Confusion over commercial leases in shopping malls

Poland: New rules on leases of premises in shopping malls have not resolved problems but have even created more.

Regulations introduced on leases of premises in shopping malls have not resolved problems but have even created more.

Due to the pandemic, most shops in shopping malls unrelated to basic needs have been closed. New restrictions on business activity have raised doubts over the impact on commercial lease agreements, in particular the issue of paying rent.

The original draft of the Act proposed by the Polish government allowed a 90% rent reduction for lessees for the period when the lessee did not carry out operations in a shopping centre with a sales area of more than 2000 m2 during the pandemic unless the agreement provides a more favourable solution for the lessee.

This provision was immediately changed and the current version of the Act allows extinction of lease agreements instead of rent reductions. The unclear wording of the provision has given rise to numerous doubts as to interpretation, in particular as regards ‘mutual extinction of obligations’.

The legislator seems to have aimed at temporarily suspending the mutual obligations of lessee and lessor under agreements concluded between them. This would mean that the lessee cannot use the premises and the lessor cannot demand payment of rent. This solution would be highly unfavourable for shopping centre owners, who pay fees related to operation of the mall throughout the entire period of the restrictions, as some shops, such as grocery stores, remain open. There are also concepts that allow owners of shopping malls to demand payment for non-contractual use of premises or remuneration for storing items.

The unclear rules have resulted in mass termination of lease agreements by retail chains. Initially, this concerned only the largest Polish retail chains, but currently there are more and more small local shops with claims. However, it should be expected that the majority of shopping centre owners will not consider termination of lease agreements as effective if these are not based on appropriate contractual provisions justifying termination.

There is no doubt that with such unclear legal status, lessors and lessees of premises in shopping malls should strive to reach mutual agreement. A lack of compromise solutions may mean many years of costly court battles, the results of which no one can predict.


Source: Act of 2 March 2020 on special arrangements for the prevention, control and combating of COVID-19, other infectious diseases and resulting emergencies

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