Oana Albota and Ana Maria Mincu, ALBOTA Law Firm

Authors: Oana Albota, Attorney at Law and Ana Maria Mincu, Attorney at Law, ALBOTA Law Firm

This articles aims to present you a summary of the effects of the emergency state caused by the COVID 19 pandemic with regard to the payment of base rent, service charges and utilities costs by tenants of office buildings.

We are considering two categories of tenants: 

1. tenants which have interrupted their activity, in whole or in part, further to the decisions issued by the competent public authorities, during the state of emergency (e.g. tenants of restaurant/café premises) and, respectively

2. tenants which have not interrupted their activity, in whole or in part, on the basis of decisions issued by the competent public authorities, during the state of emergency (e.g. tenants carrying out activities other than those for which the authorities have decided the interruption).

Tenants which have interrupted their activity, in whole or in part, under decisions issued by the competent public authorities during the state of emergency

These tenants benefit from the measures provided under the Government Emergency Ordinance no. 29/2020 on certain economic and tax-budgeting measures ("GEO 29/2020"), namely the deferral of payment for utilities (electricity, natural gas, water, telephone and internet services), as well as deferral of payment of the rent for the premises used as headquarters and secondary office, under the following conditions:

1. Tenants are small and medium-sized entities, i.e. legal persons (e.g. companies, authorized natural persons, associations, foundations, etc.) cumulatively meeting the following criteria:

1. Annual average number of employees is less than 250; and

2. Net annual turnover does not exceed Eur 50 million or annual overall assets value does not exceed Eur 43 million (as per the latest financial statements).

2. Tenants have interrupted, in whole or in part, their activity based on decisions issued by the competent public authorities during the decreed state of emergency

We assume that this refers to activities restricted/ suspended by:

1. Military Ordinance no. 1/2020 on certain first emergency measures concerning agglomerations of persons and the cross-border movement of certain goods (“Ordinance 1/2020”), respectively: (i) activities of supply and consumption of food, alcoholic and non-alcoholic beverages, organized by restaurants, hotels, cafés or other public establishments, in the premises intended for this purpose, both inside and outside the premises, and (ii) cultural, scientific, artistic, religious, sport, entertainment or gambling, spa and personal care activities carried out in enclosed spaces; and, respectively, by 

2. Military Ordinance no. 2/2020 on measures to prevent the spread of COVID-19 (“Ordinance 2/2020”), respectively: (i) activity in dental clinics; and (ii) retail activities of products and services in commercial premises where several economic operators are operating.

3. Tenants hold a state of emergency certificate (“SEC”) type 1 (blue) issued by the Ministry of Economy, Energy and Business Environment (“Economy Ministry”), pursuant to Order no. 791/2020 on granting of state of emergency certificates to the economic entities whose activity is affected in the context of SARS-COV-2 pandemic (“Order 791/2020”).

Thus, as explained above, the benefits granted by GEO 29/2020 consist of: 

1. Deferral of payment for utilities (electricity, natural gas, water, telephone and internet services) and deferral of payment of rent for the premises used as headquarters and as secondary office. As GEO 29/2020 does not specify anything about the services costs, we consider that the deferral of payment of these costs is not applicable to tenants which have interrupted their activities, in whole or in part, on the basis of decisions issued by the competent public authorities, during the state of emergency.

2. Exemption (during the state of emergency) from payment of penalties for delays in the performance of obligations arising from contracts concluded with public authorities.

Moreover, according to GEO 29/2020, in other ongoing contracts concluded by small and medium-sized enterprises, force majeure may be invoked against them only after an attempt to renegotiate the contract in order to adapt its terms, taking into account the exceptional circumstances generated by the state of emergency.

Thus, it is presumed to constitute a case of force majeure the unforeseeable, absolutely invincible and unavoidable circumstance resulting from an action of the authorities in implementing the measures imposed by the prevention and combating of the pandemic caused by infection with COVID-19 coronavirus, which affected the tenants' activity, as attested by SEC. The assumption may be overturned by the interested party by any means of evidence.

The unpredictability of force majeure situation is an essential condition for its existence and is strictly related to the time when the affected legal report is born. Therefore, we appreciate that any measures adopted by the authorities under the legal acts that establish the state of emergency (i.e. Decree no. 195/2020 on the establishment of the emergency state on the territory of Romania and Decree no. 240/2020 on the extension of the emergency state on the territory of Romania) cannot be considered as unforeseeable.

Tenants which have not interrupted their activity, in whole or in part, further to the decisions issued by the competent public authorities during the state of emergency

Since their activity has not been forbidden/ suspended by Ordinance 1/2020 and, respectively, by Ordinance 2/2020, we consider that these tenants can use the leased premises according to the use permitted by the lease agreement.

In this situation we consider that force majeure may not be invoked, considering also the provisions of art. 1634 (6) of the Civil Code, according to which if the debtor’s obligation has as object fungible goods (as in the case of the tenant’s obligation to pay to the lessor an amount of money representing the value of the rent, service charges, utilities, etc.), the debtor cannot invoke the impossibility to perform its obligation due to appearance of the force majeure situation.

Possible financial difficulties and cash flow problems caused by a decrease in business activity in various contexts of crisis (currently the context of COVID 19) are part of the risk of financial stability of any company. It is a risk closely related to the commercial activity itself and which does not excuse the responsible party, by simply invoking force majeure.

Also, the economic effects generated by the COVID-19 pandemic could not be classified as force majeure as long as the tenant can continue its activity, in whole or in part, in the respective premises and the lessor is able to ensure it the use of the premises in accordance with the permitted use.

Tenants which have not interrupted their activity, in whole or in part, on the basis of decisions issued by the competent public authorities during the state of emergency, but which invoke force majeure, could try to prove the force majeure event by:

• a type 2 (yellow) SEC issued by Economy Ministry on the basis of Order 791/2020, which is issued to applicants that declare that have registered a decrease of the revenues in March 2020 by at least 25% compared to the average revenues in the period January - February 2020; or

• a force majeure certificate issued by the Romanian Chamber of Commerce and Industry, as per Law no. 335/2007 of the Romanian Chambers of Commerce.

We consider that no such certificate can be considered an absolute proof of force majeure existence, since the lessor has the right to challenge the invoked force majeure before the competent courts. 

Moreover, the provisions of the lease agreements concluded by the parties must be taken into account.

Thus, certain lease agreements may provide for the continuity of the force majeure case for a certain period of time (e.g. 2 months) as a cause of termination of the agreement. In this case, tenants could invoke the termination of the lease agreements after the expiry of the time limit provided in the relevant agreements in this respect. The lessor may, of course, for the reasons set out above, challenge the existence of the force majeure situation invoked by the lessee in order to terminate the lease agreement. 

It is therefore necessary to examine force majeure clauses within the lease agreements in order to identify such termination cases and other rights and obligations of the parties that become active in the force majeure context. If such clauses are identified, the negotiation between the parties is advisable in order to find out some solutions.

It should also be considered whether the tenant has assumed under the lease agreement the risk of exceptional change in circumstances existing at the time of the conclusion of the agreement and has accepted that the lease agreement will continue to produce legal effects in accordance with its provisions, even if the performance of the obligations resulting therefrom would become excessively onerous in the future. 

It is therefore necessary to identify whether the tenants have waived or not the right to invoke the hardship, which would allow agreements to be adapted in order to fairly distribute between the parties the losses and benefits resulting from changing circumstances or termination of agreements at a certain time and under certain conditions.