The procedure for withdrawing from the contract for the lease of commercial space in the rehabilitation procedure

The procedure for withdrawing from the contract for the lease of commercial space in the rehabilitation procedure

The COVID-19 pandemic has had a heavy impact on retail, significantly changing the relationship in the use of commercial space. Lease agreements concluded in previous economic realities were separated from the payment possibilities of many tenants. With the often ineffective judicial protection, waivers as part of remedial proceedings may constitute an opportunity for tenants.

In the event of an extraordinary change in relations, which the parties could not foresee at the date of the conclusion of the contract, the tenant has the right to apply to the court for protection – change of the terms of the contract, or for its termination. Practice shows that this demand – undoubtedly adequate to the conditions of a pandemic – is often not sufficiently understood in the courts. In two published decisions of the District Court in Warsaw1, tenants did not obtain security by changing the terms of the lease for the duration of the trial. The courts indicated, inter alia, that in order to obtain security, it would be necessary to prove the global situation of the company, the inability to change the sales formula, as well as information about the use of support from anti-crisis shields. Although other rulings are also made – favorable to tenants, the examples cited indicate that the court procedure in this case is quite bumpy and does not provide some protection against contract imbalance.

In a situation where the entrepreneur operates in the form of shops or service points in many locations, a significant need is to reduce current costs by resigning from some unprofitable premises. However, the unilateral termination of cooperation before the term of the contract is associated with consequences – the need to pay a contractual penalty, the continuation of charging the rent until the end of the contract, the risk of enforcement under a notarial deed or payment of a bank guarantee. In the event of withdrawal pursuant to Art. 298 paragraph. 1 pr. rest. the tenant gains the opportunity to terminate the cooperation on favorable terms.

When the declaration of withdrawal is made, the contract expires with the effect of this action. It ceases to bind the parties in terms of its main provisions (handing over the premises for use and paying the rent), as well as incidental provisions – e.g. provisions regarding contractual penalties, the obligation to conduct business. The tenant should hand over the premises, and all settlements between the parties are made on the basis of general code regulations. The consent to the withdrawal does not imply that the manager is obliged to use the declaration of withdrawal. As part of the negotiations, the parties to the contract may change its terms, changing the profitability of the contract for the debtor and thus waiving the need to resign from the contract.

The decision of the judge-commissioner on consent to the withdrawal is effective upon its release. This means that the declaration may be submitted in the first days / weeks after the opening of the rehabilitation procedure. The decision on consent is subject to review by the restructuring court as part of the complaint. However, it is not clear what effect the revocation of consent by the appellate court has on the declaration of withdrawal (upholding the appeal). Reversing the effects of withdrawing from a lease is usually very difficult, both legally and in fact. This issue may cause disputes over the content of the rights and obligations of the parties after the consent of the judge-commissioner is revoked.

It should be noted that requests for waiver are accepted by the courts at every stage of the remedial procedure. Therefore, there are no obstacles for the application to be filed also in the event that the burden of a given contract has revealed itself after the opening of the restructuring procedure. Nor is it necessary to submit or approve a restructuring plan for the application to be effective.

Motions to the judge-commissioner are examined in closed session. The content of the contract and the significance of the withdrawal for the improvement of the debtor’s situation are examined in the proceedings. The purpose of the withdrawal – indicated in the application to the judge commissioner – should coincide with the objectives of the remedial proceedings (Art. 298 (3) of the Restrative Act). This means that when examining the application, the judge-commissioner should examine whether the termination of the contract will improve the economic situation of the debtor and whether the application is aimed at restoring the debtor’s ability to perform obligations.

In the proceedings before the judge-commissioner, there is also the protection of the contractor. It consists in examining whether withdrawal from the contract does not violate the important interest of the other party to the contract. In judicial practice, however, it is assumed that the loss of the expected revenue from the contract does not infringe this interest. In such a case, it is considered that the individual interest of the counterparty has been subordinated to the collective interest of the creditors.

Withdrawal from the lease agreement in rehabilitation proceedings is an instrument that may significantly affect the functioning of the debtor’s enterprise. In the current situation, where numerous lease contracts are a burden for tenants, the use of this particular regulation is likely to constitute an effective restructuring measure.


1 Provisions of SO in Warsaw of August 13, 2020, XVI GCo 195/20 and June 18, 2020, XXVI GCo 109/20.

Portal created by:

FilipiakBabicz.com

Our Social Media

Newsletter

Simplified restructuring

Join the newsletter to download the e-book in Polish

NEWSLETTER

Subscribe to the newsletter and receive additional information