How the quarantine in Ukraine affects rent payments

The COVID-19 pandemic and quarantine in Ukraine have already had a significant impact on many contractual relations between the residents of Ukraine. One of the types of contracts largely affected by the quarantine is a lease agreement. Many companies have their offices empty or even closed for various reasons. Among those are financial problems, transportation difficulties for employees, transition to working remotely, massive layoffs and vacations, as well as regulatory restrictions and prohibitions on certain types of economic activities for the employers.

Obviously, in such circumstances, many tenants are wondering, whether they can be exempted from rent at all or not to pay it in full for the quarantine period?

The problem is not unique to the Ukrainian market, and in many jurisdictions have adopted special rules for the tenants to survive the challenging times. What is the situation in Ukraine?
Currently, no special quarantine-related privileges, vacations, deferrals, etc. are provided for the lease agreements. There are draft laws in this regard aimed at regulation of the rent for housing and public utilities (No. 3255 and No. 3225), but no changes are planned so far for the rules applicable to leases of commercial properties and they remain the same. For instance, Article 762 of the Civil Code of Ukraine allows a tenant to demand reduction in rent if, due to circumstances beyond his control, the possibility to use the leased property is significantly reduced. Under the above rule, a tenant is also exempted from the rent for the entire time period during which the property cannot be used, due to circumstances beyond his control. In order to take advantage of these circumstances, the tenant shall confirm partial or complete impossibility to use the leased property, due to circumstances beyond his control. Normally this issue is regulated by a force majeure clause in the lease agreement. But what if the quarantine is not explicitly provided for in the agreement?

Check if it is possible to invoke force majeure in accordance with the default provisions of Ukrainian legislation. Such opportunity appeared due to the recently adopted so called "antivirus" laws and resolutions of the Cabinet of Ministers of Ukraine:

on 11 March 2010, the Cabinet of Ministers of Ukraine adopted Resolution No. 211, pursuant to which the quarantine had been set up for the period until 3 April 2020;

on 16 March 2020, the Cabinet of Ministers of Ukraine adopted Resolution No. 215, which amended Resolution No. 211, and in particular, prohibited 1) holding any public events in which more than 10 people participate and 2) operation of businesses, based on reception of customers, within the period from 17 March 2010 until 3 April 2020;

according to the Law of Ukraine No. 530-IX dated 17 March 2020, quarantine was defined as a force majeure event (enlisted in Article 14-1 of the Law of Ukraine "On Chambers of Commerce and Industry");

on 25 March 2020, the Cabinet of Ministers amended its Resolution No. 211, having extended the quarantine period until 24 April 2020 and specified the above prohibitions.

As a result of such regulatory changes, the quarantine measures adopted by the Government can be qualified as force majeure events, which led to impossibility to use the rented premises, as can be confirmed by the relevant Chamber of Commerce and Industry (CCI) certificate.

However, not every tenant will be able to refer to quarantine as a force majeure event to reduce the rent, nor will everyone be able to receive the CCI certificate.
The "test" in this case is very simple: did the Cabinet's restrictions or prohibitions led to impossibility to use the rented premises?

In order to answer this question, it is necessary to figure out those limitations and prohibitions. As of 26 March, for the quarantine period (until 24 April 2020) the Cabinet of Ministers prohibited:

  1. to hold any public (cultural, entertainment, sport, social, religious, promotional, etc.) events, in which more than 10 people participate, except those events necessary to maintain operation of the government authorities and local self-government bodies;
  2. operation of businesses based on reception of customers, in particular, public catering establishments (restaurants, cafes, etc.), shopping malls and entertainment centres, other entertainment establishments, fitness centres, cultural institutions, as well as institutions providing commercial and consumer services, except as concerns:
  • companies selling food, fuel, hygiene products, medicines and medical products, veterinary drugs, feeds, pesticides and agrochemicals, seeds and planting materials, communication facilities;
  • companies carrying out banking and insurance activities, as well as medical practice, veterinary practice, fuel filling stations, vehicle maintenance and repair, maintenance of registrars of settlement operations, activities on computer mending, household goods and personal items, postal service;
  • companies involved in catering with delivery of orders.

Application of the above exceptions is subject to the provision of personnel with appropriate protective materials, as well as compliance with the relevant sanitary and anti-epidemiological measures.
If the tenant's economic activities fall under the above prohibitions, or he rented premises for holding a public event, the tenant can notify the landlord ton he force majeure event and apply to the CCI for a respective certificate. Afterwards, the tenant may request:

reduction of rent or even exemption from rent for the quarantine period, which entailed partial or complete impossibility to use the rented premises (in accordance with Article 762 of the Civil Code of Ukraine).

exemption from liability for a failure to perform the lease agreement.
If you have questions regarding force majeure and its impact on agreements, please contact us

Contacts:
Olena Perepelynska, Partner
+38 044 391 38 53, Olena.Perepelynska@integrites.com
Got comments? Share your thoughts!
comments powered by HyperComments
Olena Perepelynska
Got questions?
Partner
Contact INTEGRITES Help Desk
Force majeure and contracts \ dispute resolution
Illya Tkachuk
Work conditions \ remote work \ immigration matters \ other employment law issues
Viktoriya Fomenko
Partner
Tax holidays and other quarantine-related novelties in tax law
Oleksandr Onishchenko
Litigation \ restrictions for economic activities during the quarantine \ domestic dispute resolution
Partner
Partner
Made on
Tilda