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COVID-19: What homework must the lessee do before negotiations with the lessor? 2020-03-24

Currently, the decisions taken by the Lithuanian authorities regarding the COVID-19 pandemic and home quarantine regime are undoubtedly likely to affect, or have already affected, the operation of many companies and the timely execution of agreements concluded. Real estate lease agreements are of no exception. It is not surprising that during this stressful period some lessees are forced to consider suspending the performance of their contractual obligations or have already actually suspended the performance of their obligations. Such situation is a source of major concern for everyone – lessees, lessors, and lawyers. Despite the seriousness of the situation, legal regulation has not disappeared and must be respected by all parties to the agreement. Therefore, if you or your business faces difficulties and you are forced to search for solutions, here are some tips on the homework to be able to NEGOTIATE with your lessor:

(i)                  Consider your objectives of negotiation with the lessor (rent reduction, rent-deferral plan, rent arrangement over time, lease extension (if you have agreed on a rent-deferral plan now)), the necessary extent of reduction of liabilities for your business to survive). In doing so, be honest with yourself and your business partner.

(ii)                Consider whether your activities are in the list of activities prohibited during the quarantine.

(iii)               Consider whether such activities can be performed by e-mail or in another remote way.

(iv)               Consider whether such activities prohibited during the quarantine are the only/core business performed by your company.

(v)                Consider whether you have property and business interruption insurance coverage with extensions such as "viruses, epidemics", "access restriction" and "instructions from authorities".

(vi)               Consider whether your lease agreement provides for specific terms and conditions, whereby rent and other payments may not be made due to your inability to use the object of lease. 

(vii)             Consider whether your lease agreement includes a prior waiver by the lessee of the right to apply for a rent reduction under any changed circumstances and all risks associated with it are borne by the lessee.

(viii)           Consider whether your lease agreement includes specific provisions on the application of force majeure.

(ix)               Depending on the particular situation, consider whether and on what basis it would be appropriate to initiate NEGOTIATIONS with the lessor (e.g. due to force majeure, performance of contractual obligations upon a change of circumstances (Article 6.204 of the Civil Code), exemption from civil liability due to actions of the state (Article 6.253 of the Civil Code)).

(x)                Consider that this critical period will eventually come to an end and that any partner's fraudulent acts can affect long standing business relationship.

This situation necessitates immediate proactive actions and mutual understanding between the parties to the agreement. Only fair negotiation can bring mutual benefits in order to continue successful cooperation. 

Let's see how we can help you come to a decision on specific actions in connection to the performance of your contractual obligations. Only having a clear understanding of your negotiation position, you can expect reaching a compromise with the lessor.  

Our team is ready to help you develop an effective action plan when negotiating rent with your lessor.

Eivydas Sadauskas, Associate Partner

Daiva Čekanavičienė, Senior Associate

Jurgita Zakarauskienė, Senior Associate

COVID-19: RECOMMENDATIONS AND TIPS FOR BUSINESS


Lawyers: Daiva Čekanavičienė, Eivydas Sadauskas, Jurgita Zakarauskienė



Contacts

Jogailos 4, 01116 Vilnius