Shopping centers: lose – lose solution in Covid-19 Special Act by Ph.D. Lech Gniady.

By the Act of 28 March 2020, the Polish Parliament introduced far-reaching solutions regarding lease agreements in shopping centers (departments stores with the area exceeding 2,000 m2).

The legislation process has not yet finished, but, considering the distribution of forces in the parliament and the hitherto authority’s practice, it is most probable that the act will enter into force in the next few days.

I attempt at answering the most important questions in the form of FAQ.

1.    Why do the new regulations apply to objects with the area exceeding 2,000 m2?

Currently, only the lessees in such objects are subject to ban on trade.

This results from the Regulation of the Minister of Health of 20 March 2020 on announcing the state of epidemic in the territory of the Republic of Poland (clause 6(3)).

The lessees in smaller objects may, irrespective of the sector, continue sales.

2.    What do the new regulations provide for?

Pursuant to Art. 15ze(1):

“During the period of ban on trade in department stores with the sale area exceeding 2,000 m2 (…) the mutual obligations of the parties to rent, lease, or other similar contract, get expired [...].”

Thus, the law maker implemented an uncommon construction of expiring civil law contracts.

In the law maker’s intention, the expiry is of a temporary character. Further provisions provide for a mechanism of reestablishing the obligations under lease agreements on the hitherto conditions (with some exceptions referred to below).

3.    Do all lease contracts in the objects with the area exceeding 2,000 m2 expire?

No. Expired are only the contracts regarding the entities subject to ban on trade under the Regulation of the Minister of Health on announcing the state of epidemic.

4.    What are the consequences of the fact that the mutual obligations of the parties to lease get expired?

The expiry of the obligations evokes a state in which no contract between the parties exists. Therefore:

·    the lessee has no obligation to pay rent or make any other payments under the lease contract;

·      the lessor has no obligation to make the premises available to the lessee.

5.    What should the parties do?

Unfortunately, the law maker has not predicted the consequences of such a solution.

Theoretically, the lessee should return the premises to the lessor immediately after the provisions enter into force. Otherwise, the lessee would still use the premises, which would constitute a non-contractual use of premises. Such a use could authorise the lessor to demand payment.

Generally, the parties should immediately discuss and agree upon the further cooperation. The possibilities include a contract on storing goods, etc.

6.    When will the new provisions enter into force?

The law maker has, once again, caused a serious confusion. Article 15ze(1) provides that the lease contracts expire in the state of epidemic threat or state of epidemic. What is more, Article 15ze(3) provides that the provisions of item 1 enter into force as at the day of introducing the ban on trade.

However, in the transitional provisions, the law maker has not decided on introducing the rule under which Article 15ze would apply retroactively. Meanwhile, a number of provisions of the act has been introduced as in fact applying retroactively (see Article 101(2) of the amendment act).

On the other hand, pursuant to Article 101 of the amendment act, the act enters into force on the day following the day of publication.

Contradictory provisions were adopted due to haste, which will definitely raise numerous doubts and disputes.

7.    What happens to the contract after the end of the epidemic?

Pursuant to Article 15ze(2), the lessee should make an unconditional binding offer of intent to the lessor on extending the contract on the hitherto conditions by the period of the ban on trade, extended by six months. The offer should be made within three months from the day of lifting the ban on trade.

The law maker has not provided for the results of the lessor not accepting the offer.

Meanwhile, the offer is a special kind of a declaration of intent which can, but does not have to lead to the conclusion of the contract. If the lessor refuses to accept it, it should be deemed that the lease contract has not been concluded. In such a situation, the lease agreement is not re-established (!).

Furthermore the law provides that If the lessee does not make the offer, the lessor is no longer bound by the provision on the expiry of lease. The results of such provision are not clear, however the justification of the act includes certain explanation. If the offer is not made, the contracts are deemed not to get temporarily expired. As a consequence, in such a case, the lessor could demand payment of all fees for the period when the state of epidemic was in force.

To conclude, it’s a lose – lose solution:

·          If the lessee makes the offer, then, pursuant to the Civil Code provisions regarding offers, the lessor may not accept it (the contract which has expired temporarily will permanently expire).

·          If the lessee fails to make the offer, then, after the end of the state of epidemic, they will still have to pay for the period of epidemic.

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The provisions made in haste (the self-amendment of this provisions entered the Sejm a few hours before the first reading of the act) are thus fundamentally flawed. Considering the situation, the parties to the lease have to assume the burden of saving the industry by mutual concessions in this special time.