qualifying as small or medium enterprises (“SMEs”) under Law no. 346/2004 (i.e., based on the number of employees and turnover/total assets value).
The tenants that do not qualify as SMEs (i.e., the large enterprises) do not seem to benefit from any such special regime (at least yet).
What conditions must be met?
In order for the eligible beneficiaries to benefit from the rent postponement the following conditions must be met:
1. the subject locations must be used as headquarter or working points. Most likely this condition is to be proved by the corresponding registration with the Trade Registry, so that the tenants having neglected to operate such registration risk not being able to make use of the benefit offered by art. X, paragraph (1) of EGO 29/2020;
2. the relevant tenants must have interrupted their activity (totally or partially), based on the decisions of the competent public authorities, during the state of emergency. Basically, it is not enough that the business is disrupted but the relevant locations must be closed (even partially) as result of the state of emergency related measures taken by the public authorities (g., closing of shopping malls as per the most recent Military Ordinance no. 2/2020);
3. the tenants must obtain the certificate for the emergency situations (“CSUs”) issued by the Ministry of Economy, Energy and Business Environment, according to a procedure that was not enacted yet (and which may limit the issuance of such CSUs only to certain economic sectors deemed directly affected). CSUs seem to be enough for accessing the benefit of rent payment postponement without the need to prove the actual force majeure event under the common legal regime regulated by the Civil Code. As regards the tenants that are not SMEs, as mentioned, they are not listed as eligible beneficiaries of the rent payment postponement benefit under EGO 29/2020, although they should still be able to obtain CSUs, to the extent the Decree no. 195/2020 on the state of emergency does not restrict the issuance of CSUs to SMEs only.
Specific regulation of COVID-19 related force majeure?
Art. X, paragraphs (2) and (3) of EGO 29/2020 purport to regulate a special regime of the force majeure in the context of the EGO 29/2020.
Thus, paragraph (2) of art. X requires the counterparties to the SMEs in other contracts than lease agreements to attempt a renegotiation of the contracts before claiming force majeure. The following paragraph (3) of art. X regulates a legal presumption of force majeure event (related to COVID-19) “within the meaning of this ordinance”, however, the concept of force majeure is being used elsewhere in the ordinance only in the previous paragraph (2).
Therefore, it may seem logically consistent to assume that the legal presumption of the COVID-19 related force majeure event applies only in the context of paragraph (2) of art. X where it is being used, i.e., to other contracts concluded by SMEs than lease agreements, while in respect to lease agreements the SMEs benefit from the rent payment postponement. However, such interpretation would exclude lease agreements from a potentially more favorable regime of claiming force majeure by SMEs against the rationale of EGO 29/2020, which is to support SMEs.
In any case the legal presumption of COVID-19 related force majeure event set forth in art X, paragraph (3) of the EGO 29/2020 is rather confusing, as it refers to an event fulfilling the general criteria in the Civil Code (external, unpredictable, and absolutely invincible and unavoidable event) resulting from an action taken by the authorities to combat COVID-19 pandemic, which has affected the activity of the SMEs, as ascertained by the CSU, such presumption to be overturned by any means of proof. Therefore, it seems the main effect of art X, paragraph (3) would be to shift partially the burden of proof: the SMEs would benefit from the legal presumption of force majeure based on a relevant CSU, but the counterparty may prove that actually the legal conditions of the force majeure set forth by the Civil Code are not fulfilled.
Conclusions
EGO 29/2020 regulates (in an open-end manner) a specific benefit for a certain category of affected tenants (SMEs) in the COVID-19 pandemic context – the postponement of rent payment during the duration of the state of emergency.
Moreover, EGO 29/2020 regulates a legal presumption of force majeure related to COVID-19, which application to lease agreements concluded by the SMEs is unclear and which main benefit seems to be a shifting of the burden of proof; however, the legal definition of the force majeure is not changed (for more details in this respect, please see our previous analysis COVID-19: How to handle contractual distress in lease agreements?).
Certainly, legal disputes are to be expected on these topics, driven by practical considerations related to what happens with the postponed rent payment obligations after the end of the state of emergency and whether the CSU creates a presumption of force majeure benefiting also to tenants in addition to the rent payment postponement.
For more details, please contact:
Cosmin Stăvaru Partner T +40 31 224 8417 | |