A law on new measures supporting tenants has been passed by the Russian State Duma in the third reading

Pepeliaev Group advises that on 22 May 2020 the State Duma passed in the third reading draft law No. 953580-7 (the “Draft Law”)[1] which stipulates, among other things, the right of certain types of tenants to unilaterally withdraw from a lease for real estate without any penalties and to extend leases for public real estate.

Please note that the legislature is still considering the Draft Law, which is to amend Law No. 98-FZ[2] which came into effect on 1 April 2020 and provides for the following measures supporting tenants who have suffered from the COVID-19 outbreak:

• a deferral of rental payments provided for in 2020 until 1 October 2020;[3]
• a reduction of rent (if it has become impossible to use the rented property owing to the high-alert regime or a state of emergency introduced in the constituent entity of the Russian Federation).[4]

After the Draft Law has been adopted, the above measures can be supplemented with a tenant’s right to unilaterally and without recourse to a court withdraw from a lease without any penalties and the right to demand an extension of a lease of public or municipal real estate.

The tenant’s right to unilaterally withdraw from a lease[5]

Initially, the Draft Law proposed that tenants whose monthly revenues had dropped by more than 50% be granted a right to unilaterally withdraw from leases without any payments and penalties being charged, and with the security deposit being refunded to the tenant.

However, the text of the Draft Law has significantly changed by the third reading. In the first place, the pool of tenants has been reduced who would be granted the right to unilaterally withdraw from a lease: it now includes only small and medium-sized businesses pursuing their activities in the branches of the Russian economy which have suffered most as a result of the deteriorating situation in connection with the spread of the new coronavirus. At the same time, the decline in tenants’ income will not be taken into consideration.

Also, the Draft Law has established a number of conditions which should be met for a tenant to have an opportunity to lawfully withdraw from a lease:

• a tenant must apply to the lessor in advance, claiming that the rental payment under the lease be reduced;
• the parties must fail, within 14 business days after the tenant’s claim is received, to reach an agreement for the rental payment to be reduced or for the terms or conditions of the lease to be amended in any other way;
• the tenant should withdraw from the lease no later than 1 October 2020.

The implications of such unilateral withdrawal from a lease have changed as well. For instance, the final version of the Draft Law stipulates that the security deposit made by the tenant should remain with the lessor.

On the other hand, the tenant is discharged from the obligation to reimburse to the lessor any lost profit or losses as envisaged by article 393.1 of the Russian Civil Code (the “Civil Code”), and a penalty for withdrawing from a lease in compliance with article 310(3) of the Civil Code. However, any other losses (amounts) must be reimbursed (paid) in accordance with civil legislation.

The final version of the Draft Law suggests that the legislature has taken heed of the stance of lessors, and that the amendments adopted improve their position.

Extension of leases for public immovable property[6]

Previously, we have touched upon the extension of leases for public real estate. Please note that the Draft Law has remained unchanged in this regard.

What to think about and what to do

We recommend that the parties to a lease analyse the requirements for a tenant to unilaterally withdraw from a lease and the legal consequences of such withdrawal. The possibility should be taken into account for a tenant to withdraw from a lease in the above cases as well as the implications of such withdrawal in the context of the tenant's activities.

Help from your adviser

Pepeliaev Group’s specialists promptly advise you of any changes in statutory regulation in the sphere of real estate and are ready to provide integrated legal support to the parties of a lease agreement on all matters arising when a tenant implements measures of support granted to it.