Corona and Lease Agreements

What does the law say about duty to pay rent, if the leased premises are required to be temporarily closed as a result of an order of an authority for example due to coronavirus.

Such a hypothetical situation could concern, for example, a retail store, a restaurant, a gym or a business center.

The Act on Commercial Leases provides that the tenant shall be entitled to an exemption from rent payment or reduction in rent to a reasonable amount for the period during which the premises could not be used.

This provision on the right of the tenant to be exempted from the payment of rent or the right to pay reasonably reduced rent, is not a peremptory provision. Parties of a lease agreement may agree in the lease that the tenant is not entitled to a reduced rent.

The condition that the tenant is not entitled to reduction in rent other than due to defective condition caused by the defects and deficiencies on the lessor's maintenance liability or negligence on the part of the lessor, is quite common.

Section 54 of The Act on Commercial Leases concerns the termination of a lease. According to this section, the lease is terminated if the premises are destroyed or the authority prohibits its use for the purpose required by the lease. However, in our view, the section does not refer to a temporary contagious disease epidemic, but to a permanent prohibition, for example due to a health problem in the premises. The section does not therefore apply in the event of a temporary closure of a business center or other commercial premises.

Even in this situation, the continuity of business operations needs to be carefully considered and it is advisable to check in advance that a necessary insurance for potential business interruption is in place.