1.  Is a lessee eligible for rent reduction due to a significant decline in footfall and consequently its turnover as a result of COVID-19?
  2. Is a lessee eligible to temporarily close its leased space - on its own initiative – and opt for rent reduction as a result of COVID-19?
  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 COVID-19?
  4. What kind of security is generally provided by a lessee in connection with a lease, a bank guarantee, a deposit or otherwise?
  5. Could a lessee consider other legal options, such as a lease termination, not paying rent at all or other options as a result of COVID-19?

jurisdiction

Serbia
Updated on 31.03.2020.

1. Is a lessee eligible for rent reduction due to a significant decline in footfall and consequently its turnover as a result of COVID-19?

In general, if no statutory or official prohibition or restriction to use the rented space is imposed (e.g. absence of mandatory closure of shopping malls), we do not see a valid legal ground for a lessee to seek rent reduction. On the other hand, we cannot rule out that a significant decline in the lessee’s turnover caused by COVID-19 could potentially qualify in some cases as “changed circumstances”, which could give the lessee the right to seek a rent reduction and amendments to commercial terms of the lease, or eventually the termination of the lease. Each lease should however be analysed separately.

2. Is a lessee eligible to temporarily close its leased space - on its own initiative – and opt for rent reduction as a result of COVID-19?

In general, if no statutory or official prohibition or restriction to use the rented space is imposed (e.g. absence of mandatory closure of shopping malls), we do not see a valid legal ground for a lessee to close its retail leased premises. However, each lease should be analysed separately.

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 COVID-19?

Principally speaking, it should be. A Government decision restricting the provision of services in the field of retail trade, which include the sale of goods and the provision of services in shopping malls and stores with an entrance from inside, clearly prevents the operation of shopping malls. Therefore, this ban could qualify as force majeure for all leases in the shopping malls (save for pharmacies, grocery stores, and online sale through shipment of goods – which are still allowed).

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

A bank guarantee, promissory notes, cash deposit, and in rare cases a corporate guarantee.

If certain measures by authorities make the lease agreement purposeless or difficult to perform, this could fall under the “changed circumstances” classification. Those circumstances could potentially entitle a lessee to ask the lessor for amendments to the commercial terms of a lease agreement (e.g. rent-free periods, rent reduction, change of lease period, etc.), depending on specific measures imposed and their implication for the lease. The changed circumstances entitle the party having difficulties in performing its obligations to request the termination of the lease (from the court). However the specifics of each lease must be carefully assessed and taken into consideration before making any final conclusions.