15 March, 2020
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COVID-19 Outbreak: Landlord and tenant – rights and duties

The COVID-19 pandemic is bound to give rise to issues for both landlords and tenants. In this respect, aside from contract clauses, the general principles of law on obligation in Serbia, are to be brought into force.

 

Can tenants be required to vacant premises if necessary?

If an employee or member of the public suspected of having or later confirmed as having contracted COVID-19 has recently been in the workplace, there is no need to close the workplace since no orders to the effect have been issued by the authorities. On the other hand, as the guidance released from Institute of Public Health of Serbia or Serbian Government may change, any building vacation order issued by the authorities would have to be adhered to by tenants.

Standard commercial leases, as well as the one our firm drafts, include a compliance-with-laws clause, requiring the tenant to comply with all statutes, notices or orders made by competent authorities. As a result, the tenant would be in breach of the lease if it fails to comply with any clear directions issued by the authorities. Those directions could require that various measures be taken, including the closure of offices or asking staff to work from home to contain the spread of coronavirus COVID-19.

 

If a tenant is unable to occupy or it unilaterally stops using the premises, what are the legal consequences?

  1. Force majeure and the principle of frustration

Leases usually do not contain force majeure clauses, unlike trade or construction contracts, which often do.

If prevented from occupying their premises on foot of orders made by the authorities, tenants may invoke the principle of frustration in an attempt to secure a waiver of or moratorium on their lease obligations. Still, the lease could be frustrated if an event occurs that renders it impossible to perform an obligation or the obligation is radically different to that originally envisaged when the lease was drawn up. In the context of coronavirus COVID-19 in Serbia, we deem it unlikely that a tenant could successfully argue that its lease has been frustrated, particularly if the period during which it is unable to occupy the premises is temporary only.

This would also hold true where a tenant unilaterally decides not to use the premises, i.e. if it stops using it without just cause. As said before, we deem the just cause to be an order by the authorities imposing office closures or required staff to work from home.

  1. Withholding of rent

Most leases do not allow a tenant to withhold rent regardless of the circumstances. In this respect, unless otherwise agreed by the parties, the tenant is must pay the rent. If, however, a tenant was forced to close its premises on foot of health and safety guidelines or emergency legislation, would such measures relieve the tenant from paying the rent? We believe so since Serbia’s Contracts and Torts Act entitles parties to do so. Additionally, our view is supported by case law. The Commercial courts in Serbia took the stance that if the parties are unable to fulfill their contractual obligation due to an event not attributable to either party then the parties are relieved from their obligations. This means that landlord is not entitled to claim against the tenant where the tenant does not use the premises and does not pay the rent for the duration of the measures.

 

Landlord and tenant duties regarding health and safety

Unless otherwise agreed, the tenant should be required to deal with any threat to the health and safety of its employees, as specified by the health and safety regulations. The tenant must:

  1. assess risks to employees, customers, partners and any other people who could be affected by their activities;
  2. arrange for the effective planning, organization, control, monitoring and review of preventive and protective measures;
  3. ensure they have access to professional health and safety advice; and
  4. consult employees about workplace risks and current preventive and protective measures.

In cases where landlords are at the same time employers, they will also have a duty to their staff and others regarding risks posed from infectious diseases, and failure to comply with these requirements can have serious consequences.

A landlord’s obligations towards its tenants depends on the level of control a landlord has over the property, which itself is governed both by the terms of the lease and the physical characteristics of the property.

Where a landlord has negotiated a long-term lease of an entire a building and has no day-to-day maintenance or services obligations towards its tenant(s), then the landlord is unlikely to be liable under the regulations. If, however, a landlord has negotiated the lease of just one floor in a business park or a multi-storey office block, with shared air conditioning and other common services and areas, and it has a duty to maintain and ensure the provision of such, its obligations may be more extensive. In that respect, the landlord should assess the risks of coronavirus COVID-19 and may need to take preventative measures, which would include more frequent cleaning of lavatories, eating areas, door handles and handrails. Provided a landlord in control of all or any part of the premises takes all reasonable steps to protect the safety of those invited and uninvited entering the building or premises (and can evidence that reasonable steps have been taken), it is unlikely that any additional liability will arise in this respect. Reasonable steps in this context include complying with advice issued by the Institute of Public Health of Serbia and/or Serbian Government.

 

For more information, please contact us via covid19@geciclaw.com