Author: Kateryna Brodska, Head of Criminal Law Department and Business Security, Lawyer, Ph.D.
Two weeks of quarantine have passed, and 2 weeks of total shutdown of Ukrainian business have passed with it. Ahead – 4 more weeks of difficult decisions!
We will remind, what restrictions are established by the legislator for the period of quarantine (Resolutions of CMU from 11.03.2020, 16.03.2020, 25.03.2020):
The work of business entities, which provides for the reception of visitors, including catering establishments (restaurants, cafes, etc.), shopping and entertainment centers, other entertainment establishments, fitness centers, cultural institutions, trade and consumer services, is prohibited until 24 April 2020, except:
Given the realities of the restrictive measures, most experts agree that the crisis in Ukraine, with the most optimistic forecasts, will last until June 2020. Under such conditions, it is time for a balanced budget sequestration.
One of the significant expenditures of the budget is always the cost of paying rent.
In order to support taxpayers for the period of measures aimed at preventing the occurrence and spread of coronavirus disease (COVID-19), the Verkhovna Rada of Ukraine (Law of Ukraine 533-IX of 17.03.2020), Kyiv City Council (Decision of the plenary session of 25.03.2020) approved the following:
No land fee (land tax and rent for land plots of state and communal property) is accrued and paid for the period from March 1 to April 30, 2020 for land plots owned or used, including on lease terms, natural or legal persons, and used by them in economic activity;
Non-residential real estate owned by individuals or legal entities is not subject to taxation on real estate other than land, in accordance with Article 266 of this Code in the period from March 1 to April 30, 2020;
The amount of rent for the use of communal property of the territorial community of Kyiv was reduced by 50% from March 11 2020 to July 31 2020;
The amount of rent for the use of communal property of the territorial community of Kyiv if the leased object is not used at all due to restrictive measures related to preventing the spread of Covid-19, in the period from 11.03.2020 to 31.07.2020 is 1 (one UAH).
Thus, an entity that owns real estate and / or land does not accrue or pay, during March-April 2020, either real estate tax or land tax / rent for the land. Moreover, taxpayers have the right to file a clarifying tax return, which reflects the changes in the tax liability for payment for land / real estate for the relevant months.
Therefore, the owner of real estate and / or land can safely “release” the funds planned to pay taxes on such property for the next 2 months by submitting a clarifying tax return.
An economic entity that leases communal property of the territorial community of Kyiv is entitled to either a 50% discount on rent for almost 5 months, or may pay a “conditional” hryvnia for rent during the specified period.
Thus, an entity that owns real estate and / or land does not accrue or pay, during March-April 2020, either real estate tax or land tax / rent for the land. Moreover, taxpayers have the right to file a clarifying tax return, which reflects the changes in the tax liability for payment for land / real estate for the relevant months.
Therefore, the owner of real estate and / or land can safely “release” the funds planned to pay taxes on such property for the next 2 months by submitting a clarifying tax return.
An economic entity that leases communal property of the territorial community of Kyiv is entitled to either a 50% discount on rent for almost 5 months, or may pay a “conditional” hryvnia for rent during the specified period.
Written notice of the impossibility of using the leased object at all due to restrictive measures related to the prevention of the spread of Covid-19 must be submitted to the CMR within 10 days from the date of entry into force of the Decision of 25.03.2020.
With regard to real estate tenants owned by economic entities and subtenants of communal property of the territorial community of Kyiv, the procedure of agreein be gins on reduction / exemption from rent (sublease) with the counterparty is considered reasonable.
We believe that negotiations on terms and conditions of rent payment / sublease payments are currently more appropriate than the termination of contracts or the application of court proceedings. Such opportunities always remain. We recommend that the results of negotiations be formalized with appropriate additional agreements to the Lease Agreement.
What should be done to start negotiations with the owner of real estate / tenant of communal property of the territorial community of Kyiv?
First of all, analyze the terms of lease / sublease agreement in terms of force majeure.
Thus, in accordance with clarification of Part 2 of Art. 14-1 of the Law of Ukraine “On Chambers of Commerce and Industry in Ukraine”, quarantine is now one of the force majeure circumstances.
Therefore, the lessee / subtenant has the right to apply to the CCI of Ukraine for a certificate of force majeure. Moreover, the press service of the CCI reported on: remote acceptance of document packages, reception of applications with a minimum package of documents, the possibility of applying to the CCI after quarantine.
Simultaneously with the certificate application, the CCI must submit a copy of the contract and evidence of the impossibility of using the leased object (for example, if the issue concerns the premises lease in the mall – enough – Order on the transfer of all employees to remote work to implement the recommendations of Article 2 of the Final Provisions of the Law of Ukraine № 530-IX of 17.03.2020).
At the same time, in the absence of an order at the state level, which obliges a certain enterprise to suspend its activities, “unreasonable” non-use of the leased object cannot be certified by the CCI as force majeure.
Second, draw up and send to the owner of real estate a duly substantiated letter to reduce the amount of lease / sublease payments for the quarantine period, installment / deferral of such payments or general exemption from rent / sublease.
Together with the letter to the counterparty it is possible to send the project of the Additional agreement to the Lease Agreement with the offered changes in the order and conditions of payment for rent of property.
The legal basis for requesting a reduction in the amount of rent / sublease payments for the period of quarantine, installment / deferral of such payments or exemption from rent / sublease, are the requirements of Article 762 of the Civil Code of Ukraine and Art. 286 of the Commercial Code of Ukraine.
Thus, in accordance with Part 4 of Art. 762 of the CCU – the lessee has the right to demand a reduction of payment, if due to circumstances for which he is not responsible, the possibility of using the property has significantly decreased; in accordance with Part 6 of Art. 762 of the CCU – the lessee is exempt from payment for the entire period during which the property could not be used by him due to circumstances for which he is not responsible; in accordance with Part 2 of Art. 286 of the Civil Code – the lessee has the right to demand a reduction in the amount of rent, if due to circumstances for which he is not responsible, changed the terms of the contract.
We believe that the ban on the work of business entities established by the Resolutions of the Cabinet of Ministers of 11.03.2020, 16.03.2020, 25.03.2020 in the period from March 12, 2020 to April 24, 2020, which provides for the reception of visitors, is a circumstance for which the tenant / subtenant responsible, and through which the leased / subleased property cannot be used by the lessee / sublease.
In addition, we would like to inform you that on March 30, 2020, the Verkhovna Rada of Ukraine adopted in the second reading and as a whole the bill № 3275 from 11.03.2020 for the entire period of quarantine.
After signing the bill № 3275 by the President of Ukraine and its official publication / publication, it will be possible and appropriate to use the above rules during correspondence or negotiations with the landlord as an additional justification for the exemption from rent / sublease.
Please note that the obligation to pay utility bills remains valid regardless of the category of payer (real estate owner, tenant or sublease).
DEGA lawyers will professionally and as soon as possible provide a full range of services aimed at reducing the amount of rent / sublease payments for the quarantine period, installment / deferral of such payments or exemption from rent / sublease, including:
And remember, quarantine is not forever, don’t panic.