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.
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.