In connection with the Covid-19 pandemic, regulations have been passed that have led to multiple business restrictions, mainly affecting retail and services in large commercial enterprises, as well as the hospitality industry. This has resulted in pandemic-related revenue shortages and subsequent problems in meeting obligations, including the payment of rents and ancillary costs. This raises the question of whether and to what extent tenants can claim a rent reduction from their landlords. In the UK, tenants have no legal backing on which tenants can rely on to force landlords to reduce rents or write-off Covid-19 arrears. However, there is some support and protection against landlord enforcement action for non-payment of rent and the government is also considering legislation to “ring-fence” Covid-19 arrears. In Italy, tax relief for tenants was introduced. In Poland, specific regulations on rent limitation have only been introduced for leases of commercial premises in shopping centres with an area of more than 2,000 m². For other leases, tenants often invoke the so-called rebus sic stantibus clause of the Polish Civil Code.

United Kingdom

In the United Kingdom, there are various on-going measures to support and protect tenants from landlord enforcement action for non-payment of rent. These are broadly as follows:

  • there is a moratorium until 25 March 2022 on landlords evicting commercial tenants.
  • the Commercial Rent Arrears Recovery (CRAR) process s (is a statutory procedure which allows landlords of commercial premises to recover rent arrears by taking control of the tenant's goods and selling them) can only be used if tenants owe at least 544 days of principal rent.
  • there is ban until 31 March 2022 on landlords issuing statutory demands and winding up petitions based on a tenant’s inability to pay commercial rent (unless the landlord has reasonable grounds for believing that either COVID-19 has not had a financial effect on the tenant or that the circumstances forming the basis of the winding up petition would have occurred even if COVID-19 had not had a financial effect on the company).

Despite the above there is no legal help for tenants to legally compel a landlord to reduce or write-off COVID-19 arrears that have built up while premises have been closed. However, the Government is clearly concerned about the raft of potential insolvencies (and subsequent job losses) that may result if the restrictions mentioned above are simply left to expire. It is therefore currently consulting on the options available to deal with COVID-19 arears and one of the proposals under consideration is binding adjudication in circumstances where the landlord and the tenant cannot reach a mutually acceptable settlement.

While the consultation is on-going the Government’s legislative plans on COVID-19 arrears remain unclear and commercial landlords and tenants have a number of unanswered questions. For example, which arrears are “ring-fenced” and subject to arbitration if not agreed? What about tenants that have chosen, perhaps for commercial reasons, to remain closed? Will the legislation unravel any concessionary deals that have already been reached, including if the tenant insists that it still cannot pay? Will tenants that have already paid in full be entitled to refunds? Will the legislation be restricted to rent or will it include, for example, service charges? The Government has said that the ringfencing will only apply to tenants that have been “impacted” or “affected” by COVID-19 “business closures” for the period from March 2020 until restrictions for their sector were removed. Commercial landlords can take some comfort from the fact that this at least suggests that rent will not be ringfenced where it relates to periods where tenants elected to close during the pandemic. Tensions between landlords and tenants over built up arrears are, therefore, set to continue and parties will have to await further details as the legislation is published before at least some of their questions are answered.

Italy

Regarding leases for commercial real estate and leases for business premises, the emergency legislator in Italy has mainly introduced tax relief without affecting the relations between the parties, with the exception of the eviction stop provided for in Article 103(6) of the Decree "Cura Italia" (Legislative Decree 18/2020, converted into Law 27/2020).

Among the non-fiscal measures, Article 91 of the Decree "Cura Italia" provides that "[...] Compliance with the containment measures referred to in this decree is always assessed for the purposes of exclusion, pursuant to and for the purposes of articles 1218 and 1223 of the Italian Civil Code, of the debtor's liability, also in relation to the application of any forfeitures or penalties connected with delayed or omitted compliance". Some judgments have held that the above-mentioned Article 91 does not provide for the tenant's right to unilaterally suspend the payment of rent and that the tenant must therefore provide objective data from which he can conclude that his financial situation has deteriorated.

On the other hand, there are some rulings that are favourable to the requests of tenants affected by the socio-economic situation due to the health emergency. According to the Court of La Spezia (15 December 2020), health emergency is one of the elements that can exclude that there is a "serious breach", even if the tenant carries out an activity that is not directly affected by the confinement measures. In general, many courts have applied the provision of Article 91 of the Decree "Cura Italia" to exclude that the failure to pay or the late payment of the rent constitutes a "serious breach" (including the Court of Trani, 1 September 2020).

However, the latest court decisions focus on the question of whether the landlord is obliged to renegotiate the contract and whether he can reduce the rent to be paid by the tenant for the months of “lockdown”.

Several courts confirmed that the solution to the contractual imbalance due to the emergency situation lies in the principles of fairness and good faith provided for in the Civil Code and applicable to the execution of contracts. In particular, as already advocated by the Supreme Court in its Report No. 56/2020 (on the application of the general principles of the Civil Code in the event of a pandemic), the courts affirm that the tenant must have the possibility to renegotiate the content of the unbalanced contract (inter alia, Court of Treviso, 21 December 2020).

In particular, the Court of Rome (27 August 2020) held that the emergency measures introduced by the legislator were not sufficient to bring the agreement back into balance and that the parties were obliged to start new negotiations in order to restore the contractual balance.

Other courts shared this approach and recognised the tenant's right to reduce the rent, at least in relation to the months of closure. Some courts informed the parties of the scope of the reduction to be applied to the rent, while others limited themselves to asking the parties to renegotiate the rent (Court in Milan, 21 October 2020) or, more commonly, postponed the determination of the scope of the reduction to later stages of the proceedings (Court in Venice, 28 July 2020). According to these rulings, a renegotiation of the rent in the sense of a temporary reduction would rebalance the agreement and require the landlord to make a sacrifice far lower than the one the tenant would have to make if he had to pay the full rent (in this sense, see also Court of Venice, 30 September 2020).

However, there have also been contrary rulings that deprived the judge of the possibility to change the economic conditions of the leases by lowering the rent, albeit temporarily (Court of Rome, 19 February 2021 and Court of Biella, 17 March 2021).

The above-mentioned judgements make it clear that legislative intervention would be appropriate, if not necessary, to establish clear criteria and parameters for the settlement of disputes between landlords and tenants in Italy. Indeed, to date, this scenario has been interpreted and applied differently by the courts.

Poland

In Poland, specific regulations on rent limitation have only been introduced for leases of commercial premises in the shopping centres with an area of more than 2,000 m².Under the law on special measures related to the Covid-19 pandemic (“Covid Law”), which entered into force on 31 March 2020, the mutual obligations of a landlord and a tenant under a lease agreement should be suspended for the period when the activity of the relevant tenant is prohibited due to the Covid-19 restrictions until the date when such ban is lifted.

Under the recent Covid-Law amendment, all claims, including rent and service charges, payable by a tenant under a lease (or any other agreement consisting of granting the right for the use of a commercial property, including lease agreements) the object of which are commercial premises in a shopping centre with an area of more than 2,000 m²) , should be reduced to 20% of its value for the period during which the activity of the tenant in question was prohibited or 50% of their value within three months from the date the ban has been lifted.

Concerning other lease agreements, including hotel leases, no specific regulations on rent limitations have been introduced in Poland. Tenants often demand rent reductions by referring to the so-called rebus sic stantibus clause of the Civil Code. According to this provision, a party can apply to the court to change the terms of the contract if the performance of the contract has been significantly impeded by unexpected and unforeseeable circumstances. There are already precedents of court rulings ordering rent reductions due to the Covid-19 pandemic based on this clause. However, the courts are obliged to take into account the economic situation of both parties in reaching a judgement, thus the outcome depends on the circumstances of the individual case.