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LEASE AGREEMENTS: ACTIONS FOR TENANTS TO CONSIDER
Baker McKenzie, Kyiv, Ukraine,
Apr 17, Fri, 2020
The COVID-19 outbreak affects lease relations and drives tenants to seek additional measures to protect their interests.
The Parliament continues to adopt legislation aimed at liberalizing the existing rules for the duration of quarantine. As such, on 13 April 2020, the Parliament adopted the Law On Amendments to the Law of Ukraine "On State Budget of Ukraine for 2020", which, if signed by the President, will provide rent concessions at the request of a tenant who is unable to use the premises in its business activities due to existing restrictions during the quarantine, as well as set rent limits for such situations.
To minimize the negative effects of the pandemic and related restrictions, as well as to ensure that your lease arrangements are fine-tuned to the current circumstances, consider taking any of the following actions as may be applicable to your business. We are at your service to assist.
Lease negotiations stage
- Commencement dates: Consider linking the commencement of certain events to the termination of quarantine.
- Notifications and invoicing: In order to facilitate communication and the payment of invoices, make sure that a draft prelease/lease agreement allows invoices and notifications to be issued in electronic form.
- Drafting a force majeure clause: Consider the force majeure provisions with particular care: carefully review whether force majeure events cover the outbreak and/or the resulting government crisis measures.
Preliminary lease agreement
- Fit-out works performance: Review the fit-out works schedule with particular care as amendments may be required to address the consequences of quarantine and to avoid penalties and termination. Remember to discuss the schedule with contractors.
- Prelease termination: Review the termination provisions and check if these may be triggered by circumstances related to COVID-19, and consider whether termination may be an option. However, also consider whether it may be in the interests of both parties to be flexible and to negotiate changes to the prelease provisions.
- Requesting rent concessions or rent relief: Consider referring to change of business conditions or the inability to use the premises as circumstances triggering rent concessions or rent relief. Amendments to the rent payment schedule can also be considered, for example, introducing monthly rather than quarterly rent payment, payment in arrears rather than in advance or requesting rent concessions in return for advance rent payment for several months. When negotiating rent concessions, consider substantiating your request with an analysis of the degree to which your business was affected.
- Service charges and maintenance costs: Consider initiating negotiations with the landlord to receive service charges and maintenance costs concessions.
- Notifying the landlord: If premises have to be closed, check if any notices need to be served on the landlord and also consider issuing an internal order regarding the suspension of business activity (if applicable).
- Lease termination: The failure to perform obligations due to events beyond the party's reasonable control does not automatically lead to the termination of a lease agreement. It should be possible, however, to initiate the procedure of the lease termination due to material adverse change.
- Penalties: Analyze whether penalties may be triggered by circumstances relating to COVID-19 and consider available mechanisms to mitigate or eliminate this risk.
- Referring to the force majeure event: Carefully review force majeure provisions to determine the applicable notification procedures and deadlines.