The Times They Are A-Changin’ – tenant-landlord relations in the pandemic

Two years ago, with the first attack of the SARS-CoV-2 coronavirus, everything changed. Like a large stone splashing into a pond, the pandemic has set off waves of consequences affecting our lifestyles, our economies and our work patterns. Their scale was initially not obvious, and only now can we gradually form conclusions about the new reality.

In just a few weeks, the time-honoured, and seemingly timeless, office-working model has been completely disrupted, with more and more businesses and employees opting for remote work for reasons of safety and convenience. However, as businesses have painfully learned, such flexible changes are more difficult to introduce in relations with owners of leased offices than in the case of employees. Office-space lease contracts, in accordance with the accepted market standard, are concluded for specific, long-term periods, and it is easy to understand that it is in the general interest of landlords to keep them in force at all costs. Their very livelihoods are at stake. Thus, the new reality could transform even a previously well-functioning lease into a source of conflict between landlord and tenant.

Rebus sic stantibus – say what?

While legislation aimed at curbing the negative economic consequences of the pandemic took into account the problems of lease agreements for shopping-mall space, disputes concerning offices and other non-retail spaces were left to the general provisions of civil law.

Many tenants therefore discovered that, under the mandatory provision of article 357¹ §1 of the Civil Code of 23 April 1964 (Journal of Laws of 2020, item 1740, as amended “the Civil Code”), if, due to an extraordinary change of relations, the performance of a service would be connected with undue difficulties or would threaten one of the parties with inordinate loss not foreseen by the parties when originally executing the agreement, the court may order the performance of the service to proceed in accordance with the provisions of the Civil Code. The court, after considering the respective interests of the parties in accordance with the principles of community life and good business practice, may determine the manner of fulfilment of the obligation, the amount of the service, or even decide on termination of the agreement. When terminating the agreement, the court may, if necessary, decide on the settlements of the parties, following the principles specified in the preceding sentence. This mechanism is referred to in Polish legal jargon as the “rebus sic stantibus” rule. Latin might have been banished from the civil courts of England and Wales at the end of the last century, but it’s still in the Polish statutes, serving to baffle and confuse. Rebus sic stantibus means ‘things standing thus’, or ‘things standing as they are’.

While the above provision appears to be the answer to the current woes of tenants left with an active lease on a huge office in a central location, rents running into the tens of thousands of euros a month, and only a handful of employees still showing up on the premises, one key question must be answered. Should the Covid pandemic, becoming after two years a kind of ‘new normal’, be treated as ‘an extraordinary change’, the occurrence of which is a condition for the activation of the tenant’s code rights?

Based on the opinions of lawyers and courts, the answer seems to be affirmative. The Court of Appeals in Katowice, in its judgment no. I ACa 644/18, explicitly mentions epidemics as an example of circumstances constituting such a change. Legal essays devoted to thorough analysis of this issue against the background of the current situation also emphasise that we have found ourselves in circumstances modelled on the rebus sic stantibus clause, which may enable courts to redress contractual imbalances that have arisen .

In light of these considerations, the impact of the pandemic on relations between tenants and landlords was also noticed by the Polish legislature, which, for example, regulated the terms of lease agreements for premises in shopping malls with an area of over 2,000 m² resulting in the introduction of a lockdown covering over 150 days, which clearly confirms the impact the pandemic had on the Polish business and rental market.

Legal protection even before judgment

Tenants affected by the consequences of this change in relations are now entitled to bring an action before the ordinary courts concerning the court’s application of the ‘extraordinary change of relations’ clause. As recognised in legal doctrine, the court deciding the consequences of an extraordinary change in relations may also decide to change the obligations of the parties – even before the judgment.

The many years of litigation pending a final judgment do not, however, solve the tenant’s current problem of having to pay rent that is disproportionate to their business needs.

The answer to this problem might be the possibility of obtaining injunctive relief – a solution that secures the interests of the plaintiff right here, right now for the duration of the initiated court proceedings (mainly based on article 730 of the Code of Civil Procedure of 17 November 1964 (i.e. Journal of Laws of 2021, item 1805 as amended). Under the Code of Civil Procedure, the motion concerning injunctive relief should be reviewed by the court without delay, no later than within seven days. In practice, this deadline is sometimes not met by the courts, but nevertheless the decisions are usually issued quickly and allow the actual protection of a party’s interest for the duration of the court proceedings.

For example, in an order issued on 7 January 2021 (in case no. XX GCo 303/20), the District Court in Warsaw granted injunctive relief to a tenant adversely affected by the post-pandemic reality. According to this injunction, the court partially suspended the tenant’s obligation to pay the rent for the duration of the proceedings. As a result, tenant only has to pay 25% of the contractual rent pending the outcome of the case.

The fight is just beginning

During our research concerning this issue, we have reached out the District Court in Warsaw, which has jurisdiction over many key office and shopping hubs and thus also handles disputes between tenants and landlords. We have been informed that, between 1 June 2020 and 13 January 2022,1,641 decisions regarding injunctive relief has been issued. And since 1 June 2020, there are around 200 active cases coded with the number 659, which stands for disputes concerning the determination of the existence or non-existence of a legal relationship or right between business entities. This clearly indicates the high interest in the legal possibilities of shaping or changing legal relations. Given the statute of limitations for tenants’ claims in this respect, future uncertainty concerning the pandemic, and dynamic changes of employee habits and employer needs, it is highly probable that the question of tenant claims vis a vis landlords will only become more pressing.

The text was published in Contact Online.