Law and regulation of rental agreements in Finland during Covid-19

Updated on 27.03.2020

1. Is a lessee eligible for rent reduction due to a significant decline in footfall and consequently its turnover as a result of corona?

No. The lessee carries the risk relating to the use of the lease and its own business.

2. Is a lessee eligible to temporarily close its leased space - on its own initiative – and opt for rent reduction as a result of corona?

Unless separately agreed in the lease agreement, as is the case in most leased spaces located in shopping centres, the lessee does not have an obligation to keep the leased space open. However, the lessee does not have the unilateral right to a rent reduction if it chooses to close the leased space.

3. Is a lessee eligible for rent reduction in the event its leased space is closed following an order by the government as a result of corona?

Not directly. Pursuant to Section 5 of the Act on Lease of Business Premises a provision of a lease agreement (including rent) can be adjusted if deemed unreasonable. Adjusting a contractual provision agreed between commercial parties is an extraordinary act and the main rule is that the parties’ agreement shall prevail and that the lessee shall carry the business risk pertaining to its chosen business. This main rule has been affirmed in legal praxis. Furthermore, the COVID-19 pandemic is regarded as a temporary situation which should not call for permanent changes. So far, the restrictions imposed by authorities due to the epidemic have not been aimed at specific leased premises but on the businesses and customers of the lessees and therefore the leased premises remain available for the lessee’s use.

4. What kind of security is generally provided by a tenant in connection with a lease, a bank guarantee, a deposit or otherwise?

Bank guarantees, cash deposits, pledged bank accounts or parent company guarantees.

The lessee may try to invoke force majeure. The existence of force majeure needs to be assessed case-by-case and the non-performing party needs to show how the event is restricting it from performing its obligations. However, the prohibition to perform certain activities at the premises does not prohibit the lessee from paying rent and therefore, in our view, in the absence of a force majeure provision in the lease agreement (which is commonly the case) simply invoking force majeure in the current situation is unlikely to free the lessee from its obligation to pay rent for the duration of the event. Furthermore, invoking force majeure during the COVID-19 situation does not mean that a lessee would be exempted from paying rent but that the lessee is granted additional time to pay the rent and a waiver on the consequences of delayed payment. Requests for rent reduction and suspension of rent payment may become justified in the COVID-19 situation based on Section 5 of the Act on Lease of Business Premises. Suspension of rent payment may also become justified based on a force majeure. The main rule, however, remains that the lessee shall carry the risk relating to the use of the leased premises and its own business endeavours and any relief for a lessee would be determined on a case-by-case basis.

It is unlikely that a lessee would be entitled to terminate a lease agreement due to the COVID-19 situation and the rules on force majeure would likely protect the lessor.

Portrait of
Matti Lajunen
Castrén & Snellman Attorneys Ltd