State of emergency and lease in light of Covid-19 in Latvia

Whether the state of emergency declared in Latvia is force majeure, must be assessed in each case individually.

On 12 March 2020, the Government of Latvia decided to declare a state of emergency in the country, which was later amended and supplemented several times. According to this decision, a state of emergency has been declared throughout the country until 9 June 2020 in order to limit the spread of the Covid-19 virus.

A number of restrictions were also imposed when the state of emergency was declared, such as banning the operation of shopping centres at weekends and public holidays. For tenants of retail premises, the question arose as to whether the emergency situation should be acknowledged as force majeure that would release the parties to the contract.

The answers differ among legal scholars in Latvia. However, it is clear that the decision on the circumstances of the emergency situation is not a priori automatically recognized as an event justifying non-performance of contractual obligations. The fact that “force majeure” is not defined in Latvian law also makes it difficult to provide an answer to this question, which has not been answered in the relevant government orders either.

In legal theory and case law, the concept of force majeure is based on four elements:
1. an event which cannot be prevented and whose consequences cannot be overcome;
2. at the time the contract was concluded, the party claiming force majeure could not reasonably have foreseen the event;
3. the event did not occur through the fault of that party or a person under its control;
4. the event makes fulfilment of obligations not only difficult but also impossible.

If the circumstances notified by the other party meet all these criteria, force majeure must be acknowledged. Particular attention should be paid to the fourth of these criteria, which emphasizes the impossibility of meeting the obligation in question and not the difficulty of meeting it. Therefore, even if all the other preconditions are met, but the fulfilment of obligations, although very difficult, is theoretically possible, then it is no longer force majeure.

Consequently, the state of emergency declared in the country and the restrictions imposed on the operation of shopping centres would not a priori be considered as force majeure circumstances which would in themselves allow derogation from the obligations of the lease agreement. Therefore, in circumstances where commercial activity is prohibited on holidays, it would be advisable for the landlord and tenant to agree with each other, although not required by law, on a possible reduction in rent or other relief.

In addition, each case should be considered on its own merits, starting with whether and how cases of force majeure are stipulated in the lease agreement between the parties. In any event, it must be possible to prove a causal link between the force majeure event and failure to fulfil obligations, in particular by assessing the nature of the business and the impossibility of continuing it.

Source: 1)      The Cabinet of Ministers of the Republic of Latvia, on March 12, 2020, adopted Decision No. 103 “On Declaring a State of Emergency” with amendments
              2) Judgment of 26 January 2011 of the Department of Civil Cases of the Senate of the Supreme Court of the Republic of Latvia in case no. SKC-11/2011

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