Corona and Lease Agreements Vol. 3

On March 16, 2020, the government outlined further measures to address the coronavirus situation in Finland. These measures are designed to protect the population and to safeguard the functioning of society and the economy. The decisions and recommendations have come into force in accordance with the Emergency Powers Act, Communicable Diseases Act and other relevant legislation.

These government policies also have a significant impact on the position of tenants and lessors, as some premises must be closed or face significant restrictions of their use. As we have stated in our previous blogs, restrictions on a tenant’s activity or the activities of tenant’s clients do not directly entitle to an exemption or a reduction from rent under the Act on Commercial Leases.

If any of the terms of the lease were to become permanently unfair based on the imposed restrictions, they could be made reasonable according to the provision related to adjusting in section 5 of the Act on Commercial Leases. As the restrictions caused by the coronavirus are temporary, there is generally no justification for making the terms of the contract permanently reasonable. Temporary restrictions imposed on the use of leased premises may create a force majeure situation which may affect, for example, a tenant's ability to meet his contractual obligations.

A force majeure situation must, however, always be assessed case by case and the referring party will have to be able to demonstrate how the force majeure (restrictions on the use of the premises or the tenant's activities in this case) affects the party's ability to perform its obligations under the contract. For example, if a tenant claims that they would not be obligated to pay rent due to these restrictions, the tenant would have to be able to demonstrate exactly why that is. For example, closing of schools does not automatically affect the ability of a municipality as tenant to pay rent.

In any event, invoking force majeure during the coronary virus situation does not mean that an exemption is given from the obligation to pay rent, but rather the right to demand for a payment time for the rent and to waive the penalty caused by a delay in payment.

There is no doubt that all parties hope that this unusual situation would pass as soon as possible. In any case, it is in everyone's best interest to negotiate and agree on arrangements to ensure the continuation of business operations of both the lessor and the tenant.