Impact of the coronavirus on the shopping centres in Poland
The official declaration of an epidemic in Poland and the related problems in conducting business activities will significantly affect companies operating on the commercial real estate market, especially shopping centres having a sales space exceeding 2,000 sq. m.
This is particularly true of real estate, in light of (i) the Act of 31st March 2020 amending the Act on special solutions related to the prevention, counter-acting and eradication of COVID-19, other infectious diseases and crisis situations caused by them, as well as certain other acts (hereinafter referred to as the “Act”), which is a part of so-called “Anti-Crisis Shield Act” lately adopted by Polish Parliament and approved by the President, and (ii) the Regulation of the Council of Ministers of 31st March 2020, as amended (preceded by the Regulation of the Minister of Health of 13th March 2020 on declaring an epidemic threat within the territory of the Republic of Poland, as amended and the Regulation of the Minister of Health of 20th March 2020 on declaring an epidemic within the territory of the Republic of Poland, as amended; jointly referred to hereinafter as the “Government Regulation”).
Below, we discuss selected issues that are of importance to the operators of shopping centres having a sales space exceeding 2,000 sq. m.
Lease agreements concerning space in shopping centres
- Since 14th March 2020, the following activity in shopping centres having a sales space exceeding 2,000 sq. m has been prohibited:
- footwear and leather products,
- furniture and lighting equipment,
- radio and television equipment or household appliances,
- writing and book articles,
- conducting catering and entertainment activities.
- As of 21st March 2020, the only permitted activity in shopping centres having a sales space exceeding 2,000 sq. m is:
- cosmetic products other than perfumes or cosmetics for beautifying,
- toiletries products,
- dry-cleaning products,
- medicinal products,
- medical devices,
- foods for particular nutritional uses,
- products used for construction or renovation works (this is, however, prohibited on Saturdays and Sundays during the period from 1st to 11th April 2020),
- pet goods,
- providing following services:
- catering services consisting solely in preparing and delivering food.
- Also, as of 21st March 2020, all sales or services activity conducted from commercial stands in shopping centres having a sales space exceeding 2,000 sq. m is prohibited.
The Government Regulations however do not entitle the landlord to enforce the ban or restrictions on the tenants. Therefore, to be on the safe side, we recommend that the landlord or property manager notifies the tenants to which the ban or restriction apply that they should cease all prohibited activities immediately, otherwise they operate at their own risk.
- Please note that other restrictions will have impact on operations of shopping centres, such as:
- general ban on the movement of people;
- limitations on number of people in shops and service facilities (no more than 3 customers per each cash desk);
- exclusive right to enter the shop or service facility from 10 a.m. to 12 p.m. for people over 65 years old;
- during the period from 2nd to 11th April 2020, obligation of the shop or service facility operator to provide customers with disposable gloves or hand sanitizers;
- during the period from 2nd to 11th April 2020, obligation of the shop or service facility operator to disinfect the service desk or the cash desk after each customer.
On the other hand, the Act envisages several measures to protect, at least in concept, the tenants of premises (including all commercial spaces).
The most important regulation provides for automatic expiration of all obligations between landlords and tenants of the commercial premises in shopping centres having a sales space exceeding 2,000 sq. m. The provisions of the Act are very unclear in this regard so there are various opinions and interpretations of these provisions among lawyers. However, government (non-binding) explanation published on the Prime Minister’s websites provides clarification on at least few points in question. Therefore, we understand that:
- automatic expiration of said obligations apply only to the tenants that are subject to a government ban or restriction of activity;
- lease agreements in question expire as of the date of establishing ban or restriction of activity (retroactively);
- the lease agreement can be “revived” on previous terms (extending the period of lease by the period of ban or restriction of activity plus 6 months) at the tenant’s unconditional and binding request submitted to the landlord during three months from lifting ban or restriction of activity;
- if the tenant fails to submit the request to “revive” its lease agreement in time, the original lease agreement shall be treated as if it never expired.
The Act provides also for other changes to the lease agreements:
- extension of validity period of leases of all premises (on their current terms) until 30th June 2020, at tenant’s request;
- prohibition of termination of lease by the landlord until 30th June 2020.
Abovementioned provisions of the Act cause many practical problems. Please find below our answers to most frequent questions.
Are the tenants whose lease agreements expired obliged to vacant their units?
Yes, as the lease agreement is not binding both landlord and tenant, tenant does not have the right to use leased premises in any way, also for storage of its property. Taking into account that the expiration has retroactive effect, use of leased premises by the tenant should be invoiced on the basis of non-contractual use or storage of property + supply of media (and services, if applicable).
We recommend that this issue should be a subject of individual negotiation between landlord or property manager and tenant in order to find best solution for both landlord and tenant, taking into account their situation. As there is no case law in this respect, it is still unknown how provision of the Act will be interpreted by the courts.
Which charges (e.g. utilities and services) can be recharged to the tenants during the expiration period?
All utilities and services supplied individually for the tenant’s premises can be recharged to the tenant on the basis of arrangements between the landlord and the tenant (e.g. storage and media supply agreements) or even on the basis of non-contractual use of the premises. As for the costs of common areas, these should be charged only based on the agreement with the tenant (e.g. fixed fee for maintenance).
How the leases expiring in the period of period of ban or restriction should be treated?
If such leases fall under the provision of the Act, they should be treated as expired as of the date of establishing ban or restriction of activity, provided that the tenant submitted the request to “revive” the lease agreement. If such request is accepted, than new lease shall last for period of ban or restriction of activity plus 6 months.
If the tenant fails to submit request to the landlord or if its activity is not affected by any ban or restriction, the lease expires at the end of original lease period. However, if the tenant submits relevant request to the landlord before this date, the lease period extends to 30th June 2020.
Taxes and other fees
- According to the Act local authorities are able to introduce exemptions from and payment deadline extensions (but not longer than up to 30th September 2020) of real estate tax for part of 2020 for businesses, whose liquidity was adversely affected by the outbreak of the COVID-19 epidemic.
- VAT and CIT liability still need to be paid as usual.
- The Act provides that the payment of any perpetual usufruct fee for 2020 may be delayed until 30th June 2020. This deadline can be further extended by a regulation of the Council of Ministers.