The State Duma of the Russian Federation adopted the Law1 in the third reading which provides the opportunity to require early termination of leases for tenants affected by the deteriorating economic situation resulting from the spread of a new coronavirus infection. The final version of the Law in this part has undergone multiple fundamental changes.
The support measures provided earlier were aimed at remaining the lease agreement in force. Due to the financial situation, it is not appropriate for all tenants to keep the lease agreement in force. Now, the tenant has the right to terminate the lease agreement.
The main conditions for exercising the mentioned right are as follows.
| Tenant | Leased property | Lease agreement | Procedure |
|---|---|---|---|
| A small or medium-sized business entities which operate in the economy sectors mostly affected by the deterioration of the situation because of the new coronavirus infection spread2. | Building, structure, non-residential premises, or parts thereof used for carrying out the specified activity by the tenant. | An agreement was concluded before the decision of the state authority of the constituent entity of the Russian Federation to introduce a high-alert or emergency regime. |
1. Tenant applies to lessor with a request to decrease the rent for a period of time up to one year; 2. Parties have 14 working days from the date of such request to agree on the terms of the rent decrease or otherwise change the terms of the lease agreement; 3. If parties don’t reach an agreement, the lessee has the right to terminate the lease agreement concluded for a certain period of time no later than October 1, 2020, in accordance with art. 4501 of the Russian Civil Code |
At the same time, the tenant is not charged with the following amounts:
- damages in the form of lost profits;
- damages on termination of the agreement provided in art. 3931 of the Russian Civil Code related exclusively to premature termination of the lease agreement;
- other monetary amounts if, in accordance with cl. 3 of art. 310 of the Russian Civil Code, the tenant’s right to unilateral withdraw from the contract was due to the necessity to pay a certain amount to the lessor.
But the security payment, stipulated in the lease agreement and paid to the lessor, is not subject to return to the tenant.
It is worth noting, that art. 451 of the Russian Civil Code has already provided for the possibility of termination of the contract on the basis of substantial change in circumstances. However, a positive court practice on such terminations was a rare example.
The Law also provides the tenants with the right to request renewal of lease agreements for a land plot which is owned by the state or municipal authorities subject to certain conditions. This novelty also applies to state and municipal real estate leased at auction (at first instance, non-residential premises).
The amendments also affected public real estate, which are subject to purchase by a tenant with a payment by instalments3. New provisions are aimed at setting a deferral under purchase and sale agreement subject to certain conditions:
| Buyer | Purchase and sale agreement | Procedure |
|---|---|---|
| A small or medium-sized business entities which may not operate in the economy sectors mostly affected by the deterioration of the situation because of the new coronavirus infection spread | 1. An agreement was concluded before the decision of the state authority of the constituent entity of the Russian Federation to introduce a high-alert or emergency regime; 2. An agreement provides a payment by instalments |
1. The buyer applies to the seller; 2. The seller has 30 days to enter into an additional agreement; 3. An additional agreement should provide a deferral of payments subject to pay in 2020 for the term from 6 to 12 months; 4. Interests for deferral sums4 should not be calculated; 5. Responsibility should not be applied during deferral period; 6. Any additional payments are prohibited |
Thus, now the following measures have been approved to support tenants:
- deferral of lease payments (for more information please refer to here);
- change in the rent amount by parties’ agreement at any time during 2020;
- decrease of rent payments (for more information regarding questions of enforcement please refer to here);
- termination of the lease agreement;
- extension of lease agreements for public real estate;
- deferral of payments subject to pay under purchase and sale agreement of leased real estate owned by state or municipal authorities.
1"On amendments to certain legislative acts of the Russian Federation in order to take urgent measures to ensure sustainable economic development and prevent the consequences of the spread of a new coronavirus infection" adopted by the State Duma of the Russian Federation on 22.05.2020// https://sozd.duma.gov.ru/bill/953580-7
2The Resolution of the Government of the Russian Federation dd. 03.04.2020 No. 434 (ed. dd. 12.05.2020)
3The Federal Law dd. 22.07.2008 No. 159-FZ «On the peculiarities of the alienation of real estate owned by state or municipal property and leased by small and medium-sized entities, and on amendments to certain legislative acts of the Russian Federation» («Federal law dd. 22.07.2008 No. 159-FZ»)
4Cl. 3 art. 5 of the Federal Law dd. 22.07.2008 No. 159-FZ