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Ukraine

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

Table of contents
  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?
Ukraine
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, the lessee is not eligible for a rent reduction, unless explicitly agreed otherwise in the 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?

The lessee is eligible to temporarily close its leased space, unless a duty to keep it open is provided in the lease agreement. However, the lessee is not eligible for a rent reduction, unless explicitly agreed otherwise in the 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?

No, the lessee is not eligible for rent reduction in such case, unless explicitly agreed otherwise in the lease agreement. However, the lessee may bring an action to court for rent reduction due to circumstances beyond its control, which led to the inability to use the property or to pay the rent. In such case the lessee is required to prove:

  1. an event of force majeure;
  2. inability to use the property or to perform under the contract or obligation arising from the law; and
  3. the direct causal link between 1 and 2

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

It is usually a deposit in the amount of one- or two-month rent. Bank guarantee, parent company guarantee or any other securities are also possible, but less common.

As an alternative to the option described in question 3, a lessee may bring an action to court for (i) termination of the lease; or (ii) a change of the lease terms (including providing a rent-free period) due to substantial change in circumstances. It would be required to prove the following:

  1. at the time of entry into the agreement the parties assumed that such change of circumstances would not occur;
  2. the change of circumstances is caused by events which an interested party, acting with all due care and prudence, could not avert after they arose;
  3. the performance of the lease would upset the balance of the interests of the parties and deprive the interested party of what it expected to obtain at the time of entry into the agreement; and
  4. it does not follow from the nature of the agreement or the business practices that the risk of the changed circumstances is to be borne by the interested party.

Authors

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Portrait ofNatalia Kushniruk
Natalia Kushniruk
Partner
Kyiv (CMS CMNO)
Anna Pogrebna