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

Updated on 23.03.2020.

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?

No, in principle not, but final determination on this could only be made after a review of the particular lease agreement.

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?

No, in principle not, but final determination on this could only be made after a review of the particular lease agreement.

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?

The lessee would be entitled to stop paying rent or would be entitled to a rent reduction, only if it may not use the leased premises in the agreed manner because (i) of the defects of the property (that the lessee did not cause or if the permitted manner of use was not in accordance with the nature and the purpose of the property (entitlement to stop paying rent); or (ii) the lessor does not fulfil its statutory or contractual obligations (entitlement for a rent deduction). The lessee's right to rent reduction will, therefore, depend on the nature of the Governmental order: 1) if the restriction arises from the nature of the lessee's business, it will likely be perceived as a business risk of the lessee and there will be no right to a rent reduction; 2) if the restriction arises from the nature of the premises or the building in which they are located, it will likely be considered a legal defect of the premises and the lessee may have a right to rent reduction. Final determination could only be made after considering the particular case and also reviewing the particular lease agreement.

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

Bank guarantees and deposits. Parent company guarantees might be agreed as well (usually when the lessee is part of an international group of companies).

If the lease agreement does not provide otherwise, a force majeure circumstance does not fall within the reasons for lease agreement termination. If lessees breach their obligation to pay the rent because of force majeure, they will not be obliged to compensate for the damage caused to the lessor (e.g., loss of profit). However, the force majeure circumstance does not affect the obligation to pay a contractual penalty or the rent itself. In case of force majeure, the lessee shall notify the lessor of the nature of the obstacle that prevents or will prevent it from paying rent and of the consequences thereof. Such notice must be given without undue delay after the lessee became aware of the obstacle or could have learned of it if exercising due care. Besides the termination by mutual agreement, another possible way to terminate the lease agreement is a loss of entrepreneur’s qualification which entitled the lessee to carry out the activity for which the non-residential premises were leased. The loss of qualification is interpreted as a loss of entrepreneur’s authorisation to perform the business, like loss of licence or trade certificate. The notice period for termination by a lessee must be 3 months, unless the parties agree a different period. 

Lessees should consider whether any business disruption insurance they hold will allow them to recover losses suffered due to the closure of the premises. However, there is a certain risk that COVID-19 as pandemic disease, will be excluded as a general exclusion from the coverage. Lessees could also consider declaring insolvency. 

Termination (withdrawal) of the lease agreement because of frustration might be applicable for the short-term leases covering the lease period during the COVID-19 precaution measures prohibiting using of the premises.

Portrait ofMichal Huťan
Michal Huťan
Partner
Bratislava
Portrait ofSoňa Hanková
Soňa Hanková
Partner
Bratislava