The state of the coronavirus pandemic, the epidemic threat declared by the Polish government and the related restrictions in social and economic life are fundamental for many entrepreneurs.
Below we are looking for an answer to the question whether in this situation entrepreneurs whose premises have been closed or excluded from economic use are absolutely obliged to pay the rent, especially if the activity conducted in the leased premises was the only source of their income and it is not possible to conduct business in any other way.
There are no clear answers in the general rules and, as always in emergency situations, each case should be examined on an individual basis.
However, we have some general principles that need to be taken into account:
- Failure to pay the rent means the tenant’s breach of the agreement. Liability for non-performance of the agreement is based on several principles. Mostly on the basis of fault.
- This liability is excluded if the non-fulfilment of the contract results from circumstances for which the entrepreneur is not responsible and such a state is a state of force majeure;
- Force majeure may also prevent the landlord from performing the agreement – i.e. they will not be able to provide access to premises with specific economic parameters understood as a set of factual and functional circumstances (e.g. premises intended for the purpose of running a publicly accessible restaurant) – especially if this specific purpose was indicated in the lease agreement and the landlord was fully aware of the activity conducted by the tenant and its conditions;
- If the landlord cannot rent the premises that match the purpose and social and economic purpose of the tenancy agreement, the landlord does not provide a service for which they could expect a counter-performance (equivalent), or there is a defect in the leased property that cannot be remedied (at least periodically).
Force majeure excludes liability for non-performance of contract
A pandemic, an epidemic emergency and the associated restrictions on social and economic life should be assessed as force majeure, i.e. external events, independent of the parties to the agreement, which cannot be opposed.
Events considered as force majeure always require individual assessment. It should be examined whether they affect the performance of a specific contract. Indeed, the mere existence of a state of epidemic risk and the associated restrictions will not exclude liability for non-performance of the contract when in fact none of these events affect the contract in question.
By concluding the contract, the tenant assumes the risk of business activity, but that risk is not absolute and unlimited, but concerns ‘normal’, typical situations. It is not possible to equate a situation where the lack of income is the result of customers not being interested in the property (business risk) with the closure of the property being ordered by the authorities due to a pandemic (force majeure).
Where, due to government constraints, it is objectively impossible to operate, e.g. in the form of a catering establishment due to an order to close such establishments, it would, under certain conditions, make it possible to effectively evade responsibility for not paying the rent during the period of mandatory closure. Prohibitions, which have their origin in the decision of the public authorities, exclude the generation of income from the activity which serves to cover the rent for the premises. To ignore this would lead to the economic risk resulting from the existence of a pandemic being passed on to the tenant’s shoulders only, which would also be contrary to fundamental principles of contract law.
In conclusion, force majeure exempts from liability for non-performance. However, each case requires an individual assessment, as it will not always be possible to waive all obligations.
The difficulty is that the current situation has not yet occurred on such a large scale and there is no jurisprudence to support its position.
Uncertainty of the legal and factual situation will lead to the search for amicable solutions and, in extreme situations, to seek a court decision. In the latter situation, given the urgency of taking a certain decision, we may also apply for precautionary measures, i.e. court order that would temporarily regulate the rights and obligations of the parties.