Temporary regulation of rent exemption to mitigate the effects of the coronavirus (COVID-19) epidemics

On 28 April 2020 the Slovenian Parliament adopted the Act on Providing Additional Liquidity to the Economy to Release the Consequences of the COVID-19 Epidemic (Zakon o zagotovitvi dodatne likvidnosti gospodarstvu za omilitev posledic epidemije COVID-19, ZDLGPE), part of the so-called “second anti-corona law package” (#PKP2). The Act establishes (i) the financial instrument of State guarantee for bank loans and thus liquidity for the Slovenian economy, and (ii) a temporary measure of a rent exemption in total or in part for lessees of business buildings and business premises owned by the Republic of Slovenia or by self-governing local communities. The full Act (in Slovenian) is available here.

The Act went through the quick legislative proceeding and will enter into force on the day following its publication in the Official Gazette of the Republic of Slovenia, meaning that it will likely enter into force on 1 May 2020.

This overview addresses the provisions regulating rent exemption for lessees of business buildings or business premises owned by the Republic of Slovenia or by self-governing local communities.

1. Current legislation

Real estate owned by the Republic of Slovenia or by self-governing local communities may be leased in accordance with the provisions of the Physical Assets of the State and Local Government Act (Zakon o stvarnem premoženju države in samoupravnih lokalnih skupnosti, ZSPDSLS-1) if its use is not temporarily needed by the operator or user of the real estate.

The rent can be paid monthly or annually. The ZSPDSLS-1 does not envisage the possibility of rent exemption or postponement of payment or reduction of rent for a certain period. Thus, the current legislation does not provide a legal basis for lessees of business premises owned by the Republic of Slovenia or self-governing local communities, who, due to the measures taken by the state to control the coronavirus (COVID-19) disease, either cannot use these premises and carry out their business activity on them, or whose business on these premises has been made impossible or uneconomical to carry out, to be able to request an exemption or deferral of rent payment or an appropriate rent adjustment.

2. Adopted temporary measure

The temporary measure of rent exemption is proposed in the following content:

• ELIGIBLE LESSEES: Lessees of business buildings and business premises owned by the Republic of Slovenia or by self-governing local communities, which are prevented or significantly impeded from carrying out their business activity due to the measures taken by the state due to the spread of the coronavirus (COVID-19) disease.
• PERIOD: From 13 March 2020 inclusive until the official cancellation of the coronavirus (COVID-19) epidemic in the territory of the Republic of Slovenia.
• SCOPE OF EXEMPTION: Payment of rent in total or in part.
• DECIDING AUTHORITY:
  • The head of the property manager,
  • The body responsible for the implementation of the budget of a self-governing local community, i.e. municipal council.
• ADDITIONAL CONDITIONS: The Act stipulates that the following conditions set out in point 3.1 of the Temporary Framework for State aid measures to support the economy in the current coronavirus (COVID-19) outbreak must be considered when deciding on a rent exemption:
  • On 31 December 2019, the lessee was not an undertaking in difficulty as defined in Item 18 of Article 2 of Regulation 651/2014/EU,
  • The total amount of rent from which the lessee is exempt must not exceed:
    • EUR 800,000, or
    • EUR 120,000 if the lessee is active in the fishery and aquaculture sector,
    • EUR 100,000 if the lessee is active in the field of primary production of agricultural products.
  • The total amount of co-financing of the same eligible costs, which is also financed from other public sources, may not exceed the limits laid down in the previous indent,
  • The rent exemption does not preclude the granting of de minimis aid and / or aid granted under the General Block Exemption Regulation, provided that the provisions of the relevant acts of the European Commission are respected.

The Act does not cover operating costs. The liability for their payment remains the same, unless otherwise agreed between the lessee and the lessor.

It is also not explicitly specified in which cases or under which conditions the lessee is exempted from paying the rent in total or in only in part. Thus, it is unclear whether the lessee is exempted from paying the rent in total and in part only if the total amount of the rent would exceed the maximum amount of exemption allowed, or whether it is within the discretion of the deciding authority to exempt the lessee from the rent in total or in part if the total amount does not or would not exceed the maximum amount of exemption allowed. The issue is not clarified under the Act’s explanation to the provisions in question, and we believe the legislator should have consider including clearer rules on the right to partial or total exemption from the payment of rent. In other words, we believe that leaving this decision under the discretion of the authority, entitled to decide on the rent exemption, is not the optimal solution.

The dissatisfaction with the provisions of the Act on rent exemption was expressed by the Slovenian Real Estate Association – FIABCI Slovenia, an NGO, which together with the Federation of Lawyers of Slovenia submitted proposals for amendments to the Act to the National Assembly of the Republic of Slovenia, the Government of the Republic of Slovenia and the Governmental Consultative Group already during the legislative proceeding. They believe that the issue of private, civil-law leases during the coronavirus (COVID-19) epidemic needs to be regulated as well, and on this basis they proposed some urgent corrections to the current legislation and the adoption of a specific financial measure of partial subsidisation of rents. The National Assembly did not consider the proposals but adopted the temporary measure on rent exemption for lease agreements where the lessor is the Republic of Slovenia or a self-governing local community only. The full text of the FIABCI Slovenia’s proposed amendment to the proposal of the Act (in Slovenian) is available at this website.