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Coronavirus and Extraordinary Change in Circumstances

Coronavirus and Extraordinary Change in Circumstances

The situation of entrepreneurs in Poland caused by the coronavirus is getting tougher. For more than one week, due to the government’s decision, the majority of shops, restaurants and service points remain closed. As a result, turn-over of many entrepreneurs decreased dramatically. If the entrepreneur does not manage to quickly minimize their costs, the path to bankruptcy will be very short.

Rent – One of the Most Important Costs in Business Activity

One of the most important costs of almost every entrepreneur running a shop or service point, is the rent. In good locations or in shopping malls, rents can be really high. Even the smallest entrepreneur is forced to pay every month several, ten-odd or even several dozen PLN of the rent. The necessity to suspend their business activity does not exempt them from the obligation to pay the rent in the amount determined in the rental contract. Very rarely in rental contracts there are provisions securing the lessee in such case. It is like that due to two reason. Firstly, just a few weeks ago no one expected that such situation is possible. Secondly, rental contracts are usually more favorable for the lessors and the lessees have very limited possibility to negotiate changes improving their situation. As a result, the majority of entrepreneurs whose sale or service points were closed, lost their income but they have to pay the rent.

Coronavirus as Extraordinary Change in Circumstances

Luckily for lessees the Polish Civil Code contains a provision, which may be applicable in such situation. Article 3571 stipulates: “If, due to an extraordinary change in circumstances, a performance entails excessive difficulties or exposes one of the parties to a serious loss which the parties did not foresee when executing the contract, the court may, having considered the parties’ interests, in accordance with the principles of community life, designate the manner of performing the obligation, the value of the performance or even decide that the contract be dissolved. When dissolving the contract, the court may, as needed, decide how accounts will be settled between the parties, being guided by the principles set forth in the preceding sentence”. In my opinion, in the event of the lessee who, due to decisions of the government, is forced to suspend their activity, all prerequisites are fulfilled:

  • the coronavirus constitutes extraordinary change in circumstances,
  • due to the epidemic payment of the rent entails excessive difficulties or expose the lessee to a serious loss,
  • the parties concluding the rental contract did not foresee such situation.

Better Solve It Amicably

In the circumstances mentioned above the lessee may apply to the court to determine new, lower rent or even to dissolve the contract. I believe there is high probability that such claims would be accepted by the court. However, it may take much time, especially that currently court hearings are being postponed. And time does not work in favor of the debtor, especially if the debt is secured by a promissory bill (quite common practice in case of rental contracts). It is better in the first place to try to talk to the lessor and solve the issue amicably. Maybe the lessor will understand the situation and will be aware of the fact that insisting on remaining the rent in the current amount may in the future, after the court proceedings, turn against the lessor.

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