The State Duma has approved additional measures aimed at supporting tenants from affected industries

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Pepeliaev Group advises that three additional measures of state support have been introduced in the sphere of leasehold relationships in the context of the spread of the coronavirus.

Federal Law No. 166-FZ dated 8 June 2020 has entered into force, which complements current legislation with new measures intended for tenants of non-residential real estate.

1. Benefits for persons buying back leased property

Amendments have been introduced into Federal law No. 159-FZ dated 22 July 2008 “On the specifics of disposing of real estate which is state-owned or which is in municipal ownership, and is leased by small and medium-sized enterprises, and on amending certain items of the legislation of the Russian Federation”.

This law regulates the relationships governing the privatisation of real estate which is state-owned or which is in municipal ownership, and is leased by small and medium-sized enterprises.

According to the amendments, now, if you are a small or medium-sized enterprise which has entered, pursuant to that law, into an agreement for the sale and purchase by instalments of real estate before a high-alert regime or a state of emergency had been introduced in your respective constituent entity of the Russian Federation in 2020, you have the right to require that the seller enter into a supplemental agreement to such sale and purchase agreement.

By virtue of such a supplemental agreement, you may defer the payments envisaged for 2020 by a period from six to twelve months. No interest, including default interest (fines or penalties), is assessed on the amount deferred. The seller enters into such supplemental agreement within 30 days after the tenant has applied for this.

2. Withdrawing from a fixed-term lease

Federal Law No. 98-FZ dated 1 April 2020, which initially introduced emergency measures to support the economy, has been supplemented with one more measure aimed at tenants belonging to small and medium-sized enterprises, namely, with the possibility to withdraw from a lease.

If you are a small or medium-sized enterprise, and if:

  • you are pursuing your activities in spheres which have been affected the most by the spread of the coronavirus (in accordance with the list previously approved), and
  • you lease a building, a construction, non-residential premises or parts of them (irrespective of the form of ownership), and
  • you are using this leased property to pursue activities which fall under a category of activities affected the most, and
  • the lease has been entered into for a fixed term, and
  • you have previously applied to the tenant asking for a decrease of the rest but failed to reach an agreement to decrease the rent within 14 business days after the day of the request, then

before 1 October 2020, you have the right to withdraw from the lease under the procedure stipulated by article 450.1 of the Russian Civil Code. This means that, starting from the moment when the landlord has received the notification of withdrawal, the rights and obligations under the lease will be terminated.

There is also a specific explanation that any losses relating to such withdrawal, as well as the withdrawal fee set out in the lease agreement itself, shall not be paid. However, the landlord keeps the security deposit.

3. Extension of the lease terms for state-owned land and other real estate

It is stipulated that, before 1 March 2021, a tenant of a state-owned or a municipal land plot may require that the tenant enter into a supplemental agreement to such lease and that this supplemental agreement provide for the possibility to extend the term of such lease.

It is stated that such extension may be introduced:

А) irrespective of the grounds on which such lease has been entered into, and

B) irrespective of whether there are any outstanding rent amounts.

For such supplemental agreement to be entered into, the following conditions should be met:

  • the lease was entered into before a high-alert regime or a state of emergency had been introduced in the relevant constituent entity of the Russian Federation,
  • as at the date of the request for the lease to be extended, the lease has not yet expired, and the landlord has not filed a request for the lease to be terminated with the court,
  • as at the date of the request, you have not committed any violations identified by the state supervisory body for land use, or you have no unremedied violations connected with the use of the land plot.

The lease will be extended within five business days after the application, without conducting any bids, for the same period for which the initial lease had been entered into (but no more than three years).

Slightly different rules apply to other state-owned real estate which is being leased out, namely:

  • the lease is extended for a period of up to one year on the same conditions (or on other conditions which do not deteriorate the tenant's position),
  • no assessment of the market value of the facility is performed,
  • no bidding processes take place.

What to think about and what to do

Compare your OKVED codes specified in the Unified State Register of Legal Entities for 1 April 2020 with the List approved by the Russian Government's Resolution No. 434 dated 3 April 2020.

Make sure whether you are entitled to the measures introduced. Pay special attention to whether all the required conditions are met since, otherwise, granting a preference may be refused.

If you fall within the scope of none of the benefits known to you, you might consider applying other mechanisms set out in the legislation - amending or changing an agreement owing to a material change in the circumstances (article 451 of the Russian Civil Code) or the prospects of relying on force majeure (article 401 of the Russian Civil Code), including through court proceedings.

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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