Features of signing lease agreements during martial law

Martial law has been imposed on Ukraine since February 24 in connection with Russia's military aggression. This factor has a significant impact on the lease agreement in a very wide range - from those confirmed on February 28, 2022. Chamber of Commerce and Industry of Ukraine of force majeure to the active expansion of trade networks, manufacturing enterprises in Western Ukraine. Our company "Ukrainian Consult Group", whose office is located in Lviv, takes an active part in this process and based on the experience gained in signing leases, we will now talk about the features of these civil relations.

First of all, we want to draw attention to the validity of existing agreements. Confirmed CCI force majeure circumstances with the possibility of zero rental rate apply in the event that the operator is not able to some extent to work in the leased premises. Unscrupulous tenants try to speculate on this regulation with operating outlets, forgetting that the landlord is also a business entity and a taxpayer. When the point of sale is operating, the tenants are obliged to comply with the terms of the agreement on the payment of rent and utility bills. Regarding rental rate discounts: rent is paid in the amounts and terms agreed by the parties and signed additional agreements. Currently, the commercial rental market has discounts from 30% to 70% of the rental rate. The same rules apply in shopping malls and malls, with the amendment that during downtime, tenants pay utility bills (OPEX) in addition to utilities.

Now about the peculiarities of signing lease agreements during martial law. We would like to draw your attention to the fact that at present it is not possible to notarize these lease agreements due to temporarily closed access to state registers, so the validity should not exceed three years. According to the practice of our company for this period, agreements are concluded for a period of 6 to 35 months with the possibility of extension. The parties agree on a grace period for the military period, drawing attention to the possible forced downtime of the operator from factors independent of him, emphasizing the possibility of withdrawal of the parties from the lease agreement. The practice of "cascading" lease agreements is positive, in which the planned change in the rental rate in the direction of an increase for the entire lease period is affixed. Also an important topic for discussion is the adaptation of the premises for the tenant. Many operators are not ready to invest heavily in repair work due to the reduction of some hotspots and, accordingly, the solvency of the tenant. These issues are agreed by the equity participation in the repairs of owners and tenants. Where there is a lack of understanding of this issue by landlords, the signing of leases does not take place.

We also want to emphasize that according to the Civil Code, force majeure circumstances that last more than 30 calendar days in a row, or when such circumstances become apparent that such circumstances or their consequences will last longer, the tenant, or the landlord has the right to terminate the lease agreement by sending a notice. This information can be useful to tenants and landlords in the event of a massive decline in the solvency of the population, the occurrence of losses associated with interruptions in the supply of goods and services and, consequently, the inability to carry out further activities.

Ukrainian Consult Group will further inform and advise its clients on all issues related to our field of activity and wishes everyone peace of mind!