Real Estate COVID-19 Help Desk

The effects of the current COVID 19 crisis are, generally speaking, rather complex and represent a mixture of both nationally and internationally repercussions in many business or industry sectors. The same happens in the commercial real estate sector, where the crisis caused a particular need for action due to a variety of direct or indirect side effects.

In this respect, the Real Estate COVID-19 Help Desk is intended to provide a practical response to the most common questions related to this sector: Are there any relevant governmental emergency measures which should mitigate the negative effects? Can current commercial lease agreements be renegotiated or even terminated under certain circumstances? What happens in case of an ongoing transaction? Etc.

Please check out the FAQs of the country of your interest and get in touch with our experts for more detailed information.

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Australia

Country Introduction

The Australian property market is large part of our economy, with a wide range of different direct and indirect participants in the commercial property sector. International investors, private and listed property companies, superannuation funds, and mum and dad investors have all been significantly impacted by Government imposed restrictions that have significantly reduced demand for commercial properties, and the ability of tenants to meet their lease obligations.

As many company’s have adapted to the ‘new norm’, it is expected that a softening in demand for commercial properties will continue as businesses see the benefit of operating virtually, and/or due to concerns that the Government may swiftly reintroduce social distancing measures to prevent or minimize any second wave of infections. The impacts of Covid-19 will see excess capacity in the commercial, retail, and hospitality property sectors for quite some time.

The Australian Federal Government and its State and Territory counterparts have announced a series of new regulatory, legislative and administrative changes that strengthen the country’s position moving through the crisis, with a raft of measures to protect participants in the property sector – landlords and tenants alike.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in Australia?

The National Cabinet (a group consisting of the Prime Minister, and the Premiers and Chief Ministers from each Australian State and Territory) announced on 7 April 2020 the Code of Conduct for Commercial Tenancies (the Code) which outlines a number of principles for landlords and tenants to consider when negotiating temporary changes to commercial leases during the Covid-19 pandemic.

Generally the Code will apply in circumstances where a commercial lease involves a tenant that has an annual revenue of up to $50 million (at a consolidated group level), and is eligible to receive the Federal Government’s Jobkeeper program (i.e. because their revenue has fallen or will likely fall by 30% of more).

The Code requires landlord and tenants to negotiate in good faith, but at a minimum imposes the following principles into the negotiations:

  • the landlord cannot terminate the lease due to non-payment of rent during the pandemic period and subsequent recovery period;
  • the tenant must meet the obligations of the lease (other than those amended in accordance with the Code) otherwise they may not benefit from the protections under the Code;
  • the landlord must offer reductions in rent in proportion to the decline in the tenant’s revenue, with at least 50% of the reduction to be waived, with the other 50% to be repaid over time;
  • the landlord must pass any savings and relief they benefit from on to the tenant;
  • the landlord must not draw on tenant’s security for non-payment of rent during pandemic period and subsequent recovery period; and
  • the landlord must freeze any rent increases proposed by the lease.

The Code will be legislated in each State and Territory.

Each State and Territory Government have also introduced a number of measures to support commercial landlords. Examples of such measures include waivers or reductions in certain duties and taxes.

What financial assistance packages or ways to mitigate the financial impact have been adopted?

Australia’s financial institutions have announced a number of measures to support customers during the Covid-19 pandemic period. For SME landlords these measures can include the deferral of principal repayments on commercial loans.

Brazil

Country Introduction

The Brazilian real estate market has experienced rollercoaster effects in the last decade. It increased sensibly after accommodating the impacts of the global financial crisis of 2008, with an annual average growth of 20% from 2008 to 2011, and an impressive 121% accumulated growth from 2008 to 2013. In this period, loans in connection with real estate deals[1] broke record after record, and in 2013 culminated in astonishing BRL 109,2 billion over 500 thousand transactions.

Between 2013 and 2015, the real estate market reduced its growth pace, anticipating the economic crisis that would come in 2015. As cost of credit for real property acquisition increased, transactions dimmed from 2015 to the first half of 2019. Recently, the second semester of 2019 and the first two months of 2020 indicated the real estate market started to grow again (for example, transactions in February 2020 were 25% superior to February 2019), but, as of March 2020, the COVID-19 pandemic and the subsequent social-distancing restrictions (closed stores and restricted visitations) pushed the market downwards once more, impacting both new developments and used properties.

On the other hand, the Brazilian Real (BRL) is overly devalued as of March 2020. In April 2020, new legislation arose regarding acquisition of real estate by non-Brazilians. This scenario makes real property in Brazil quite attractive for foreign buyers (whether for use or for investment). Brazil has a huge demand for residential properties, resort hotels, and business facilities. Recovery of Brazilian real estate market is a matter of time only. Storming out the current COVID-19 crisis is likely to bring long-term advantages to investors.

[1] The Brazilian real estate market is very depended on the financial system, as most transactions (involving either new or used properties, for either residential or business purposes) a bank or a financial institution to finance a portion of the price, in a contractual arrangement called alienação fiduciária em garantia, whereby, similarly to a mortgage, the acquired real estate is offered as collateral for payment of the loan.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in Brazil?

Yes, State Governments have applied measures to ensure social distancing. Brazil’s most relevant capitals, such as São Paulo/SP, Rio de Janeiro/RJ, Salvador/BA, Belo Horizonte/MG, and Manaus/AM, are dealing with limited circulation outdoors and businesses closed to the general public (delivery and take-away services are generally allowed). This scenario affects the economy, especially small and local businesses.

On May, 20, 2020, the Federal Congress approved Bill of Law (PL) 1.179/2020, the so-called “Emergency and Transitory Legal Regime of the legal relations of Private Law during the Coronavirus (COVID-10) pandemic period”. The bill now awaits presidential sanction. Among other matters of private law, this bill deals with lease agreements and the relationship between landlords and tenants. Particularly, the bill (i) forbids tenant eviction based on payment delay, as to lawsuits filed from March 20, 2020 to October 30, 2020; (ii) determines that the effects of Covid-19 and its impacts in the contractual relationship shall not retroact to cover facts prior to March 20, 2020; and (iii) also forbids that inflation, deflation, exchange rate variation or other modifications of contractual monetary standards be considered sufficient motivation to review the economic basis of the contract.

Is it possible to cancel, suspend or modify the Lease Agreement's conditions due to the COVID-19 crisis?

Yes. Brazil is a civil-law country, with a significant influence of the Roman-Germanic legal systems, similar to Germany, Italy, Portugal, Spain, and others. General clauses of contractual law as rebus sic stantibus apply, but in a very restricted sense.

Several companies and entrepreneurs – especially stores situated inside shopping malls which are closed to the public following local rules, as well as “nonessential” commercial businesses, also mandatorily closed to the public – filed claims to stop payment (or at least obtain a reduction) of rent and maintenance fees. When the claim seeks continuity of the agreement after the pandemic, the claimant’s argument focuses on the rebus sic stantibus clause versus the pacta sunt servanta clause. When the claim seeks to terminate the agreement without penalties or damages, the claimant’s argument focuses on Covid-19 as a force majure event.

Courts have so far issued preliminary rulings allowing tenants to stop or reduce rental payments, provided that tenants prove the impossibility of, or severe limitation on, running their businesses, and the subsequent income reduction. Courts have been more inclined to accept rebus sic stantibus arguments to suspend agreements than force majure arguments to terminate them.

We have recommended that Clients use negotiation to try and solve each situation on a case-by-case basis, so that the Client keeps in control of the contract and obtains a solution in the short term. Under this approach, only severe contract disruptions would be brought to the Judiciary.

In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?

There are no specific rules forbidding the execution of any given type of purchase and sale agreement due to the pandemic. Purchasing real estate now may be advantageous for investors, because prices in general have decreased since the pandemic began.

We recommend that investors obtain proper legal advice in order to avoid future claims from sellers seeking judicial cancellation or nullification of the sale, based on allegations of injury (lesão) or meager/vile price. We also recommend clear wording of the contract clauses as to whether a party assumes the COVID-19 pandemic as a normal or as an exceptional scenario, in order to avoid that the other party uses the pandemic as a reason to change the foundations of the agreement in the future. We equally advise clear contract wording to establish whether parties are willing to review the economic basis of the contract in the future, vis a vis changes in the health, economic, and legal environment arising from developments of the pandemic.

What is the legal situation regarding cancellation of rentals of tourist apartments, hotels or holiday homes?

Most touristic sites, premises, and venues are closed or at least functioning with very restricted access since the pandemic was officially recognized in Brazil (February/March, 2020). Tourism businesses (agencies, hotels, apartments, etc.) who had reservations cancelled generally choose to grant credits for future trips or stays, rather than to provide reimbursements.

The President issued Provisory Measure (MP) 948/2020 determining the suspension of tourist and cultural events and granting to culture tourism businesses the right to offer to the consumer, in lieu of reimbursement, the option that the consumer uses his/her/its credit throughout the entire year of 2021. If the consumer does not accept the offer, the consumer has a right to reimbursement, but such may be performed until the end of 2021, and a grace period must be granted until December 31, 2020. That is, according to the provisory measure, tourism and cultural businesses are allowed to delay reimbursements until January 2020 and to perform payments in installments.

What effects does the current situation have on ongoing construction projects and contracts?

The pandemic rules regard the construction sector as an essential economic activity, so construction workers can continue with their jobs. Moreover, the first two months of 2020 were positive. However, the pandemic affected the construction sector, because it impacted the financial capacity of purchasers (on residential market) and the government’s focus (to fight Covid-19). Buyers are afraid to enter into new agreements due to the uncertainty of the economy.

Brazilian public bank Caixa Economica Federal, in a program designed to medium-low income populations, released a BRL 43 billion[1] credit line for the construction sector in April 2020, hoping to stimulate potential buyers to purchase residential real estate. The same credit line grants buyers a 180-days grace period, so payments would initiate by the end of 2020, when economic perspective shall hopefully be better.

Also, there are likely opportunities for construction projects in the areas of health and logistics, due to the impacts of the pandemic and the urge to expedite construction in some locations. Due to the public calamity status brought by the pandemic and the urgency that follows, contracts with the government currently do not need to undergo public bidding.

[1] Exchange rate on May 22, 2020: 1,00 EUR = BRL 6,04.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

As above, parties are been stimulated both by lawyers and by judges to negotiate, regardless of the type of discussion and the amounts involved. Alternatives such as mediation and dispute boards are largely recommended in construction projects, especially the most complex ones.

When self-guided solutions fail, parties may seek the Judiciary or, if provided in the contract, arbitration. Demands involving governmental bureaus will be subject to specific jurisdictions, whether federal or state courts. Some kinds of contracts with governmental bureaus may also be subject to arbitration procedures, provided it is previously adjusted and authorized by state and local laws and regulations (for example, in the city of São Paulo, Law 16.873/2018). Private agreements may be subject to commercial or civil state courts, depending on the venue of the litigation (some states and cities have a more specialized judiciary structure).

Litigation on State Courts may take approximately from 3 to 5 years up to the definitive ruling (res judiciata), if case goes through both first and second-level state courts, plus one of the superior courts (either the Superior Court of Justice (STJ) or the Federal Supreme Court (STF)). Costs of litigation in state courts may vary around 5% to 10% of the suit value, and attorney’s fees follow the English rule (i.e., the losing party must pay to the prevailing party’ attorney fees fixed by the court between 10% and 20% of the amount involved in the case).

Arbitration procedures in Brazil are generally conducted within arbitration chambers connected to chambers of commerce. Costs of arbitration vary depending on the chamber elected, the number of arbitrators involved (if one or three, generally) and the amount under discussion. In general, affordable arbitration procedures shall cost around EUR 15,000 and lasts approximately 3 to 6 months. Arbitration awards issued in Brazil are not subject neither to appeal nor to ratification by a judicial court. Only enforcement procedures, if needed, shall be taken to court based on the arbitration award.

What financial assistance packages or ways to mitigate the financial impact have been adopted?

As mentioned on section 5 above, there is a project to finance the purchase of real estate by medium-low income population conducted by Caixa Econômica Federal. Private banks are also offering loans so that entrepreneurs can push their businesses go through the pandemic with lower interest rates and longer grace periods as compared to regular conditions.

As to labor aspects, the federal government issued several provisory measures since the beginning of the pandemic, aiming to offer relief to employers regarding the collection of welfare contributions, payment of severance fund, payment of vacation bonus, reduction of the working day and respectively salary, anticipation of vacation periods and holidays, and even temporary suspension of the employment contract. Some measures require the employer to commit to keep the existing jobs and salaries.

Finally, there is a number of federal rules issued to temporarily reduce or postpone payment of taxes (PIS, COFINS, welfare contributions, FUNRURAL, CPRB, System “S”, etc.) during the pandemic.

Croatia

Country Introduction

Croatian real estate prices continued to rise in the past few years, mainly fueled by a strong demand, coupled with limited supply. Across the whole of Croatia real estate prices increased in value by a nine percent in 2019, when compared with 2018, according to information released by the National Bureau of Statistics. The Croatian capital saw by far the biggest increases in property prices in 2019 with house prices jumping in Zagreb by a 13.2 percent, when compared with 2018. Croatian coastline house prices rose by 6.9 percent last year, whereas other regions of the country saw a 3.8 percent increase. The data from the National Bureau of Statistics stated that new-build properties increased in value by 8.3 percent across the country, whilst existing properties saw a 9.1 percent increase.

With an expected global and domestic recession caused by the COVID-19 pandemic the real estate prices are expected to decrease in 2020. The effects of the current COVID 19 crisis are already being felt. The real estate market, like many other businesses, is in a holding pattern. Even at this stage, it is pretty clear that the tourist season will be weaker than usual, and the reduced number of tourists, in addition to falling occupancy in the daily rent, will reduce the number of potential real estate buyers. The medium- and long-term consequences can hardly be estimated at this time.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in Croatia?

Due to the emergency situation caused by the COVID-19 pandemic, the Ministry of State Property issued a decision allowing a deferral of the payment of rent and fees for the use of commercial real estate owned by the Republic of Croatia. The period in which the payment of rent or usage fee is deferred may last for three months, starting from 1 March 2020.

Apart from the deferral of rent payment, default interest on rent or compensation for the use of business real estate for overdue and unpaid receivables will not be calculated in the period of three months (March-June). In addition, commercial lease agreements will not be canceled or terminated during that period by the Ministry of State Property.

In case of commercial lease agreements between private entities, it is up to the parties to define new economic balance between them.

Is it possible to cancel, suspend or modify your Franchise Contracts conditions due to the COVID-19 crisis?

Franchise contracts may include a definition of extraordinary circumstances and the legal effects of those circumstances on a particular contract. If a pandemic is contractually defined as an exceptional circumstance, further contractual provisions on the consequences of the occurrence of such an extraordinary circumstance should be checked. Otherwise, the relevant legal provisions from Civil Obligations Act apply.

Civil Obligations Act recognizes the institute of changed circumstances as a possible reason for the modification or termination of a contract, and states: “If, due to exceptional circumstances arisen after the conclusion of the contract, which could not have been foreseen at the time of the conclusion of the contract, the fulfillment of the obligation by one contracting party would become excessively difficult or cause it excessively large loss, then the party may require the contract to be modified or even terminated.

Thus, if the COVID-19 coronavirus disease pandemic has affected the regular business activities so that because of it the fulfillment of the obligations arising from the specific business relationship becomes difficult, or causes excessive loss to the party, the party is not obliged to bear all the negative consequences of the situation and under certain circumstances is entitled to seek a modification to certain contractual provisions or even seek termination of the contract.

It is important to note that a contracting party who is affected by the changed circumstances, and who plans to consume subjective rights for the occurrence of those circumstances, is obliged to inform the other party of its intention as soon as it becomes aware that such circumstances have occurred. Failure to do so shall result in the counterparty being liable for damage suffered by the other party for failure to notify the claim in a timely manner.

In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?

Negotiations preceding the entering into a contract shall not be binding, so the party effected by the COVID-19 may terminate the transaction in case the deal is not closed. Parties should take into a consideration that there is a pre-contractual obligation to negotiate in good faith and that the termination should not have been premeditated.

In case the parties concluded the contract, they are obligated by the contractual provisions unless the provisions of the contracts are not amended by the parties.

No special urgent government measure on this side.

What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?

Because of the COVId-19, entities providing services in the tourism have adjusted their booking policies. For example, reservation made for the 2020, can be transferred to any other available date in 2020 or in case the customer is not able to fulfil the reservation in 2020 it can transfer it to the 2021. Some entities allow their customers to cancel the reservation without any penalties. Booking policies vary between the different service providers.

However, due to the fact that Croatian borders have recently been opened for tourists, from the legal perspective we do not perceive COVID-19 as a force majeure event anymore.

What effects does the current situation have on ongoing construction projects and contracts?

Current situation caused by the COVID-19 may cause delays in the ongoing construction projects considering travel restriction, problems in the international transport of goods, services and materials and preventive public health measures taken by the governments.

Party affected by the COVID-19 may use the institute of changed circumstances as a possible reason for the modification of the affected contractual obligations.

From the business point, we see less activity as to the appetite for the new development projects and will see more focus on the financial restructuring of the existing projects.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

In case the parties are not able to settle their dispute outside court in a peaceful way, parties may seek protection of their rights from the competent courts in Croatia. In case the dispute is related to the real estate, subject matter jurisdiction depends on the type of the parties. In case the dispute is between legal persons then the commercial courts will adjudicate. Disputes between natural persons regarding real estate will be settled by the municipal courts.

For adjudication in disputes over ownership and other property rights to real estate, in disputes over trespassing on real estate and disputes arising from lease or rent relations, jurisdiction is exclusively with the court on whose territory the property is located. If location of the property extends over the territories of several courts, each of these courts has the jurisdiction to settle the case.

Time frame and costs related to disputes will depend on the complexity of the dispute and its value.

What financial assistance packages or ways to mitigate the financial impact have been adopted?

Government in Croatia has implemented series of economic measures related to the COVID 19 to provide support to the economy. For example:

  1. All taxpayers whose businesses are suspended or distressed are completely or partially exempt from payment of public charges which are due during April, May and June 2020;
  2. Payment of VAT can be postponed until issued invoices are settled.
  3. For the preservation of employment employers are entitled to the aid from the Croatian Employment Agency in the amount of HRK 4,000 per employee (approximately EUR 520,00);
  4. More favourable interest rates for micro and small loans for rural development, interest rates are lowered from 0.5 – 1.0% to 0.1% – 0.25%.

Czech Republic

Country Introduction

The Czech real estate market has undergone significant changes in the years after the “Velvet Revolution” in 1989 (the downfall of the Communist Regime). New legislation, restitution, privatization, the emergence of the mortgage loans market, the arrival of development and real estate companies, and other factors that influenced its development came gradually until it reached today’s vibrant and relatively well-functioning market.

The American “mortgage loans” crisis that came about in 2007 caused a global financial crisis, and also impacted the Czech real estate market. It took a few years for a recovery, but since 2014 we have enjoyed near continuous growth, with many transactions and investments in the Czech Republic with great focus on the capital city – Prague. Prague is also a very interesting place to invest for many foreigners.

There has been a continuous rise in prices of flats in Prague. Today, the average price of a flat in Prague hit 100 000 CZK per m2 (4760 EUR per m2), which is a very high price for Czech citizens when compared to the average wage in the Czech Republic (34 835 CZK= 1659 EUR per month). Since 2013/2014, the price of the real estate in general has risen continuously – the prices of flats, houses, offices and commercial buildings, and also agricultural land.

The economic crisis and decline in economic performance caused by the COVID19 crisis will cause mortgage repayment problems. This can force them to sell their property. The volume of housing loans in the Czech Republic is currently CZK 1,336 billion (figure as of 31 January 2020). Source: Czech National Bank (CNB). The size of average household debt has more than doubled in the last 10 years. People are thus more vulnerable now than during the last crisis between 2009 and 2012.

The question now is whether the government and the CNB will prepare a rescue plan for people who find themselves in a difficult financial situation. Some measures have already been adopted – e.g. moratorium of 6 months for payment of loans was enacted for debtors (natural and legal persons).

In the short term, the real estate market shows the rigidity of supply and demand. People are waiting and it may take several months for the real estate market to take a new direction. Sellers are not willing to reduce property prices in the short term because they believe that life will get back to normal. Buyers are not willing to make purchasing decisions in the short term because they believe that prices will fall.

We assume that the situation will be similar to what it was during the last economic recession. People who want to sell or buy, and are not forced by circumstances to sell or buy will choose a waiting strategy in the first months. Therefore, the market is expected to slow down significantly, and we cannot expect any significant fluctuations in real estate prices in the following months.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in the Czech Republic?

The Czech Republic has adopted a new Act No. 210/2020 Coll. that guarantees protection of commercial lease agreements.

Under the act, until 31st December 2020, a landlord would not be entitled to give notice of termination to the tenant of a commercial premises due to non-payment of rent, if the tenant:

– is in arrears with the payment of rent for the period from 12 March 2020 until 30th June 2020

– is in default of payment of the rent, largely as a result of the restrictions resulting from the emergency measures in the event of an epidemic, which have prevented or substantially hindered the proper payment of the rent,

– the lessee must prove this without undue delay, and with certainty corresponding to the facts available.

The lessee must pay the rent due by 31st December 2020. It is not a waiver of the obligation to pay rent. The measure does not concern monthly payments for services/utilities.

The lessor may, in the situation where the lessee is unable to pay the rent due to the state of emergency during the epidemic (but no sooner than after the end of the state of emergency), require the lease contract to be cancelled if, as a result of a restriction, the lessor stands to suffer such a crisis that is not just for him/ her to suffer from lessee´s failure to pay rent.

Please note that the enactment of this Act has caused a controversial reaction in the public. The government is only deferring the burden of financial problems from the lessee to the lessor. Therefore, we recommend negotiating a change in commercial lease contracts amongst lessors and lessees.

Is it possible to cancel, suspend, or modify your Franchise Contracts conditions due to the COVID-19 crisis?

With respect of the Franchise contracts, franchisees may use the clause rebus sic stantibus– section 1765 of the Czech Civil code to defer payment of royalties to the franchisor during the COVID 19 crisis.

– If, after the conclusion of the contract, there have been significant changes in circumstances that could not reasonably have been anticipated previously, and the changes in circumstances created a particularly gross disproportion in the rights and obligations of the parties, you can claim to be a disadvantaged party and seek legal protection.

– Should the parties fail to agree on a contract amendment within a reasonable period of time, the court may, at the request of either party, decide to change or cancel the obligation.

– The law does not stipulate the conditions- basic legal principles shall be applied- equity, good manners, fair trade.

– Please note: Some of the contracts exclude the application of this clause.

This clause is still not commonly employed in Czech law (it is a new Civil Code legislation), and we don´t have relevant case law on this topic yet.

In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?

There are currently no official measures for real estate sale and purchase transactions. The parties may use the clause rebus sic stantibus, or demand an extension of the period for fulfilment of their contractual obligations using the Force Majeure concept in the Czech Law:

Hardship

Czech contract law is based on the general theorem of “pacta sunt servanda”. Any deviations and changes to the contract due to force majeure events need to be regarded as an exception, and therefore interpreted restrictively. Hardship is defined as ‘performance that is more difficult than expected’. However, the difficulty cannot be extreme, otherwise either clausula rebus sic stantibus, or subsequent impossibility of performance shall apply. According to § 1764 Civil Code, a hardship does not affect the duty to perform in accordance with the contract.

Contract breach and damages

In certain situations, a force majeure incident causes a contract to be performed with defects. It is a situation where the debtor’s performance is delayed or only partially possible. As stated in item (a) above, the existence of force majeure as a hardship does not change the duty to perform. However, according to § 2913 para 2 of the Civil Code, a debtor can be released from paying damages if the breach of the contract was caused by a force majeure event. This exemption from paying damages is expected to be invoked in various supply chain business relationships, unless the respective provision of the Civil Code was excluded from the contract.

What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?

Rental prices will fall this year. Tourism in the Czech Republic “is dead” for this year, and it has caused cancellations of short-term rentals via Booking.com, Airbnb.com, etc. The tourism industry employs 237,000 people, and accounts for 2.8% of GDP of the Czech Republic. Tourism will certainly suffer a severe blow.

Many landlords who make a living from short-term rentals to tourists have mortgages, and they cannot afford to have their flats vacant. They will likely offer their apartments for short term rentals (4 months) for a very low price in order to overcome the COVID 19, and hope that tourists will come back in the autumn 2020.

Many of them will try to abandon the short term lease platforms and try to lease their apartments for long term rentals. This fact will lead to an increase in the supply of rental housing, and a higher supply will cause a significant drop in rental housing prices.

We expect that the market of long-term rentals will increase by an additional 6000 to 10,000 apartments, which are currently rented to tourists. To a large extent, these are apartments in the center and the wider center of Prague. These apartments will enter the long-term rental market and will remain there for a year or two, depending on when tourism begins to recover.

What effects will the current situation have on ongoing construction projects and contracts?

Deepening pandemic measures are also beginning to affect the construction sector. Companies operating in construction have to deal with challenges in the form of delays or complete cessations of supplies of materials and protective equipment, the increasing shortage of manual workers from Eastern Europe, or the cancellation of trade fairs. All this during the beginning of the season.

Construction is a very flexible field, and perhaps this also makes it better able to cope with the limitations of quarantine. Nevertheless, as for the most high risk segments, the construction sector has been hit hard by the crisis before the main season. For some time, companies can still draw on stocks and negotiated projects, but if the measures last for a long time, it will significantly affect them as well.

 

Contracts for Work (Construction): Force majeure events can have special consequences in specifically regulated contract types. For e.g., a contract for a piece of work where, under the § 2620 subs. 2, if an extraordinary and unforeseeable circumstance occurs that makes the completion of the work difficult, the court can, in its discretion, decide on a fair increase in price of the work, or the cancellation of the contract on the settlement of the parties. This does not apply if one of the parties had assumed the risk of a change in circumstances, or if it is a circumstance that either of parties has previously stated will not occur.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

The Czech Law does not draw a distinction based on “public law” and “private law” contracts. The Civil courts are competent to deal with real estate disputes through either the District courts or the Regional courts, according to the sum of money involved.

The expected trial times can vary from 6 months for simple “non-payment” cases, to up to 5-8 years for complicated cases (e.g. defective performance in big construction contracts where expert opinions are needed, complicated legal cases etc.).

In real estate litigation cases, fast and effective resolution might be a big bonus – it can be achieved through Arbitration Proceedings in the Czech Republic. To use the arbitration proceedings, the parties must have agreed to an arbitration clause in the existing contract, or they can agree an ad-hoc arbitration clause for the relevant dispute. Ad-hoc arbitration clauses might be helpful in order to solve disputes arising out of the COVID 19 crisis.

Litigations and enforcement of debt during COVID19, and following “protective” period is governed by a special bill of law, already in force – LEX COVID:

  • Suspension of executions where nothing has been recovered in the last 3 years,
  • Forgiveness of missed court deadlines due to the extraordinary measures, applies to deadlines according to civil court proceedings, criminal proceedings, execution, insolvency and administrative justice
  • Special measures in relation to the debtor’s obligation to file an insolvency petition
  • The debtor is not obliged to file an insolvency petition for the period starting from the date of this Act coming into force until 6 months after the termination or cancellation of the state of emergency caused by the epidemic. This shall not apply if the insolvency proceedings were initiated before the adoption of the emergency measure. This measure can be applied for only until 31 December 2020.
  • Special measures in relation to insolvency petitions by creditors – The insolvency petition filed by the creditor between the date of this Act coming into force and 31 August 2020 shall not be taken into account.
  • Other proposed changes concern debt instalments of bankrupted natural persons and reorganizations.
  • Debtors can apply for extraordinary moratorium due to COVID 19 in the insolvency
What financial assistance packages or ways to mitigate the financial impact have been adopted?

In the Czech Republic, we have the following measures to mitigate the financial impact of the COVID 19 crisis:

  • Antivirus plan- government adopted measures for businesses. Compensation under two regimes (regimes A and B) provide wage contributions to the employer -up to 60% or 80% of wage compensation paid, including social and health insurance; the limit per one employee is 39 000 CZK, according to type of restriction on work,
  • Interest free loans to entrepreneurs may be granted by commercial banks, the state guarantees the repayment of the loans,
  • Liberal tax packages:

– Taxpayers don´t have to file tax returns by 1st April 2020. They can choose to file them within the extended period until 1st June 2020,

– Removal of sanctions for delayed tax return for applications filed until 31st July 2020.

– Removal of sanctions for delayed filings of control statement for VAT (however, there are no vacations for payment of VAT)

– Removal of June payments of tax advances (but you still have to pay the taxes at the end of tax period),

– Removal of sanctions for delayed tax return for the transfer of real property tax, it can be filed no later than on 31. 8. 2020.

  • Moratorium for payment of any loans, concluded before 26th March 2020 for natural and legal persons

Dominican Republic

Country Introduction

The Dominican Republic is the second largest country in the Caribbean by area with 48,671 square kilometers and the third largest country of the Caribbean by population with an estimated 10.5 million people. The official language is Spanish, although English is widely spoken. The country GDP is 85.56 billion USD which makes it the largest and fastest economy in the Caribbean and fastest growing economy in Latin America.

The Dominican Republic is a country with 900 miles of ocean and the highest peak in the Caribbean (10,164 ft high), with good weather all year long -multiple climate zones-, very accessible with direct flights to/from Europe, the United States, Canada and Latin America, and a friendly environment. Foreigners and Dominicans have equal rights for buying any assets including property. There are tax incentives for tourism, mortgage market development and trusts, free trade zones for corporations and retirees’ benefits.

The Dominican Republic property market has been growing in the last decade. It represents one of the five sectors with the greatest participation in the economic growth of the country, representing 9.3% of the economy. There has been a robust tourism growth with an average annual growth of 5% in tourist arrivals since 2012. In 2019, 38.7 million non-resident foreigners visited the Dominican Republic. Even during the financial crisis of 2008-2009, the DR’s tourism sector remained stable thanks to its robust tourism and resilient housing market.

As the rest of the world, Covid-19 has had a negative impact in the real estate sector and in tourism in 2020.  Most hotels closed during the estate of emergency which latest months, equaling 80,000 rooms approximately. The Dominican Republic has over 800 hotels, of which over 90% closed during the Covid-19 pandemic. On a positive side, the pandemic has reshaped people’s vision on housing, which has led to increased leasing in certain areas and real estate closings, especially in properties with green areas and open spaces.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in the Dominican Republic?

As of May 2020, there has not been any interim measures regarding Commercial Lease Agreements in the Dominican Republic.

The Dominican Republic declared the state of emergency on March 19, 2020 to prevent the spread of Covid-19. The state of emergency is currently extended until June 1, 2020.

Is it possible to cancel, suspend or modify the Lease Agreements conditions due to the COVID-19 crisis?

The Dominican law requires mutual agreement or a court ruling for a contract to be terminated, suspended, or modified.

In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?

Many sales and purchase transactions were suspended by the declaration of a state of emergency on March 19, 2020 due to Covid-19. However, we expect that most transactions will close after the estate of emergency ceases and the businesses and governmental institutions re-open.

We have not seen a significant decrease in property pricing as a result of the economic restrictions of the pandemic. We have seen an increase in real estate leasing in tourist areas and a shift of the clientele from international clients to Dominican residents. The sale of properties under construction have continued although resales have decreased. Most renovations have been suspended.

The analysis of real estate transactions during the pandemic vary according to the terms and conditions of the purchase and its penalties.

What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?

Hotels and holiday homes in the Dominican Republic have considered Covid-10 pandemic as a cause of force majeure and have exempted their guests from cancellation charges, specially due to the country’s closure of borders -land, sea and air-, except for airplanes to allow the entrance of nationals and departure of foreign citizens, cargo and fuel ships.

What effects does the current situation have on ongoing construction projects and contracts?

The construction sector represents approximately 10% of the country’s Gross Domestic Product (GDP), it has been affected by the pandemic along with several subsectors that depends from it, such as hardware stores and suppliers.

The main impact in the construction sector has been the fluctuation of the U.S. Dollar. The conversion rate of Dominican Pesos (DOP) was 53 DOP per U.S. Dollar (USD) in March 2020, and as of May 26, 2020 is 56 DOP per USD.

Constructions were suspended from mid-March until the end of May 2020. The labor contracts for most (informal) constructions workers were suspended due to the restrictions imposed by the government, including the suspension of the construction works.

In the case of the public sector, the Ministry of Public Works and Communications (MOPC) and the Supervising Engineers Office of State (OISOE) will be able to carry out the necessary processes of purchasing and contracting exclusively those goods and services necessary for the completion, adaptation and equipping health centers, by virtue of decree 133-20 declaring some purchases and contracts emergency, which includes the construction of public health infrastructure.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

The Dominican Republic declared the state of emergency on March 19, 2020 and since then the courts have been closed and the deadlines are suspended.   The only hearings taking place, via conference are the continuous criminal service courts, those related to minors, urgent civil right lawsuits, and habeas corpus.

On May 19, 2020, the Judiciary Council approved a plan to continue the works of the judiciary in phases. The initial phase will start on June 1st, 2020 and will include urgent claims and the rescheduling of the court hearings canceled due to the state of emergency. The date for the next phase has not been determined yet and it will depend on the sanitary and epidemiological conditions of the country. In this phase, the courts may have virtual hearings except for the peace courts.

What financial assistance packages or ways to mitigate the financial impact have been adopted?

Financial intermediation entities in the Dominican Republic have provided certain measures to mitigate the impact on their clients, to include the elimination of charges and/or commissions in specific bank services including credit cards and the extension of the terms to make payments of loans and mortgages.

France

Country introduction

In 2019, the volumes invested on the French commercial real estate market reached a record € 39.2 billion. This performance represents a 23% increase over one year and is 29% above the 5-year average and 66% above the ten-year average.

This result is linked in particular to the exceptional dynamism of transactions above 300 million euros, which reached a record total amount of 13.9 billion euros, or 54% more than in 2018. With 27.3 billion euros (+16 in one year), the offices remain clearly in the majority (70% of the amounts invested). Foreign investors account for 35% of investments made in France in 2019, with the fact that there is a strong presence of US and Asian investors, mainly Korean, who accounted for 8% of commitments.

Following the strikes of December 2019, the health crisis linked to covid-19 has reinforced the adoption of telework to the detriment of traditional office spaces. The health crisis caused a sudden halt in activity in the Ile-de-France office market. Added to the drop in demand placed in the first quarter of 2020, this cessation of activity will result in a fall in volumes of premises rented.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in France?

First, Ordinance No. 2020-316 protects, under restrictive conditions (reserved for certain small businesses), lessees of commercial premises who have not paid their rents or charges between March 12 and September 11 July 2020 against financial penalties, default interest, damages, termination clause or other activation of the guarantee / deposit.

Second, Ordinances of March 25 (no. 306) and of April 15, 2020 (no. 427) purposes is to freeze the effects of clauses which would penalize too heavily or definitively non-compliance with certain contractual obligations during the Covid crisis19.

Ordinance 2020/306 created a “legally protected period” (or “periode juridiquement protégée”, aka PJP) which runs from March 12, 2020 to midnight June 23, 2020.

These Ordinances provide that penalty clauses which had already started to take effect before March 12 are suspended during the PJP and resume their effects at the end of it.

They also provide that the penalty, termination or forfeiture clauses, when their object is to penalize the non-performance of an obligation within a specified period, are deemed not to have taken effect, if this period expires during the PJP. However, these ordinances in no way suspend the obligations which must therefore always be performed during the PJP. In addition, default interest, at the legal or contractual rate, still runs in the event of non-payment of rents. In addition, only obligations that must be performed on a due date during the PJP (firm date or expiration of a deadline) are covered by the suspension of the implementation of the above-mentioned clauses. Conversely, the obligations whose compliance must be constant (eg the destination of the premises) could give rise to resolution during the PJP.

For obligations (e.g. payment, works) due during the PJP, the deadline for compliance with the lease will run from June 24, 2020 and will be equal to the time between March 12, 2020, if the obligation arose before this date (or a later date, if the obligation arose during the PJP) and the date on which it should have been performed during the PJP.

Under Ordinance 2020/427, the period of performance of the obligations which must be carried out within a specified period expiring after the PJP (June 24, 2020 or after) is postponed for a period equal to the time elapsed between the 12 March 2020, if the duty was born before this date (or a later date, if the duty was born during the PJP) and the end date of the PJP. However, all payment obligations (e.g. rent and charge) are excluded from this postponement.

Ordinance 2020/306 also allows the party who could not have terminated a contract before a deadline or oppose its tacit renewal within a specified period, if this period were to expire during the PJP, to benefit from an additional term which is two months after the end of it, that is to say until August 24, 2020.

Is it possible to cancel, suspend or modify the Lease Agreements conditions due to the COVID-19 crisis?

Regardless of the provisions applicable during the legally protected period (see § 1), the landlord and the tenant must respect the terms and conditions of the lease agreement, unless they can invoke one of the following right.

First, it is tempting for a tenant to invoke force majeure to suspend the payment of their rent. Subject to a contractual definition, the event invoked as force majeure must be beyond the control of the party invoking it and must be (reasonably) unpredictable on the day of conclusion of the contract. It must also be irresistible and, as such, directly and genuinely prevents the performance of the obligation. French law adds that the event must have effects that cannot be avoided by appropriate measures.

Furthermore, with regard to the payment of the rent itself, the Court of Cassation held that the debtor of a contractual obligation of paying a sum of money cannot be relieved of this obligation by invoking a case of force majeure. Therefore, even if the tenant has suffered the immediate aftermath of the Covid 19 crisis and has no cash, he will not be able to invoke this crisis, as force majeure, to suspend the payment of his rent.

Second, tenant could rather seek through the Covid19 crisis a default by his own landlord, authorizing him, in turn, not to pay his rent. He could then invoke an exception for non-performance which must be temporary and proportionate to the non-performance of the other party. However, it must characterize the failure of the landlord with regard to its essential obligations which are on the one hand the obligation to deliver the premises and on the other hand the guarantee of the peaceful enjoyment of the latter. It must be noted, however, that the closure of shops or the prohibition to accommodate the public ordered by public authorities does not constitute a violation of either the obligation to deliver or to the guarantee of peaceful enjoyment.

On the one hand, the obligation to deliver is not an absolute obligation; it means the delivery of premises which must, materially, allow the exercise of the activity for which the rental is intended. In this case the premises are still present and in good condition. The obligation of delivery relates more to maintenance defects or an inadequacy of the premises rented for the activity envisaged contractually. On the other hand, with regard to the guarantee of peaceful enjoyment, case law traditionally retains that the landlord guarantees the tenant only against his personal act and not against the acts of third parties such as neighbors or demonstrators. In other words, a decision to close made by a public authority could only authorize a tenant to suspend the payment of their rents if this decision is based on a default by the landlord.

Third, the unforeseeability allows, under certain conditions, one of the parties to request from the other party and then to ask the judge, the readjustment of the contract in the event of financial imbalance.

However, the legal conditions for establishing this unforeseen event are strict: on the one hand, there must be an unforeseeable change in circumstances, on the other hand, this change must make the performance of the contract excessively onerous for one of the parties and finally this party must not have agreed to assume such a financial risk.

It is in the interest of one of the parties to invoke unforeseen circumstances to be able to place themselves within a legal process providing for three stages. First, one of the parties may request the renegotiation of the contract from the other party (however, the party must continue to perform the contract during the renegotiation phase). Then if the renegotiation fails to rebalance the contract, the parties can agree to the amicable resolution of the lease. Finally, in the absence of agreement, each party may refer the matter to the judge in order to ask him either to revise the contract or to terminate it.

It is very likely that for many operators of commercial premises, the lockdown and more generally the Covid19 crisis constitute an unpredictable change making the performance of the lease excessively expensive, since the lessee would have to pay the rents without being able to exploit his shop. Though the path is narrow, invoking unforeseeability should force both parties to come together to understand their respective problems and constraints.

What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes in France?

Ordinance No. 2020-315 of March 25, 2020 relates to the financial conditions for the resolution (cancellation) of certain tourist travel and stay contracts in the context of Coviod19. It applies to contracts whose resolution (cancellation) is notified by the consumer or the professional between March 1, 2020 and September 15, 2020 inclusive. The contracts concerned are:

  • Package travel (e.g. flight booking + accommodation)
  • Contracts relating to travel services, sold by professionals producing them themselves.
  • Contracts relating to hosting services.

The professional concerned must:

  • offer an immediate refund of the full price paid for the canceled service or, within 30 days of cancellation, send by email or paper mail a purchase voucher valid for 18 months from its issue, corresponding to the amount paid initially. Client can use this voucher in whole or in part to buy one or more services offered by the same agency. The balance of the purchase voucher will be refunded at the end of its validity period.
  • and, within 3 months of the cancellation, make a new proposal for a service identical or equivalent to the first without additional cost whose date is fixed by mutual agreement. This new offer remains valid for 18 months and client can refuse it.

Outside this scope, holidays homes rentals concluded directly with the owner are subject to provisions of the contract and those of the civil code. Cancellation indemnity policy and refund will depend on the terms and conditions of the contract.

What effects does the Covid19 emergency have on ongoing construction projects and contracts in France?

As regards Public works contracts

First, If, as a result of the measures taken in the context of a state of health emergency, the services subject to the public contract have been suspended by the public contracting party, the company may claim for compensation for site maintenance costs and damage caused by a suspension and compensation for damage suffered during the period of suspension of the site.

Second, to take into account the costs and constraints induced by the sanitary crisis, the private party can invoke article L. 2194-1 of the Public Order Code which provides for the parties to a public contract to modify the initial contract during performance, without new competitive bidding procedure, when “modifications are made necessary by unforeseen circumstances “. (see also the EU public procurement Directive, 2014/24 / EU of February 26, 2014).

Third, the enterprise may also submit a claim for indemnification based on “act of god”: Any measure of the client linked to the coronavirus, which modifies the conditions of performance of the contract, or the contract itself, may give rise to complaints.

As regard Private works contracts

Contracting party my either refer to the NF P.03-001 standard, equivalent to CCAG for private works contracts, which provides for (i) compensation for guard costs and damages during the suspension of the work and (ii) renegotiation of the contract justified by the existence of unforeseeable circumstances .

Should the contract not subject to the said standard, parties will have to analyze their contract (mainly the so called “CCAP”) to determine whether it contains clauses similar to those of the NFP 03-001 standard cited above. Otherwise, the company can avail itself of the revision for unforeseen event rule provided by law (art. 1195).

Which courts have jurisdiction, what are the expected trial times and what are the costs?

For matters relating to public works contracts, administrative court will have jurisdiction over these claims, while for matters relating to private contracts, Judicial Court and commercial court may be seized by parties. It is expected a congestion of all courts in the next few months (following a period of strike end of 2019); therefore alternative dispute resolution schemes should be a real efficient option.

Germany

Country Introduction

In Germany, the real estate market is since the real estate and housing crisis in 2007/2008 continuously on a very strong growth. Even the crisis did just dip the market for a few months for commercial real estate and has recovered quickly afterwards.

 

Germany is for many investors a fast growing and secure market. This is mainly due to a steady favourable political climate, a strong industry and businesses within the European Union and a growing immigration of high-qualified people. The latter for example was the decisive advantage, why Google, Apple and Microsoft moved their European headquarters or new offices to Munich also with consideration of a perfect infrastructure to the US.

This positive development was put on hold due to the COVID 19 crisis. Besides the effects investors and landlords feel on the European level, also the inner-German market is negatively affected. The German government and the federal states have put a wide range of measurements in place to flatten the economic impact of the crisis. Those legislative actions have worked well so far, helping many industry and business sectors, including the real estate market.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in Germany?

In Germany, the courts have been considering a solution that balances the parties’ interests, on the one hand reducing the fixed costs of companies in regards to their rent, on the other hand not burdening all the risks on the landlords or the public purse.

Regarding commercial and residential lease agreements, the new law regarding the COVID 19 crisis mainly shields the tenant from termination of the lease agreement due to non-payment of rent due to the pandemic. This was necessary, because in general the landlord can terminate a lease agreement if the tenant is in default with more than two months’ rent. Now, the tenant can withhold the rents of April, May and June 2020 until 30 June 2022 without risking that the landlord terminates the lease due to this reason, provided the tenant can – in case of a lawsuit – prove that his non-payment is due to the pandemic. The law is now only considering rents from April to June 2020, but, if the crisis continues, may be extended until September 2020.

Is it possible to cancel, suspend or modify the Lease Agreements conditions due to the COVID-19 crisis?

There are no further changes to German tenancy law exceeding the aforementioned termination cancellation. According to the explanatory memorandum to the new law, the obligation to pay rent itself remains unchanged and the rent becomes due. The government therefore also simultaneously rejected any change to the stipulated terms of the lease as for example based on “force majeure”. The legal consequence of non-payment of rent is therefore only a temporary suspension of the landlord’s right to terminate the lease. As the rent is still due, if the rent is not paid, the landlord could also claim interests on arrears for this period and related legal fees.

In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?

In daily life, many clients’ and law firms’ offices are either closed or only occupied in half. Most of the business is handled by working from home. Yet, if necessary, one may work from the office. This goes concretely for lawyers, as they are considered as part of the “essential workforce” that ensures maintaining the essential infrastructure (they are considered “system relevant”).

As before and now even more, we hold client’s meeting as video chats. The biggest challenge was how to handle signings for real estate or share purchase agreements as the law requires personal presence of the parties or their representatives in front of the notary while the notary reads the whole contract out loud. The notaries therefore provide different solutions: Either they undertake the signing in their offices, reducing the risk exposure by establishing shift schedules and wearing face masks. Or the signing is held at a law firm’s office – or even in the building of the object of purchase, maintaining the mandatory distance between all persons. All in all, we experience quite the usual business, in an admittedly unusual situation.

What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?

Cancellations occur from hosts or guests due to the travel restrictions and the official travel warning issued by the German state as well as the closure of the border. Furthermore, touristic travels have been prohibited and are allowed again only as of 30 May 2020 in Germany.

For vacations booked through a tour operator, section 651h of the German Civil Code applies. It allows the guest to cancel and can claim his payments back. Most travel insurances are declining to step in exactly due to this reason.

For individually booked travels, cancellation is not so easy, except where the contract provides for respective cancellation rights (as often when booked online, directly or through portals). If due to curfews or other restrictions the provider of the accommodation cannot provide the services, the provider will cancel the booking and provide for refund. The most pragmatic approach is to communicate.

This of course only applies for contracts under German law.

What effects does the current situation have on ongoing construction projects and contracts?

Our clients’ mostly experience delays in construction projects due to the pandemic. However, clients should watch out to free riders which try to cover up delays occurred, using the pandemic as an excuse.

Concerning construction contracts, they mostly already have a “force majeure” provision included. This typically leads to a prolongation of the construction timeline with no negative effects for the contractor. Moreover, the laws on construction contracts already includes a “force majeure” with the effect of a prolongation of the timeline. Yet, this regulation is not applicable in any contract and has to be reviewed case-by-case.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

Litigation concerning leases or construction contracts are held in front of the civil courts. If the lease or construction contract lacks a valid choice of court / arbitration, the courts where the premises / construction site is located generally have jurisdiction.

The average duration of proceedings related to simple lease cases is between 3 and 6 months. For construction litigation, we mostly experience a longer duration due to the consultation of experts for evidence purposes.

The costs vary as they depend on the scope and the amount in dispute.

What financial assistance packages or ways to mitigate the financial impact have been adopted?

On the German federal and state level, huge rescue packages have been introduced and have already been paid out to the applicants. Furthermore, the European Union tries to mitigate the impacts with credits. In Germany, the most prominent state aid is the take-over of 10 percent of the airline Lufthansa for around 300 million euros through the German state.

Moreover, loans of consumers affected by the pandemic are subject to a “moratorium”. Finally, consumers and small businesses may also defer other payment liabilities (except rents and salaries).

Apart from state aids, we also experience some landlords negotiating with their tenants to reach a balanced solution for the rents. Some even on their own abated the rents in the time of the pandemic.

Italy

Short Country Introduction

In Italy most of the economic activities are carried out in non-owned properties. For this reason, the debate about the impact of COVID -19 in the real estate sector has mainly focused on the fate of Commercial Lease Agreements.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in your jurisdiction?

The Italian Legislator has adopted a general measure applicable to all obligations.

According to Article 3, paragraph 6-bis, of Decree Law no. 6/2020, complying with the measures adopted to contain the epidemic is always valued in order to exclude the debtor’s liability, pursuant to and for the purposes of Articles 1218 and 1223 of the Civil Code, or the application of any forfeiture or penalties connected with delayed or omitted execution of the contract.

In addition, the Legislator has adopted certain provisions for transport and tourism contracts to be executed during the lockdown (including rentals of tourist apartments, hotels or holiday homes), allowing the creditor to withdraw from the contract and obtain a refund or a voucher to be used within one year.

No general measures have been taken with regard to commercial lease agreements, with the exception of certain fiscal measures of general application and certain provisions for the rental of gyms, swimming pools and sports facilities owned by private individuals.

Is it possible to cancel, suspend or modify the Lease Agreements conditions due to the COVID-19 crisis?

In order to answer this question, two phases must be considered.

The first phase, in which the economic activity of the Tenant was prohibited by the State in order to contain the epidemic. The second phase, in which the State bans ceased and the Tenant returned to business.

In the first phase, the Tenant had to pay the rent for a property that was in fact useless (safe as a warehouse and in view of business restart).

In this situation, interpreters and the first rulings tend to admit that, pursuant to articles 1256 and 1464 of Italian Civil Code, the Tenant may apply to the Court to ask for a reduction in the rent, given the impossibility of the Landlord’s performance, that is both temporary (because limited to the duration of the State prohibition) and partial(because the Tenant enjoyed the property anyway, although for few purposes). In application of these principles, on May 29, 2020, the Court of Rome ruled that the Tenant was entitled to a 70% reduction in the rent.

A similar solution is provided by Article 216 of Decree-Law No 34/2020, according to which the suspension of sporting activities, due to the Covid – 19 emergency, is always considered, in accordance with Articles 1256, 1464, 1467 and 1468 of the Civil Code, as a factor determining an imbalance in the interest of the parties in the lease of gyms, swimming pools and sports facilities owned by private individuals. As a result of this imbalance, the Tenant is entitled, solely from March 2020 to July 2020, to a corresponding 50 per cent reduction in the rent, unless proof of a different amount is provided by the party involved.

In the second phase, the Tenant has restarted his business, but he is struggling to pay the rent, because of the drop in revenues caused by the general economic crisis started by the Covid – 19 and compliance with the containment measures.

In this case, the prevailing opinion is that there is no general rule which entitles the Tenant to obtain a reduction in the rent.

As a matter of fact, the Tenant’s financial difficulties do not give him the right either to reduce the rent or to terminate the contract, but there are exceptions.

One exception is given, in the case of a business rental, by article 1623 of Italian Civil Code, according to which the Tenant has the right to a reduction in the rent, or to the termination of the contract, provided that, as a result of a statutory provision or a measure of the authority concerning production management, the relationship is significantly altered so that the parties of the contract suffer a loss and an advantage, respectively.

Another exception is offered by art. 27, paragraph 8, law no. 392 of 1978, which, in the presence of serious reasons, allows the Tenant to withdraw from the contract with 6 months’ notice. The Italian case law defines “serious reason“: “facts beyond the control of the Tenant, unavoidable and occurred subsequently to the execution of the contract, such as to make the continuation of the contractual relationship burdensome, and may consist, for commercial leases, also in the (negative) trend of the economic conjuncture occurred and objectively unpredictable “(Italian Supreme Court, decisions n. 8706/2015, No. 1206/2015, No. 26892/2014). According to this interpretation, it will be reasonably easy for the Tenant to invoke the negative economic situation caused by Covid -19 in order to terminate the contract.

However, the solution leading to the termination of the contract is considered unsatisfactory, as the parties should aim to maintain the contract, albeit under different economic conditions.

For this reason, in Italy the discussion has focused on whether or not there is an obligation for the parties to renew in good faith the terms of the contract, and, in the event the negotiation fails, a right to apply to the Court in order to reconduct the contract to fairness conditions.

Some argue that the State should adopt a general measure in order to avoid case-by-case interpretations.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

Where the Tenant fails to pay the rent, the Landlord is entitled to obtain a judicial eviction from the Tribunale (Court of first instance) in a relatively short period. The eviction is not granted in case the Tenant objects on grounds of written evidence or there are serious reasons against granting the eviction.

The first cases triggered by the Covid – 19 emergency concerned requests by some Tenants that the Court prohibit the enforcement of guarantees issued by banks for the payment of rents.

Both procedures represent an initial test case providing the first guidelines for the legal issues raised by Covid -19 emergency.

What financial assistance packages or ways to mitigate the financial impact have been adopted?

In order to contain the negative effects deriving from the prevention and containment measures related to COVID-19 emergency, entities carrying out business activities are granted, for the year 2020, a tax credit in the amount of 60 per cent of the amount of the rent, relating to the month of March 2020 (Article 65 of Decree-Law No 18/2020).

For the same reasons, entities carrying out business activities, art or profession, whose income or remuneration does not exceed 5 million euro, are entitled to a tax credit of 60 per cent of the monthly amount of the rent for commercial lease, leasing or rental of property for non-residential use for industrial, commercial, craft, agricultural, tourist activities or for professional purposes (Article 28 of Decree-Law No 34/2020).

Latvia

Country Introduction

Up till beginning of June 2020 total number of people infected by COVID 19 in Latvia has been 1088. Total number of deaths was 25 (or 13 per 1 000 000 of the population), which is considered as a relatively low number in the EU. On 13th of March 2020 state of emergency  was declared by the government of Latvia, prolonged once per month it has been kept effective till the 9th of June 2020 to reinforce government reaction pace on fighting the pandemic. Subsequently, in the light of the number of people affected by COVID 19, the limitations imposed on legislative level were lighter comparing to other EU countries that have suffered the most. Nevertheless, economy was still affected due to both local and international trade limitations. As a consequence the expected decrease of GDP for Latvia varies between 7-10% for the year 2020, with the recovery expected to happen in 2021.

In respect to investment into real estate – Latvia has at all times been attractive destination due to it’s nature suitable for farming and greenfield projects in different business areas, as well as because of variety in the offered industrial and office spaces.

As many countries worldwide, in year 2010 Latvia launched a real estate acquirer visa program for foreigners thus increasing investment significantly; however mainly in the residential area. In year 2014 the immigration program in this respect was changed by significant increase of real estate value threshold for obtaining a residence permit and introducing other additional conditions and costs (from the real estate value of EUR 100,000 with which the program was introduced, increased up to the minimum transaction value of EUR 250,000 and additional payment of a state budget contribution worth 5% of the real estate transaction value). These changes significantly slowed down the investment flow and in couple of years, although the prices of real estate became more affordable to local people, the investment at value above the threshold established by immigration laws ceased thus also slowing down overall investment in this field.

Since the previous worldwide financial crisis in 2008-2011 when real estate market of Latvia collapsed with tremendous consequences for all parties involved, the market up till now has recovered and steadily grown thus becoming stable and reliable investment field. If previous collapse of the market was due to bubble burst, today due to COVID 19 the major hindrance is due to staff reductions which affect individuals, and resistance of banks to issue loans as circumstances at the hand are qualified as unpredictable.

In general, as for a commercial and retail real estate, Latvia is providing more competitive yields for the investors (6-8%) on purchasing the ready made business comparing to Western European countries, with the strong demand and competitive vacancy rates expected to increase due to COVID 19 by about 10-15%.

In its turn residential real estate sector is driven by the private banks and loan availability. Several regulations in respect to the real estate financing for the banks were implemented during the real estate market crisis in 2008-2011, including requirement for certain level of down payment, more strict valuation of the debtor’s income and strict general KYC. Thus since 2008 the total amount of loans issued to the residential sector has decreased by 40% and currently there is no efficient government support system for the residential property buyers (guaranty of the down payment at the amount 10-20% while crediting the purchase of the property worth up to EUR200,000 for the families with kids does not meet needs of most of the consumers), so the demand for the new housing is growing at the rate below average levels met in Europe.

Moreover, due to the lack of legislative support (poor rental conditions for the lessor, historically excessive legislative guaranties for the lessees, and long legal proceedings in case of the disputes), new rental apartments are also currently not being developed at the reasonable amount.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in Latvia?

In general there are no emergency or interim measures implemented on legislation level. COVID 19 circumstances are not deemed force majeure thus the parties to lease agreements have to fully comply with undertaken liabilities.

However on 3rd of April 2020 due to strong public discussions in this respect a regulatory protective instrument was though introduced – State and municipal authorities and State owned entities performing as lessors of real estate based on application of lessee must apply release on lease payments or decrease them, as well as not apply penalties for delayed payments, provided however that the lessee corresponds to the statutory criteria. The statutory support can be applied with retroactive effect (as of 12th March 2020); however not longer than until the special laws in respect to COVID 19 circumstances remain in effect. Thus lessees in most affected sectors such as restaurants (for inner and outer space), hotels etc. received certain support.

Several industries, affected most and which stopped almost for 100% (e.g. airports and sea ports serving international passengers) received larger support from the State, but these cases shall be deemed exclusions from the general rule.

Whereas private sector lessors are not always following this practice, and agreement on rent discounts has to be agreed ad hoc. But the suffering industries can obtain indirect support from the State – compensation of idleness for the employees up to EUR 700 per month for one person.

Is it possible to cancel, suspend or modify the Lease Agreements conditions due to the COVID-19 crisis?

Due to the relatively low numbers of COVID 19 infection cases, no general regulation has been implemented on the legislative level to consider COVID 19 as a general force majeure.

An exception has been though airport and airlines business as those are State owned thus received State aid (including the national air carrier AirBaltic).

Accordingly apart from few special regulations and solutions implemented for the rest all liabilities resulting from such agreements remain in full effect and are subject to fulfilment, unless the parties to the agreement agree otherwise.

In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?

There are no special regulations on general trade agreements implemented. However, several measures were imposed, including the restriction to file insolvency for the counterparty in case of the delayed payments and restrictions to start legal proceedings against private consumers in case of delayed payments. These restrictions where supported by most of the creditors by offering special support programs (postponement for the payment of the principal amounts) as their marketing practice during COVID 19.

On the international trade agreements there where no local measures introduced; however contractual parties can use COVID 19 as a de facto excuse for nonfulfillment, if there are any international restrictions (e.g. restriction on transportation of the goods) or local restrictions on certain activity (e.g. close of the production leading to a delay of the dispatch), which in essence could be deemed as force majeure conditions and therefore lead to justified non-fulfilment of contractual liabilities.

What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?

There was no official ban on hotel or hospitality activity implemented in Latvia. However, most of the hotels have experienced temporary close down due to the fact that tourist flow had almost stopped. The situation was the same with the short term apartment rentals via platforms like Airbnb.

The agreements between the hotels and other tourism apartment providers and their customers where regulated under the booking conditions (either it can be cancelled or not), also taking into consideration the platforms bookings were made on. Intermediaries like Booking.com strongly recommended to repay the reservations to the customers not able to travel, and these recommendations were mostly followed for marketing reasons.

Until 5th of June 2020 no special regulation was in place to solve the COVID 19 impact on the tourism sector. Today the government of Latvia finally has come up with supportive rules also here.  The new regulation provides for that in cases where a traveller has a contract for complex of tourism services and if either of the parties has terminated this contract due to  COVID 19, the tourism services provider (provided it has effective license and security of statutory amount) is entitled to issue a voucher to the traveller instead of paying back the received money, the voucher subject to use for purchase of new trips. It shall be though taken into account that there are special terms which shall be complied with when issuing the voucher. Whereas if the traveller refuses to accept the voucher the parties have to agree on repayment of the already paid amount for the cancelled trip provided it is paid back to the traveller within 12 months as of the moment the emergency state in Latvia is cancelled.

What effects does the current situation have on ongoing construction projects and contracts?

There was no government regulation to consider COVID 19 as the general force majeure in construction, either in private or public sector due to the relatively low number of the people infected. However, likewise as in general in Latvia, there were certain restrictions and security measures implemented on the construction sites, including maximum number of people in one room, use of the individual protective equipment, such as medical facemasks, distance of minimum 2 meters between the employees during performance of the work.

Same as in majority of other business areas, there are no statutory supportive measures introduced (including regarding contracts postponed), so the counterparties have to reach mutual agreement on how to proceed in COVID 19 circumstances and whether those can be considered as a force majeure and can serve as an excuse for postponement or nonfulfillment of contractual liabilities or not.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

Real estate disputes are within the jurisdiction of general courts of Latvia. There are three court instances: (i) courts of first instance – the district/ city courts or regional courts; (ii) courts of appeal – regional courts and in certain cases the Supreme Court; and (iii) cassation instance – the Supreme Court. In case the parties to a lease agreement have agreed to resolution of disputes by means of arbitration, the dispute settlement would be within jurisdiction of this type of court.

At the moment introduction of special courts resolving certain economic disputes and for instance implementing simplified dispute resolution in cases of private lease disputes, is still at stage of planning and negotiations in the government.

Thus for the time being the average length of court proceedings in civil disputes is 12-18 months, depending on the value of claim, possibilities to collect from the debtor and other aspects. The disputes resolved by arbitration may be shorter in term. Since certain time courts of Latvia resolve cases also via online court sessions, which hopefully at certain moment will facilitate and shorten length of dispute resolution.

What financial assistance packages or ways to mitigate the financial impact have been adopted?

General financial assistance packages established by the government of Latvia in order to support businesses affected by COVID 19 include inter alia the following:

  • Taxpayers are permitted to apply for postponement of current tax payments for the period up to 3 years without the late payment penalty (1,5% per month in general tax regime);
  • The municipalities can postpone real estate tax payment terms; however just within frame of year 2020;
  • The State Revenue Service (tax authority) repays to taxpayers the accrued input value added tax within 30 days as of the moment the tax payer corresponds to statutory criteria and has fulfilled set requirements;
  • Compensation of the employees salaries due to idleness caused by COVID 19 the taxpayer faces up to EUR 700 per person per month;
  • Possibility to obtain loan guaranties from state owned credit organization Altum to receive bank payment holidays on the principal amount up to EUR5 000 000; however not exceeding 25% of the total turnover of the tax payer in 2019.

More assistance packages for general business are expected in coordination with EU institutions. There were also several exceptional assistance packages for the state owned companies otherwise prohibited by EU legislation (e.g. state owned airline AirBaltic).

Netherlands

Country Introduction

In the last few years, following the financial crisis that began in 2007-2008, the Dutch real estate market has benefited considerably from continued economic growth, the availability of (international) capital and low interest rates. Due to low interest rates and high returns (when compared to other investment types) investors are keen to invest in real estate. Rental homes have grown into the largest investment type.

The coronavirus has taken its toll on the Dutch real estate market. As a result, the number of real estate transactions has decreased and most negotiations have been put on hold. The volume of transactions and investments are declining. Experts expect that if this situation persists, it may lead to decreases in value. Value, at least for the most vulnerable sectors, is directly related to (expected) rental income.

For retail, value was already under pressure as of last year. For offices and industrial space, this effect will come a little later and will depend on the actual impact on the economy.

House prices rose by 7.3 percent in April 2020. In addition, more transactions took place compared to twelve months previously. But if consumer confidence declines, the sale of homes decrease and prices of (owner-occupied) homes rise less quickly, this will affect the value of rental homes. Even if there are shortages.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in the Netherlands?

In the context of the Corona crisis, the Minister of Environment and Housing discussed with the landlord organizations, which together rent out 80% of the homes in the Netherlands, how landlords should deal with this situation. The landlord organizations have agreed to temporarily not evict tenants from their homes. In addition, emergency legislation has come into force that makes it possible to extend temporary leases.

Many landlords of business premises are confronted with non-paying tenants or tenants who want to postpone or moderate payment. The government has not yet drawn up any rules on this subject. It is up to the parties if they are willing to make an arrangement. In the negotiations, the parties will have to respect reasonableness and fairness. On the grounds of reasonableness and fairness, the parties are obliged – even if they are confronted with unforeseen circumstances that significantly increase the performance obligation of one of the parties – to act as reasonable people towards each other and therefore to take each other’s legitimate interests into account. If the negotiations go wrong and the parties have to go to the civil court, a judge may decide on the basis of these grounds as well.

Is it possible to cancel, suspend or modify the Lease Agreements conditions due to the COVID-19 crisis?

In principle, the Corona crisis does not affect the tenant’s obligations to pay the rental instalments under the lease. If necessary, the tenant and landlord will have to make additional arrangements to bridge this period of crisis.

In some cases, a contracting party may invoke force majeure. Force majeure may be defined in your contract. What falls under force majeure is in that case a matter of interpretation of the agreement. If your agreement does not contain a force majeure clause, you or your contracting party can fall back on the statutory force majeure clause. It is important to realize that if your contracting party invokes force majeure, you will not necessarily be left empty-handed. The first question to be answered is whether there really is force majeure. For example, there is a difference between a case in which it is absolutely impossible for a party to comply and a case in which compliance is extremely difficult for a party. It is important to consider this on a case-by-case basis. If the performance is objectionable, but not impossible, then an appeal to force majeure may not be successful. However, this will depend to a large extent on the circumstances of the case.

Furthermore, force majeure does not, in principle, stand in the way of the dissolution of your agreement. Dissolution does not require fault on the part of the parties. The restrictive effect of reasonableness and fairness plays a significant role in this and this will have to be considered on a case-by-case basis.

In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?

In the Netherlands, material adverse change (MAC), material adverse event (MAE) clauses are not yet standard in a Dutch real estate transaction. In Dutch law, several provisions of the Dutch Civil Code (such as Article 6:248 and 6:258) recognize that an agreement can be modified due to being considered unreasonable in certain circumstances, on account of unforeseen circumstances. However, the courts are generally reluctant to intervene in transactions on this basis. Recently, a decision from the Netherlands Commercial Court (NCC) recognized that circumstances surrounding Covid-19 can be an unforeseen circumstance, specifically in the context of an M&A transaction. However, in this case, in which a LOI required the purchaser to pay a fee for withdrawing from the transaction (and the purchaser did so), the fee was not modified or dissolved, due to the application of standards of reasonableness and fairness in the case at hand.

What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?

This will depend on the cancellation policies of the business or service provider in question. If the consumer is cancelling the reservation, the terms of the booking will largely be determinative. As an example, Airbnb allows for accommodation reservations made on or before 14 March 2020, with a start date between March 14 and June 30 2020, to be canceled prior to arrival or commencement.

For package holidays (a combination of at least two different types of travel services for the same trip or holiday bundled together by one (Dutch) tour operator) consumers enjoy a greater degree of protection. If a trip cannot take place due to a force majeure, which can be the case with Covid-19, the tour operator has to provide suitable arrangements of equal or higher value (or lower value with a price reduction) according to article 7:504 of the Dutch Civil Code. If the consumer does not accept this proposal, the tour operator is obliged to restitute the complete sum that was paid for the holiday.

What effects does the current situation have on ongoing construction projects and contracts?

The government has started phasing out the measures imposed to prevent the spread of Covid-19. When it was still uncertain to what extent the government would impose measures, we saw in our construction law practice that Covid-19 exoneration clauses were being negotiated. An example being a clause that stated that partial payments would be suspended until such time as the work could be continued.

Under general contract law, I think all contracting parties have discovered how important a force majeure clause is.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

Some disputes will not be able to be resolved by the parties, and legal proceedings will have to be initiated.

Depending on who the parties are, the civil judge or the administrative judge will have jurisdiction to rule on the dispute. If the parties are private parties (or a government acting in the capacity of a private person), the civil court will generally have jurisdiction. If the dispute concerns real estate property, then the court in the district where the property is located also has jurisdiction, in addition to the court in the district of the defendant’s domicile.

What financial assistance packages or ways to mitigate the financial impact have been adopted?

The Dutch government has taken various measures to make things more bearable for entrepreneurs. For as long as necessary, this package provides support worth billions of euros each month. The measures ensure that companies can continue to pay their staff, offer the self-employed a temporary solution and enable chash to remain in the companies through a relaxed tax regimes, compensation and extra credit opportunities.

For example, through the SME Credit Guarantee Scheme, the Dutch Ministry of Economic Affairs and Climate Policy has guaranteed loans to enable companies to borrow money more easily. Companies can apply for the scheme via participating banks and other credit institutions. The credit guarantee has been expanded to 75% of the credit provided by the credit institution (most usually, a bank). The government guarantee accounts for 90% of this credit guarantee. As of May 15, more than 3000 companies had taken advantage of this government guarantee.

Additionally, financial assistance has been provided by some of the major Dutch banks, who have allowed for payment pauses on mortgage payments. As of 15 May, over 18,000 consumers had made use of these payment pauses, totaling over EUR 72 million.

Poland

Country Introduction

Poland is recognized as one of the most attractive European real estate markets for foreign investors. It was the only EU country to avoid recession during the 2008 global financial crisis (in 2009 it reported a positive rate of GDP growth) and still holds a leadership position in the CEE region in terms of GDP.

The Polish real estate law is rather stable and generally flexible to foreign investors. Commercial real properties can be freely bought by members of EEA and Switzerland. In case of other investors, the acquisition of real estate requires prior approval of the Minister of Interior and Administration. Foreign investors can also freely buy residential units in Poland.

There are some limitations as to the acquisition of real estate in Poland applicable both to Polish and foreign investors where the main ones relate to agricultural properties; the regulations specifying who is entitled to acquire agricultural property and granting the National Support Centre for Agriculture the pre-emption right to such property or to shares in companies being the owner thereof, came into force in 2016 and have had a significant influence on number of transactions of agricultural land sale.

The long-term consequences of the COVID-19 outbreak on Polish real estate market are still hard to predict. Undoubtedly, however, the current situation has already caused much disturbance to the entire retail sector as well as hotel and construction industry who suffer major losses; the key contributory factors include not only the workforce shortages or disruption in the supply chain but also legislation and measures adopted in Poland.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in Poland?

In the period between 14 March and 3 May 2020 (inclusive), the business activity of majority of tenants in shopping facilities with sales area of more than 2,000 sq. m. was prohibited or must have been significantly limited. In all these cases, the obligations arising under the lease agreements were no longer in force, including also the tenants’ obligation to pay the rent, service charges or any other fees. Additionally, the term of lease agreements of any type of premises concluded before 8 March 2020 and which expires before 30 June 2020, may be prolonged until 30 June 2020 based on the tenant’s statement. Also, with certain exceptions, neither the lease nor the rent amount can be terminated by the landlord until 30 June 2020. In case of leases of the State Treasury’s properties, any payments due for the period from 14 March 2020 and during the term of the state of epidemic may be redeemed, postponed or split into installments.

Is it possible to cancel, suspend or modify the Lease Agreements conditions due to the COVID-19 crisis?

Subject to the special legal measures adopted in relation to the COVID-19 outbreak described in point 1 above, the possibility to cancel, suspend or modify the lease agreement depends upon the wording of the agreement as well as specific circumstances. Usually, however, the commercial lease agreements are concluded for a fixed term with very limited possibilities of termination; thus, in most cases, the termination or modification of the lease conditions requires a mutual will of both parties. If there are no special contractual provisions and no agreement is reached, parties’ claims may refer to the impossibility of parties’ services clause and the resulting expiry of the lease, warranty for legal defects in the leased property or a very general clause of abuse of subjective rights. The parties are also entitled to claim in the court for amendment or even termination of the lease based on rebus sic stantibus clause.

In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?

The short-term effects of the outbreak are already visible at every stage of the transactions. Most of them got suspended or they progress much slower. Due diligence processes have been disrupted due to difficulties in collecting documents which result also from suspended activity of public authorities and courts up to 16 May or even 23 May 2020. As a result of the lock-down, the activity of public notaries has also been limited. No special measures have been adopted by the government in this regard. In case of real estate transactions, however, the target’s value is usually represented by the underlying asset and not the business of the company being the owner. Thus, although the wording of reps and warranties in the SPAs may be affected or some additional CPs to closing may enter for use more often, it does not appear they will play a key role in the real estate transactions. Importantly, in the recent period we observe the transaction market seems to awaken slowly.

What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?

During the period from 2 April 2020 up to and including 3 May 2020, the operation of hotel services, and up to and including 17 May 2020 the use of hotel restaurants was significantly limited. There are no specific provisions regulating possibility of cancelling the contract due to the outbreak. In any such situation, it depends on the wording of the contract as well as specific circumstances. Also, the general provisions of the Civil Code, in particular, those relating to the impossibility of performance and the relating expiry of the contract, may apply. In addition, a special law applicable in the event of termination of the contract with the client in connection with the COVID-19 outbreak has been adopted, under which all the fees paid by the client must be returned within 180 days from the date of termination of the contract or alternatively, upon the client’s consent, a voucher for services for the same amount to be provided during the year.

What effects does the current situation have on ongoing construction projects and contracts?

The main challenges in the Polish construction industry are currently delays resulting from proceedings for the issue of required decisions suspended until 16 May 2020 (in some cases up to 23 May 2020), limited labour availability and supply chain issues. With respect to the facilities related to the COVID-19 counteraction, the construction process has been accelerated as there is no need to obtain a zoning, building or use permit. There are no such remedies for other type of investments – neither public nor private ones. The form of relief depends on the wording of the contract as well as specific circumstances. Force majeure clause is usually the starting point, however, there are also some general statutory entitlements, such as the right to withdraw from the contract or rebus sic stantibus clause. As regards the public sector, under Polish law options to modify the contracts are generally limited, however, a special law enabling for them has been adopted.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

There is no difference between public and private sector here. The competence of court shall be depended upon the contract provisions. In case of no special contractual arrangements, the place of residence or registered office of the defendant shall be decisive, however, the claim may also be brought in the court competent for the place of performance of the contract. The amount of court fees depends on the value of a claim and amounts to 5% thereof but no more than PLN 200,000 (ca. EUR 45,000). The related costs may also include lawyer or expert costs, translations etc. The duration of the court proceedings is usually at least several months and can take even up to a few years in case of particularly complex cases involving large construction contracts. Due to the temporarily reduced activity of courts mentioned above, the extension of these time frames may be expected.

What financial assistance packages or ways to mitigate the financial impact have been adopted?

Extension for payments of perpetual usufruct fees and fees for transforming perpetual usufruct into ownership at least until 30 June 2020; exemption or extension of the payment term of real estate tax on land, buildings and structures related to business activity by entrepreneurs whose financial liquidity has deteriorated as a result of the COVID-19 outbreak; simplifications in obtaining funding from the state budget for the implementation of a construction project concerning the maintenance of continuity of essential services; reliefs in certain payments for the use of the State Treasury’s properties; extension of the deadline for the application of subsidies under the government programme concerning financial support for families and other persons in purchasing their own housing.

Romania

Country Introduction

The COVID-19 outbreak and the restrictive measures implemented in order to fight against coronavirus took a tool on almost every sector of the Romanian economy. Industrial production, transportation services, tourism and hospitality services, retail trade have been especially affected, while the full scale of the economic impact of the Sars-2-COVID phenomenon in Romania is yet to be revealed and quantified. According to Eurostat data, although economic growth has slowed as a result of the effects of the COVID-19 pandemic since March 2020, the dynamics of GDP in Romania remains the highest among the EU member states.

The real estate sector is proving to be resilient to the COVID-19 impact, while the majority of investors remained active during the close-down and expecting to conclude ongoing or future transactions/development projects. As conditions for financing are going to be stricter and the bank more cautions when granting loans, it is expected for investors to face struggles in terms of funding.

The residential market is currently stagnating in terms of number of sale and prices, as there has been a reduced interest in acquiring property by private individuals. A drop in commercial leases is also to be expected, as businesses have implemented telework and other distancing measures in order to protect their employees and retailers started to focus more on e-commerce rather than stores.

Are there any emergency and/or interim measures regarding Commercial Lease Agreements in Romania?

At the beginning of the emergency state, the Romanian Government enacted a rent relief measure dedicated mainly to the small and medium-sized enterprises (SMEs) that have been adversely affected by restrictive measures imposed by the Government. Thus, during the state of emergency, SMEs that have ceased their activity totally or partially based on the decisions issued by the competent public authorities and that hold the emergency certificate issued by the Ministry of Economy, Energy and Business Environment, benefit from a deferral of payment of rent for the building registered as office and secondary offices, as well as a deferral of payment for utility services – electricity, natural gas, water, telephone and internet services.

Later on, during the state of alert, a law on rent facility has been adopted, expanding the beneficiary area to any economic operators, practitioners of the liberal professions, legal entities under private law, whose activity has been discontinued or whose income or revenues have decreased by at least 15% in March 2020 compared to the average of the last calendar year in the period of application of the emergency state.

Subject to fulfilling certain criteria, both tenants and landlords can benefit from several facilities, for example:

  • Beneficiary tenants may postpone, upon request, without payment of interest and penalties, the payment of rent for the use of real estate registered as offices and secondary offices. At the request of the beneficiary tenants, the payment of rents to the owners will be made by the competent territorial fiscal body in the owners’ account.
  • For beneficiary landlords, by way of derogation from the provisions of the Fiscal Code, the income obtained in 2020 from the transfer of the use of real estate on the basis of lease / sublease or usufruct contracts shall not be taxed by the state.
It is possible to cancel, suspend or modify your Franchise Contracts conditions due to the COVID-19 crisis?

Cancellation, suspension or amendment of any contract has to be analyzed on a case by case basis, in order to identify the particular contractual and legal provisions applicable to that individual case. The party affected in the COVID-19 should analyze the applicability of the following remedies:

Claiming force majeure

Under the provisions of the Civil Code, the force majeure case exempts the parties from the contractual liability for the damage caused by the non-performance of the obligations provoked by its intervention, as long as the parties have not established the contrary. Events triggered by COVID-119 outbreak or the measures implemented by authorities can represent force majeure cases, however a causational link between such event and the non-performance has to be proven by the claiming party.

Claiming hardship

Hardship or change of circumstances may be invoked for the purpose of adapting / balancing the contract. The affected party may claim that the COVID-19 epidemic and the measures of the authorities generated an exceptional change in the contractual circumstances, which could not have been foreseen at the time of concluding the Contract and which generates a contractual imbalance in the sense that it becomes unfair to oblige the affected party to perform contractual obligations as established at the date of signing and which have become excessively onerous in the context of the international crisis caused by the COVID-19 pandemic. In case the parties do not reach an amiable understanding, hardship can be claimed in court.

Claiming exception of non-execution

As per the provisions of the Civil Code on the exception of non-execution, when the obligations arising from a mutually binding contract are enforceable and one of the parties does not execute them or does not offer the execution of the obligation, the other party may, to an appropriate extent (proportional measure), refuse to execute its own obligation, unless the law, the parties’ agreement or the customs provide that the other party is obliged to perform first. Thus, if due to COVID-19outbreak or related state measures one party cannot comply with its obligations, the other party may proportionally refuse to execute its counterpart obligations.

In case you are in the middle of a sales and purchase transaction - how do you currently handle this situation in practice? Are there special urgent measures?

Sale and purchase transaction have continued under the emergency and alert states, however the parties have had to surpass several disturbances, as follows:

  • Travel bans affected decision making processes for companies and signatory persons. In order to counteract such difficulties the government allowed general meeting of unlisted companies to be convened by other means than publication in the Official Gazette, according to the decision of the administrators / directors (registered letter, courier, fax, e-mail with extended electronic signature, other means of distance communication that ensure the transmission of the text); the call must also be published on its own website (if the company has such a page) and the parties sought distance friendly means for execution of contracts, such as electronic signature;
  • Social distancing requirements affected the working hours and procedures of authorities competent to issue mandatory documents for the sale, thus the parties could have faced delays in obtaining such documents. Nevertheless, public authorities implemented as soon as possible means to obtain such documents electronically, with digital signature;
  • Stricter financing and loan policies adopted by banks have affected buyers, which might have been forced to bring additional guarantees.
What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?

From a legal perspective, one has first to differentiate between the acquisition of a single service (just accommodation) and the acquisition of a travel package (a combination of at least two different types of travel services, e.g. transport and accommodation).

In the first scenario, the cancellation is subject to the Civil Code rules related to contract termination, force majeure, exception of non-execution as presented above. In the COVID-19 outbreak context or in case of closure of the accommodation unit during the period in which the services should be provided travelers can request the accommodation unit full refund of the amounts paid in advance. Depending on the particular case, the accommodation unit might be entitled to withhold the cancellation penalties announced at the time of booking.

In a travel package scenario, as per the provisions of the Romanian legislation in force, travelers shall have the right to terminate the package travel contract before the start of the package without paying any termination fee in the event of unavoidable and extraordinary circumstances occurring at the place of destination or its immediate vicinity. In case of such event, travelers deciding to terminate the travel contract shall be entitled to a full refund of any payments made for the package. A case by case analysis shall be necessary in order to determine whether the particular situation of a particular traveler falls within the scope of unavoidable and extraordinary circumstances. In general, serious risks for human health, impossibility to benefit from transport and accommodation due to the restrictions, limitations or suspensions imposed by the authorities for the means of transport (air, land or water), respectively the closure or suspension of the activity of the tourist reception unit in the midst of the COVID-19 outbreak can be considered as unavoidable and extraordinary circumstances.

However, the authorities’ recommendation for the travelers is to reschedule the vacation and not terminate the contract, as such requests might lead to the insolvency of the travel agencies.

What effects does the current situation have on ongoing construction projects and contracts?

Even in the COVID-19 epidemic context, Investors have managed to keep their construction projects going forward. However, they were faced with several difficulties, as follows:

  • Shortages of construction materials or delays in obtaining them;
  • Implementing measures necessary for the protection of workers – working in shifts, providing special protective equipment;
  • Shortages in cash flow.

In this situation, delays and slowdowns of ongoing construction project are inevitable.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

Private disputes are judged under the Civil Procedure Code, while disputes relating to public contracts are in general subject to the rules of procedures provided by the law on administrative litigation.

As a general rule, when a dispute has as object a real estate right, the jurisdiction belongs to the courts where the property is located.

It is usual in Romania for trials to be quite lengthy, especially when the parties wish to exhaust all available appeals and remedies. In the COVID-19 outbreak context, many courts have postponed hearings in order to diminish public interaction and this is going to lead to a delay in obtaining the judgement.

In terms of costs, there are no direct COVID-19 implications, thus trial expenses remain at the same level as before the outbreak. In the matter of the property right or of another real right over a real estate, litigation stamp duties are related to the value of the real estate. When the value is contested or assessed as derisory, the court will refer to the notarial grids on the indicative values of real estate.

What financial assistance packages or ways to mitigate the financial impact have been adopted?

Several mitigation and stimulatory measures have been adopted at national level in order to help individuals and businesses manage the lock-down and recover from financial loses during this period. Such measures include, for example:

  • Granting an indemnity for technical unemployment from the unemployment insurance budget/state budget;
  • Granting days-off allowance for child supervision from the Fund guaranteeing the payment of salary claims;
  • Payment deferral for utilities and rent granted to certain beneficiaries (SMEs, several liber professions, small medical and dental practices etc.);
  • Suspension of instalment payment for loans granted by credit institutions and nonbank financial institutions to debtors both natural and legal persons;
  • Deferral of deadline for the payment of local taxes and granting 10% bonuses for payment within the deadline;
  • Stimulatory measures for taxpayers under the advance payments system for corporate income tax;
  • Extension of applicability for reverse taxation (VAT) for imports for the prevention and fight against COVID-19 (medical equipment etc.)
  • Relief from the payment of the taxes owed by certain activities (mainly dedicated to hospitality services)
  • Suspension of enforcement measures of budgetary claims.

Please note that in order to benefit from several of the facilities above, one has to fulfill certain criteria, as provided by law.

Slovakia

Country Introduction

As in other countries, the COVID-19 pandemic has adverse effects on the Slovak economy and an economic recession and decrease of GDP in Slovakia are expected. Pursuant to the official information published by the Ministry of Finance of the Slovak Republic in April 2020, we may expect the decrease of GDP by 7.2%.

In the past year, real estate transactions constituted one of the biggest portions of acquisitions and investments in Slovakia. It is difficult to say how significantly this trend will change this year due to the current situation. But it is clear that the economy slowdown will of course affect also the Slovak real estate market. If nothing else, we believe that closings and completions of some of the real estate projects may be postponed compared to the originally anticipated timings. Prevailing opinions of real estate experts are, that currently, retail is the most affected real estate sector (for obvious reasons), and that despite the pandemic, prices of residential properties are not expected to decrease due to the persisting shortage of them.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in Slovakia?

Many entrepreneurs had to mandatorily close their operations as they were ordered to do so, or they voluntarily closed or limited their operations due to a low demand on their products or services, or disruptions in the respective supplier chains. As a result, they were adversely affected by a significant decrease in their revenues. However, even in cases where the entrepreneurs – as tenants – objectively could not use premises leases for their business operations (as they were ordered to close them), unless very specific clauses had been agreed in the respective leases, in general, pursuant to Slovak law they still had to continue to pay rent and ancillary charges for the leases.

In this connection, a new law was adopted that prevents lessors of real estate, including flats and non-residential properties, to unilaterally terminate leases due to a delay of lessees with the payment of rent, including payments for performance usually associated with the lease, which are due during between 1 April 2020 and 30 June 2020. This protection shall apply only provided that the late payment by a lessee was caused by circumstances resulting from the spread of COVID-19. In particular, a lessor shall not be entitled to unilaterally terminate the lease until 31 December 2020 due to the lessee’s default with the above-mentioned payments if the above-mentioned conditions are met. The reason for the late payment consisting in circumstances, which resulted from the spread of COVID-19, must be sufficiently proven by the lessee. Nevertheless, the lessor is entitled to unilaterally terminate the lease if there are other reasons (other than the lessee’s default with the payments under the lease) – statutory or contractual – entitling the lessor to do so.

Further, the Government of the Slovak Republic also announced a particular financial support scheme in order to mitigate the impact of COVID-19 crisis to mandatorily closed operations. As of the date of preparation of this contribution there was, however, no official approved document on the financial support scheme available yet. Pursuant to the announced conditions of the scheme, the state will pay to lessors a certain amount of rent for the period for which the operations were mandatorily closed. The amount to be paid by the state should be the same as the amount of the discount from the due rent provided by the respective lessor (e.g., if the discount provided by the lessor is 50%, the state would pay to the lessor the remaining 50%; if the discount provided by the lessor is 30%, the state would pay to the lessor 30% of the due rent and the remaining 40% of the rent would be paid by the lessee). Special conditions should apply to the payment of the portion of the rent to be paid by the lessee. The lessee should be entitled to request to pay this portion of rent in 48 installments within next four years and the lessor should not be entitled to increase the agreed rent and to terminate the lease within the said four years. As mentioned, as there is no final formally approved wording of this governmental measure available yet, the outlined financial support scheme is subject to changes.

Is it possible to cancel, suspend or modify your Franchise Contracts conditions due to the COVID-19 crisis?

Similarly, due to the same reasons (significant decrease in revenues, closing of operations, etc.), many franchisees were wondering whether the current situation would release them from some of their contractual obligations (or at least suspend them) or would entitle them to terminate the franchise contract. There is no simple “yes or no response” to this question as this would have to be legally assessed on a case by case basis.

Some of negative consequences of the COVID-19 pandemic could be potentially considered as force majeure events, i.e. (in the Slovak legal terminology), the “circumstances excluding liability”. The circumstances excluding liability are defined as obstacles, which (i) occur regardless of the liable party’s will, and at the same time (ii) prevent this party from fulfilling its obligation, unless it can be reasonably anticipated that the liable party could prevent or overcome the obstacle or its consequences, and unless the (breaching) party had anticipated the obstacle at the time when the obligation (contract) was agreed. As parties to a contract may exclude the general application of the statutory definition of the force majeure event or they may also agree their own force majeure clauses, each case needs to be evaluated individually. The COVID-19 pandemic and the related adopted governmental measures might, in certain circumstances, cause that the contractual obligations will cease to exist due to the “impossibility of performance”. However, in order for the obligation to cease to exist, a number of conditions would have to be met – in particular, its performance must not be possible even under difficult conditions, at higher costs or after the agreed time.

Further, a new legal regulation was adopted that creates a legal framework for provision of a temporary protection (including a standstill of bankruptcy, restrictions regarding termination of contracts due to defaults, restrictions regarding set-off of receivables, restrictions regarding foreclosure of the entrepreneurs’ assets, etc.) to businesses that, as a result of the spread of the COVID-19 pandemic, have found themselves in a very serious financial situation that jeopardizes their current or future operations. The idea behind the provision of a temporary protection was to create conditions for viability and proper operation of businesses once the measures that have dampened several areas of the economy will be removed.

In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?

This really depends on various factors, such as the industry concerned, the stage (phase) of the transaction, the type of the seller or target, whether the seller or target had been in a distressed situation already prior to the COVID-19 pandemic or not, etc. In many cases, the transactions have been put on hold, and in many cases, the transactions continue but the processes are much slower. On the other hand, we also have cases where the transactions start only now or where the transactions were closed during the crisis situations or are scheduled to be closed in next weeks.

General governmental measures (outlined in this contribution) apply to the sale and purchase transactions as well. The sale and purchase transactions were also affected by various COVID-19 related restrictions, such as closure of borders, restrictions regarding physical meetings, ordered quarantines or isolations, difficulties or restrictions to convene general meetings in case of man shares, etc.

What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?

Accommodation facilities were mandatorily closed for quite a long period and in general, customers were entitled to request a return of all payments made in advance (if service was not provided due to the closure of the accommodation facility). Cases when the services were not provided due to other reasons – e.g. the customer was not able to enter Slovakia due to closed borders – need to be evaluated on a case by case basis (as some reasons can be considered as vis majeure, or objective “impossibility of performance”). Special regulation applies to holiday packages (i.e. combinations of number of tourist services, e.g. transport + accommodation) ordered at tour operators. In such cases, pursuant to the recently adopted legal regulations, the tour operator is not obliged to return the paid amounts for the expected services to the customers, but a “voucher” valid until end of august 2021 can be provided instead (except for special cases stipulated by law when the customer can request a return of the full paid amount).

What effects does the current situation have on ongoing construction projects and contracts?

There are several construction projects, which are in delay as a result of the current situation. Hence, delays with completion and hand-over of the projects can be expected. However, it seems that now, after a short break or slowdown in some cases, the construction projects continue to proceed (despite there are still problems with deliveries and some works need to be reorganized). Initial problems were mainly caused by a lack of workers (partially also due to closure of borders), lack of disinfection and protection equipment (to be mandatorily provided to the workers), disruptions in supplier chains, and delays in the construction proceedings. This situation seems to be improving slowly. Delays and slowdowns are caused mainly by the continuing lack of workers and delayed deliveries. No special legal regulation or measurements regulating very specifically this particular area was adopted but many of the recently adopted governmental measures (as outlined in this contribution) apply also to construction and real estate development contracts.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

There is no major difference between private and public contract litigation. A petition must be filed with the competent court – generally the court in the district where the defendant has its/her/his registered seat (or permanent address). If the dispute concerns in rem rights to real properties, a court in the district of which the real property is situated has the jurisdiction. The average length of the court proceedings depends on a number of factors (as complexity of the case, workload of competent court and attitude of the parties), but generally is rather long. It is not unusual that the court proceedings take some five years. The court proceedings are also usually accompanied with significant costs, partially caused by the length of most proceedings. The costs of legal representation in the court proceedings are not compensated in the actual real amount (even in case of a full success), but in an amount calculated based on a formula stipulated by law. This is usually a much lower amount compared to legal fees charged based on hourly rates, unless the value of the subject-matter of the dispute is very high.

What financial assistance packages or ways to mitigate the financial impact have been adopted?

A number of governmental measures containing financial packages and schemes were adopted in order to mitigate the financial impact of the current crisis situation. These include, for example:

  • Financial aid to employers or business to maintain employment or jobs (e.g. compensation – by the state – of up to 80% of the average employees’ earnings to the employer during the employees are on a garden leave due to a lack of work; or payment to the employer – by the state – of fixed contributions from EUR 180 to EUR 540 per month per employee depending on the decrease of the employer’s sales);
  • State guarantees for bank loans or loan interest bonifications and interest rate subsidies to businesses;
  • Postponements of certain tax duties;
  • Postponements, on in some cases even a release from duties to pay public (social and health) insurance contributions; etc.

Slovenia

Country Introduction

Slovenian real estate market started developing in 1990 when Slovenia became an independent country. However, in the first decade the development and growth were relatively slow, which is mainly attributable to unresolved ownership issues (and many pending court proceedings related therewith) and tax regulation valid at that time. From the late 90-ies onwards (and especially after 2004 when Slovenia became an EU member state) the Slovenian real estate market enjoyed continued and constant growth until 2008 when the market peak was reached (in terms of number and value of transactions). This was followed by a sudden collapse of the real estate market in 2009 which occurred as a result of the global financial crisis and the internal real estate bubble burst. Although some signs of recovery of the market showed at the beginning of year 2010, we suffered further setback in the following years all until 2015 (this was mainly due to the credit crunch, decreased demand, bankruptcy of many big construction companies which resulted in excessive supply of real estate in the market).

As from 2015 we have enjoyed a continued growth of the Slovenian real estate market which reached record number of transactions in 2017. Until the COVID 19 crisis our real estate market was stable, attracting interest from both institutional and private investors. Safe business environment and good location attracted both, domestic and foreign investors in nearly all sectors of the market (e.g. residential, office, retail, hotel and leisure, logistics market; also investments into production facilities). There was and still is a lack of availability of residential and office real estate. Insufficient availability of land with greater surface area at attractive locations (which would be appropriate for construction of bigger residential and business buildings or industrial facilities), lengthy and burdensome proceedings related to acquisition of permits and low liquidity in the Slovenian real estate market allegedly prevent its further significant growth.

 

The current COVID 19 crisis already affected the Slovenian real estate market. Real estate agencies reported huge drop of real estate transactions and it is foreseen that the hotel, accommodation, and leisure sector will be among the most affected ones. The consequences of the COVID 19 crisis may not yet be estimated at this time and would depend also on the effectiveness of measures adopted by the government with respect to COVID 19. However, numerous institutions and reputable experts agree that the COVID 19 crisis will lead to severe global economic recession. As regards Slovenia the forecasts published by the Institute of Macroeconomic Analysis and Development and the Bank of Slovenia show that the decrease in the Slovenian GDP may amount to up to 16% and that Slovenia will face a recession as a result of COVID 19 crisis. This will undoubtedly have a significant impact also on the Slovenian real estate market.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in Slovenia?

Majority of companies and entrepreneurs offering products and services to consumers who needed to temporarily shut down their businesses faced a drastic decline in turnover. For most of those entities a rent under the commercial lease agreements presents a major cost.

Since there is no explicit provision under the Slovenian law by which one party would be granted the right to withdraw from the agreement or to request the rent to be (at least temporarily) reduced in case of force majeure or other similar event (and hence it is not clear whether such right may be enforced based on the valid legislation), obligations under the commercial lease agreements present one of the most problematic aspects for the affected entities. The Slovenian parliament adopted emergency law under which the lessees (which fulfil certain conditions) under the commercial lease agreements concluded with the state or municipality as lessor are released from payment of rent during the period between 13 March 2020 and until the epidemic announcement is revoked (i.e. 31 May 2020). This interim measure does, however, not apply to lease arrangements with private or other public entities acting as lessors. Under certain conditions, the rules on e.g. changed circumstances (rebus sic stantibus) or inability to fulfill the contract may be applicable for the commercial lease arrangements. It shall however be noted that the circumstances occurred as a result of COVID 19 epidemy are not adequately or clearly addressed in Slovenian legislation. Accordingly, it seems that it would often be in the parties’ best interest to enter into negotiations and find a mutually acceptable solution.

Is it possible to cancel, suspend or modify the Lease Agreements conditions due to the COVID-19 crisis?

The possibility to cancel, suspend or modify the Lease Agreements due to the COVID-19 crisis would primarily depend on the content of each individual lease arrangement. In absence of any contractual provision in this respect, it shall be noted that it is not clear whether the right to cancel or modify the lease agreement due to a force majeure or similar event may be enforced based on the valid Slovenian legislation. Statutory provisions on changed circumstances may be applicable. However, the party which invokes the rule may only request the agreement to be rescinded and may not (without the consent of the other party) request its change. Intervention of the court is also required (the agreement is rescinded by the final court’s judgement) and it also remains open whether the rebus sic stantibus doctrine may be applied when the changed circumstances are temporary. Due to described reasons the application of provisions on changed circumstances would often be impractical. Under the Slovenian law the parties may at any amend or cancel the lease agreement unanimously by a written instrument executed by all the parties.

In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?

There are no special urgent measures adopted by the Slovenian government regulating the situations where you are in the middle of a real estate transaction. Where transaction is still in the negotiation phase, each party may withdraw from the negotiations for justified reasons (COVID 19 crisis may be considered as a justified reason for withdrawal) without any negative consequences. In case the pre-agreement was concluded by which the parties agreed to conclude the main agreement after fulfillment of certain conditions, such pre-agreement is no longer binding on the parties in the event that the changed circumstances occurred (i.e. if the circumstances have altered to such an extent that the pre-agreement would not have been concluded had the circumstances been such at the time). In situations where the binding agreement was already concluded but the transaction was not yet closed, the remedies available would depend on the contractual MAC provision. If the declaration of an epidemic may endanger the fulfillment of all the conditions precedent by the agreed long stop date it is recommended to approach the counterpart in order negotiate on necessary amendments to transaction documents (and some sellers might be prepared to negotiate discounts in view of the urgent need for liquidity).

What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?

Where reservation of travel package(s) made with the organizer is cancelled due to unavoidable and extraordinary circumstances caused by COVID 19, the organizer may under the Slovenian intervention law, instead of returning all the payments made, issue to the consumer a transferrable voucher(s) which may be used for the same or other tourist package(s) within 24 months from the issue date, unless the consumer explicitly requests the reimbursement of all the payments made. In the latter case, the paid amounts shall be reimbursed to the consumer within 12 months after the epidemic announcement is revoked. If the voucher is issued and not used by the consumer within the 24-month period, the consumer may request the return of all the amounts paid. In case of reservations made with the service providers directly, the cancellation of reservation(s) without any negative consequences for the customer is possible if the service may not be performed due to e.g. entry and exit regulations or intervention measures prohibiting operation of tourist accommodation facilities or similar (and all the fees paid shall be fully reimbursed). When the performance of service(s) is possible (permitted), but an individual wants to cancel the reservation anyway, such cancellation may be made under the terms and conditions applicable to particular contract.

What effects does the current situation have on ongoing construction projects and contracts?

As a result of the COVID 19 crisis the procedures for issuing the permits for the ongoing construction projects would most likely be further delayed (although the intervention law implemented some solutions with the aim to speed up such proceedings). Ongoing construction projects in the phase of performance of works under the concluded construction contracts continued also during the COVID crisis (whereby the employers implemented some additional measures for protection of employee’s health and safety). According to the intervention law, the deadlines under the construction agreements concluded with the state, local authorities or certain public entities as the ordering parties were prolonged for a period of duration of epidemic and contractual penalties due to delay shall not be payable during epidemic. For construction contracts between private entities, accurate legal analysis would be required. In any event, the contractor might be entitled to (additional) prolongation of deadline or even to price increase if changed circumstanced (resulting from the COVID 19 crisis) can be demonstrated in individual case.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

Should the parties fail to resolve the dispute arising out of or in relation to the real estate contracts in an amicable manner, the following courts shall have jurisdiction: In proceedings which have as their object rights in rem in real property or tenancies of real property or disturbance or deprivation of possession, the court where the real property is situated shall have jurisdiction. Otherwise, the competent court where the defendant is domiciled shall have jurisdiction (unless the agreement on jurisdiction between the parties was concluded – in such case the courts agreed between the parties shall have jurisdiction). Those rules apply to both, private and public contract litigations. The expected trial time is from three to five years (but may be longer in case of complex litigations; due to limited activity of the courts during the COVID 19 crisis the proceedings may last even longer). The costs of the proceeding would depend on the disputed amount (the translation costs might also be significant in case the original documents are in foreign languages).

What financial assistance packages or ways to mitigate the financial impact have been adopted?

Numerous intervention measures were adopted by the Slovenian parliament to mitigate negative impact of the COVID 19 crisis and to support the economy, including: moratorium on repayment of bank loans under the credit agreements, surety obligation of the state with respect to certain loans, measures available to the employers (relating to the reimbursement of the salary compensation, exemption from social security contributions, exemption from contributions for pension and disability insurance and occupational insurance, monthly crisis allowance..), measures for self-employed, measures with respect to construction law, change of payment and performance deadlines under the contracts with certain public sector entities, measures with respect to customer identification, facilitation of public procurement, extension of deadlines for submission of annual reports, amendments to insolvency legislation and others.

Spain

Country Introduction

Spain’s real estate market first was booming from the mid-1990s until 2007. Afterwards, we suffered a violent setback mainly for two reasons:

  • An internal real estate bubble burst.
  • At the same time consequences of the global financial crisis.

It took some years until a recovery, but we have enjoyed a nearly continued growth since 2014 with many transactions and investments from out of Spain, attracting increasing interest from both institutional and private investors. This friendly investment environment, driven by the attractive prices and rental prospects available, covered nearly all sectors of the market (e.g., office, retail, hotel and leisure, logistics, as well as the residential market). This even led Spain to a certain lack of availability, most of all in the office sector, bringing back new development projects, an increasing gross domestic product, etc. Especially, Spain’s as a European and worldwide known tourist hub did the rest for this success.

The effects of the current COVID 19 crisis are already being felt noticeably, both nationally and internationally. The medium- and long-term consequences can hardly be estimated at this time, but renowned economic experts agree that the corona virus crisis will cause a deep recession in many countries of the EU and the world, which will definitely have a negative repercussions, at least in the short run, on the Spanish real estate market.

Are there any emergency and/or interim measure regarding Commercial Lease Agreements in Spain?

On April 21st, 2020, that is, more than one month after the declaration of the State of Alarm on March 16th, the Spanish Government approved some legal measures regarding leases of commercial and industrial premises, including the lease of “an industry” (an on-going business).

These measures, however, only refer to a postponement in the payment of the rent during the status of alarm, but in no case for a period longer than four months, and the postponed rents should be paid after the status of alarm is overcome along a maximum period of two years, or the maximum duration of the lease agreement, should it be shorter.

For some landlords, these measures are mandatory (i.e. big owners), while for the rest they are not, but the parties can dispose of the guarantee (a deposit equal to two months’ rent) for the rent payment. Tenants who could apply for these measures are self-employed individuals and small and medium companies (turnover below € 8 million and assets under € 4 million), whose activity is under lockdown, or whose turnover has been decreased in more than 75%, compared to the average monthly turnover during the same quarter last year.

As these measures are not enough to overcome the situation created by the Covid crises, landlords and tenants are reaching wider agreements that include, for example, 50% rent reduction during lockdown, 50% postponement during the next 6 months, or for very expensive premises (high street), 25% reduction until end of 2021.

Is it possible to cancel, suspend or modify the Lease Agreements conditions due to the COVID-19 crisis?

Leases in Spain are regulated by the Urban Leases Act (L.A.U.) and the Civil Code. The very most -if not all- of the Spanish lease agreements contain a clause according to which the tenant is responsible for obtaining all necessary permits to develop its activity, with full indemnity of the landlord, making therefore very difficult, if not impossible, to cancel, amend or modify the lease agreements based on lockdown or the Covid-crises.

However, there is legal principle, not included in the Spanish Civil Code or in the LAU, but acknowledged by the Supreme Court named “rebus sic stantibus”, which implies that if the circumstances existing at the signature of a lease agreement have changed dramatically, the terms and conditions of such agreement could be amended. This principle was alleged quite often in the past financial crises (2008) and the following real estate market crash, but very seldom accepted the Supreme Court. We expect now there will be a lot of lawsuits from tenants who have not reached an agreement with the landlords requesting the application of this principle and maybe Courts will be more eager to apply it, based on the circumstances of each case (i.e. partial use of the premises by the tenant, online sales, etc.) and how this crises will evolve.

In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?

It is necessary to look at the clauses contained in the agreements signed between the parties, which could be mostly of three types:

  • Reservation agreement, according to which the buyer pays a small amount (i.e. between € 1.000 and € 5.000) to the broker or the seller meanwhile the parties negotiate the “arras agreement” during a short term (i.e. 15 days). Normally the buyer should be able to obtain back the amount paid in case he wishes to cancel the purchase.
  • “Arras agreement”: in this agreement, normally, the buyer pays a 10% of the purchase price, and both parties agree on a maximum term to sign the deed of purchase, among other conditions. We believe that any of the parties could request a postponement in the signature deadline based on “force majeure” (movements of people have been restricted and notaries authorized to sign only urgent matters). As regards a possible cancellation of the transaction, usually “arras” agreements provide that if the buyer wishes the cancel the transaction, the seller can keep the amount paid and in case it is the seller who wishes to cancel the sale, he has to reimburse the buyer twice the amount paid. In case any of the parties does not agree with these consequences, it will depend on the circumstances of each case if it can be requested the application of the “rebus sic stantibus” principle.
  • Private sale and purchase agreement: this type of agreement is used normally by developers for properties which are under construction, and usually provide the payment by the buyer of certain amounts on the agreed dates. Some construction companies or developers have already communicated its clients that they will postpone the payment of the next terms, probably considering that maybe they will not be able to deliver the property timely on the agreed deadline. As regards the possibility for the buyers to cancel the agreement (i.e. because of their unemployment situation, or travelling bans), this matter gave rise to a lot of litigation during the 2008 crises, where buyers requested the application of the “rebus sic stantibus” principle (in many cases based on a substantial gap between the agreed price and the downsized market value of the property), but it was very restrictively applied by the Courts.
What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?

Spain has published a specific rule for those cases in which a consumer has made a reservation, and provided that the service could not be provided as a result of the state of alarm decreed by the Spanish government. In this case, the consumer may terminate the contract within 14 days from the impossible execution of the contract. Upon receipt of such a request for termination, the service provider may try to propose an alternative solution, such as offering a voucher instead of a refund. If after 60 days from the date of the request for termination the parties have not reached a satisfactory agreement, the service provider must refund the price received within a maximum of a further 14 days. From this refund, the costs incurred, duly credited to the consumer, may be deducted.

Contracts that had to be executed before the declaration of the alarm state are governed by the general conditions. The full refund of the amounts paid on account will only be made if the other party proves the existence of force majeure. Although some consumer associations have requested that fear of travelling or following WHO recommendations be considered force majeure, no specific rule has been published in this regard.

As of today, the termination of contracts to be provided after the end of the state of alarm is also possible by applying the general conditions of contract. In any case, since freedom of contract governs contracts for the provision of accommodation services, the parties may reach other arrangements that are satisfactory to both parties and that replace contractual termination.

What effects does the current situation have on ongoing construction projects and contracts?

Spain has not published any specific rules concerning contracts for the execution of works, e.g. constructions projects. The Royal Decree that decreed the state of alarm did not include construction activity as a sector that was obliged to cease activity and enabled people to leave their confinement to go to work. Only in the period between 30 March and 12 April, both included, was the cessation of all non-essential activity ordered. Therefore, to begin with, the state of alarm alone would not justify a delay in the execution of the works contracts of more than 14 days.

 

However, a ban on work on inhabited buildings has been applied and has been gradually lifted as de-escalation measures have progressed. In this case, therefore, the delay could be considered to have its direct cause in the state of alarm and be considered a case of force majeure.

Most industrial activities have followed the same regime as construction, so that the execution of works contracts has been able to continue, although with limitations on the number of people working or on the supply of materials due to the closure of borders. In the event that such limitations have given rise to any breach of contract, it will be for the courts to declare whether or not they were justified.

Which courts have jurisdiction, what are the expected trial times and what are the costs?

As for the legal procedure, the procedure to be followed will vary depending on whether we are dealing with a public or a private contract as well as on the amount of the claim.

The resolution of a dispute related to a public contract corresponds to the contentious-administrative courts. However, before filing a contentious-administrative claim, it is necessary to exhaust the administrative route, i.e. to file an application with the administration itself and, if you do not agree with the resolution issued by the administration, to exhaust all available remedies. Once the administrative procedure has been completed, the individual may file a legal action within two months. The processing of a prior administrative procedure extends the resolution period by about one year, on average.

There are basically two legal procedures that can be followed before the contentious-administrative bodies: an abbreviated procedure – essentially verbal – for claims up to 30,000 euros and an ordinary procedure, essentially in writing, for higher amounts or claims for an undetermined amount.

In the case of claims based on private contracts, the competent bodies are the courts of first instance. There are also two most commonly used declaratory procedures: the oral trial, for claims up to 6,000 euros and the ordinary trial for claims of greater amounts. This type of procedure is more agile as there is no prior administrative body. The usual duration is around a year – although in many cases it depends on the body in question that is responsible for processing it.

At the moment, it is expected that litigation proceedings will be lengthy due to the suspension of all proceedings from 14 March to 4 June 2020 and the need to limit the number of people going to court, which will force the postponement of face-to-face trial hearings.

To alleviate these delays, the Spanish bar associations and arbitration courts are trying to encourage arbitration and mediation, although the use of these tools makes the process more expensive because of the need to pay the fees of the arbitrators and mediators.

What financial assistance packages or ways to mitigate the financial impact have been adopted?

A large number of exceptional measures were taken to facilitate financing, especially for SMEs and the self-employed whose businesses had to close down temporarily or were affected by drastic falls in turnover. To summarize roughly, the following aid has been launched:

The Spanish Ministry of Economy and Digital Transformation (“Ministerio de Asuntos Económicos y Transformación Digital”) has promised guarantees of up to EUR 100 billion for lines of credit granted by credit institutions, financial credit institutions, e-money institutions and payment institutions to companies and the self-employed.

The net credit limit of the so-called official credit institution (“Instituto de Crédito Oficial”, or ICO for short) via the ICO’s financing lines has been increased by EUR 10 billion in order to provide additional liquidity to companies, especially SMEs and the self-employed.

The new ICO credit lines will be combined with the specific measures already adopted to support the tourism sector, which is very important for Spain. These include an extension of the so-called Thomas Cook financing line to provide a specific ICO credit line to all companies based in Spain in the tourism sector. However, only those enterprises that are individually listed in the emergency package using the so-called CNAE code (National Classification of Economic Activities, “Clasificación Nacional de Actividades Económicas”, or CNAE for short) are included in this line of credit. It therefore does not concern all areas and companies in this sector, e.g. not pure event agencies.

In the field of SME digitalization, the ICO will finance the purchase and leasing of equipment and services for SME digitalization and home office solutions with more than 200 million euros over the next two years. In the field of science and innovation, it should be possible to apply for state aid under certain conditions without the strict presentation of a guarantee. The creation of an special insurance line of up to EUR 2 billion will be approved to secure working capital loans required for export activities.

In addition, a suspension of the payment of mortgage instalments to the banks was ordered. In order to benefit from this suspension, however, a number of conditions must be met (e.g. only primary residences or headquarters of the business activity; only applies to property owners who are in financial difficulties or in a precarious situation – unemployed, entrepreneurs or freelancers with significant losses in turnover, etc.)