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Conditions for deferred payments under lease agreements for real estate

06.04.2020

Pepeliaev Group informs you about the procedure and conditions for the granting of deferred payments of rent under lease agreements of real estate and in connection with the outbreak of the coronavirus infection.

Each day the impact of the consequences of restrictive measures are being felt more and more. This has a particularly serious impact on those whose business is related to the rental of commercial real estate and has been affected by the restrictive measures of the authorities.

On 1 April 2020 Federal Law No. 98-FZ dated 1 April 2020 “On amending individual items of Russian legislation with respect to preventing and eliminating emergency situations” was officially published and brought into force.

Article 19(1) of this law established that a tenant of immovable property has a right to apply to the landlord to have deferred payments of rent granted, and the landlord is obliged to enter into a supplemental agreement when granting such deferred payments. And yet, the terms and conditions of such deferred payments must be specified by the Russian Government.

At present we have Resolution No. 439 of the Russian Government dated 3 April 2020, which contains the following requirements for the terms and conditions of granting deferred payments of rent.

Mechanism of the origination and the volume of deferred payments

Deferred payments are granted in the amount of the rent which is to be paid before the regime of high alert or the state of emergency was enacted in the constituent entity of the Russian Federation until 1 October 2020. If the regime of high alert or the state of emergency is cancelled in the constituent entity of the Russian Federation before this date, then in the remaining period the deferred payments are granted in the amount of half of the rent.

In connection with this, fines, interest for the use of others’ funds and other liability measures do not accrue.

The parties have a right to sign an agreement to decrease the amount of the rent under which deferred payments are granted. It is specifically provided that if the rent includes payments for the tenant's use of utility services and/or expenses on the maintenance of the rented property, then deferred payments are not granted with regard to this part of the rent. There is an exception if during the period of a high alert regime or state of emergency in the constituent entity of the Russian Federation the tenant is not released from payment for such services.

The Russian Government, the state executive authorities of constituent entities of the Russian Federation, and local authorities are entitled to establish more beneficial conditions with respect to the rental of state or municipal property respectively. A similar right (to grant more beneficial conditions to the tenant compared with the conditions of the Requirements established by the Government) is expressly provided for the parties themselves under an agreement between them.

The repayment of the debt accrued

The Resolution provides that accrued deferred payments will be paid by the parties in the period between 1 January 2021 and 1 January 2023 in equal payments which will give the tenants a certain opportunity to organise their business processes within the period between October and December 2020 when payments are not provided for.

The Resolution also contains a recommendation to the state authorities of constituent entities of the Russian Federation and local authorities to provide landlords who have granted deferred payments to their contracting parties with ‘support measures’ related to payments of corporate property tax, taxes for individuals, land tax, and rent for land. You should closely monitor the possible regulations of Russian constituent entities and municipal units in this respect. The adoption of such measures will allow the economic effect to be mitigated for landlords who temporarily lose their income owing to deferred payments.

comment.jpgPlease note that pursuant to the Resolution, the right to deferred payments shall be granted to tenants of immovable property which is both state or municipally owned, or in private ownership. The only exception is residential premises, the tenants of which have received no right to deferred payments.


What to think about and what to do

In the current situation the market participants need to ensure whether their agreement is covered by the issued Resolution.

If the Resolution covers your agreement, you should consider the issue of the new rent payments schedule, calculation of deferred payments and the entry into a supplemental agreement.

If the provisions of the Resolution do not cover you, you should check whether you have a right to benefits with respect to paying rent provided for by other legal regulations, including regional ones. It is worth thinking over the application of the measures provided for by article 451 of the Russian Civil Code (the amendment or termination of an agreement in connection with a significant change of circumstances), article 417 of the Russian Civil Code (the termination of an obligations under a regulation of a state authority or the local authority) or the application of force majeure under article 401 of the Russian Civil Code to cut the costs during the crisis.

Help from your adviser

Pepeliaev Group's lawyers are ready to assist in assessing any circumstances and facts as they apply to each specific obligation, and in developing a position with regard to the most reasonable conduct depending on the situation. We will also provide any other legal support, including in resolving contentious situations, in negotiations with contracting parties, and in preparing agreements in the current crisis.

We are also ready to provide complex legal assistance and support during court proceedings, both in commercial courts and courts of general jurisdiction.

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